Home equity lending in Encompass: The ROI makes it a "no brainer"

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Welcome to our open house. Instead of examining hardwood floors, closet space, and kitchen layouts, we're taking you on a tour of what's happening across today's mortgage industry. During each episode, we'll hear from industry leaders and subject matter experts to give us an inside look into a hot topic, Cuttingedge technology, or new trend that can help accelerate your digital journey. Thank you for joining us. Come on in.

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Hello and welcome to another exciting episode of the ICE Mortgage Technology Open House Podcast. My name is Aaron Dormio, Senior Product Marketing Manager here at Ice Mortgage Technology and I am super excited to be talking about a topic that I mean really seemingly on everyone's minds in the mortgage industry today. As most of you know rates have gone up and new home purchases and Refi's are down quite a bit since Q4 of last year of 2021. On the flip side however, equity has drastically increased.

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And what borrowers are demanding now are opportunities to tap into their available home equity. My guest knows a thing or two about these changes in the market today and has some thoughts to share. I'm joined by Margie Ambrosio, Senior Vice President of Information Systems at George Mason Mortgage. Margie has dedicated her entire career to solving for customer demands in the mortgage industry and her background provides a unique perspective on what lenders could be doing now to meet this new demand. So with that, sit back, get a fresh.

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Cup of coffee and enjoy the conversation. Hey, Margie, thanks so much for joining us today. How are you? Thanks for having me. Good, good. Excited to talk about such an important topic for everything going on right now. Yeah, absolutely. I wanted to take a quick moment and really thank you for joining us at Experience your your participation as as a as a thought leader in the industry, particularly within our building a culture of automation session was fantastic. And I really just wanted to thank you for for being such an incredible voice. I know that not only your team at George Mason.

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Mortgage, but also you know everyone, all of our colleagues of the audience, they got a lot out of that. I thought it was a very, very powerful session and you were a very powerful speaker during that. I want to thank you for that. So thank you so much. Experience is always fun when you get to be a part of such a panel. It's certainly an experience pun intended, right, fast forwarding into now, right. So the industry, there's various different things with an automation that are pushing lenders to making decisions and now we're seeing the the industry move into.

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It's still a very strong purchase market, as Bob said at the keynote with Parvesh and experience. That being said, there's a lot of equity out there in the marketplace. But before we talk about that, I wanted to kind of delve into your background. You've a very interesting background. You've been very thoughtful in how you and your teams solve for customer demands and customer issues. And I wondered maybe have you, if you're OK with that, talk about maybe kick things off with how you've

worked throughout your career in solving for customer, customer needs and demands. I started my career.

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As a processor, very one-on-one with the customer with what the customer was experiencing and how the system, how your Los truly influences your customers experience might not think that that's happening. You're thinking me LO is the driver of that.

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But how your Los functions and flows drives your customers experience as much as your employees because it may be demanding more of the customer than you need to or it's disjointed and you're asking the customer for things at the wrong point. So I've tried to take in my career and use that as my focus feel now of how are you using your Los and all information system to ease the loan process through what works for the customer when the customer knows it's working for them and what's working for the customer.

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When the customer has no clue what's going on behind the scenes, borrower doesn't have any clue about a flood Sir, right. Unless they need to know and then they don't want to. But there's no reason for the processors focus to be there when it doesn't need to be. So stuff like that that as your systems going through your Los is driving your customers experience and I've taken that to grow, you know as my career has grown. It's not just your Los driving your customers experience, it's your processors, your loan officers, your post closed and how your system flows through the life of the loan and generates.

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The life of the loan, that's a wonderful point and I and I think you make a good distinction there when talking about the life of the loan. I'm a lot of borrowers now are choosing A lender that provides them that world class experience right throughout the life of the loan. As you said. You know now that we're seeing still you know rates are increasing and new home purchases are down, but we are still in the 4th or the maybe I think it's the 5th largest purchase market in history. And with you know with that being said there's a huge opportunity for all lenders to be really creative.

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Not all lenders are interested in in manufacturing home equity particularly, he locks. There's there's a there is a subset of lenders that are doing that particularly larger institutions.

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There's definitely ways that lenders can be creative in really helping borrowers tap into this increased equity. I was hoping maybe we can get maybe you can provide some insight into you know what are some of the ways that lenders can be can be creative and to your point through home equity lending help borrowers through that life of the loan. I gotta say he locks have always historically at least in my mind been a bank thing. You need to he lock you go to your bank they're not anymore there are outlets for you know Imb's to do he locks for.

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You know, obviously banks can still do them. They're easy. Especially in a market like today where you had such a boom the last two years, the rates were so low, people were just happy to get into homes, right? Maybe you bought the house that needed that bathroom because you were able to get into that house. You know, your bid. Finally, you finally got a bid that was accepted, right? And so you, you kind of have a few things that you were going to live with.

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Well, you're done just living with it and now's the time to fix it. You'd be silly to reset your rate on a 30 year. Now is the time you got to have these options available for your borrowers. And when you're on Encompass, it's a plug and play. Your biggest hurdle is getting your investor. Once you have an investor and it's the knowledge for the employees, you know, we've been doing home equity. We did them through the boom as well. It's the difference of the type of loan. That's really how you have to.

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I would say your biggest hurdle are going to be education, teaching sales how to sell it, teaching them what it is. Majority of sales nowadays haven't worked in a market where they needed to know what home equity was. So. So teaching them that and then getting an investor those those are your biggest hurdle. So why wouldn't you do it you you know there's the refi, there's you know you're always going to speak out those products that bring in loans when they're seemingly aren't loans and this is the type of product that's going to do that. It's interesting that you.

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You referenced borrowers. They may have made a big purchase back in either 2020 or 2021. They found they were happy to get into a home, maybe it was a larger home, but there there was a few things that they're able to live with and now they're looking at these things that they've been living with for the past two years. I laughed because I'm, I'm living this right now. We should have gotten at home. They had to finish basement. Now we have to finish this basement and we're we are going through that literally right now. I think the hardest part for us is finding those contractors.

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That aren't looking to shall I say take all of our money right. Make you rebuy the house. I mean you just try to add a bedroom you're gonna pay for the house again. That's right. That's absolutely right. And looking at the grand scheme of things for for lenders they have to be able to educate their sales teams on how to sell home equity. I remember you you also made a made a mention offline of these lenders need to start marketing to their to their borrowers to their customers, right. I was hoping maybe you could talk more about that as well. You're not the only one who's regretting.

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The basement or the bathroom or and I think the communication and it's not even I go as far as to say it's not marketing, it's communication. You don't have to live with it. There are options. I know everyone was going to mile a minute during those booms, but you'd hope that your sales had enough of a relationship with that client.

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That when they reach out and even if it is a canned marketing message of like still happy with that purchase, need repairs yet that it has that more personalized field just because of that relationship and that's how you're gonna get those loans in through that marketing.

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Through that communication to your borrower of hey, we're still here, you don't have to do your parents 30 year fixed refi to get that equity out. There's options. You can keep your historically low rate and get your bathroom and get your, you know, your basement. There are options and the only

way they're going to know that is your marketing, cuz if you're not marketing it, their local bank, their local credit union.

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That's where that loan is going to go. What are some of the communication channels that you've seen that are most effective for lenders to communicate to, to their customers, to their borrowers? There's always the traditional, you know, journey emails, you'd say to market both. I think a really good way for something like this is a social media marketing. You're a homeowner. I'm sure someone, either you or your wife has got on maybe to Facebook to look for a review for a contractor, if you're looking on Facebook or you know, Instagram or one of those social medias for your contractor.

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Why not find your financing options there too? So I think definitely socials is a big one for this. I think the good oldfashioned phone, and I know people are probably going to yell at me for this one. How archaic. Listen, we're in that time where what makes you different matters? And could you imagine going retro and actually calling someone and, you know, obviously leaving a message because no one's going to pick up.

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But saying you know hey just looking at your file you've been in there for a few years you know how how things going with the house if you're thinking of refinancing thinking of you know please call me before you refi it's you know it might not be the best option for you. We got so many phone calls Oh my goodness. Now that you say that I'm I was I'm thinking about the process that we went through. We must have had like at least a half a dozen lenders three of those six didn't even we didn't even apply through them they just found our information because everyone shares information not to scare off.

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Our listeners here to take out and you complete an application, but it happens and there are lenders that do take that more traditional route of reaching barbers. Please go ahead to 1 to interject with that. But it's true, there's it's a name and a number and a voice that you remember that for some of these people.

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Help them get into a home that they had probably been searching for for months, possibly a year or more. There's that connection that I think matters. I think that that's your best marketing. Yeah. I agree that or get getting good with the builder who's gonna request you as soon as the person comes to you. And you know their estimate is through the roof and they know that their people need financing. That's right. That's right. Yeah. The preferred the preferred lender, right. As the other builders say, right. What what would you say is maybe perhaps the hesitation for some lenders to not take advantage of.

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Of this opportunity that we're in, the market conditions that we're in right now. I think it's two things. I think one is the stigma. He locks are scary if you don't know them, which is so ironic because he locks are so easy. They're plug and play. They're if you can do a full 30 year fixed loan, you can do a he lock. You have to unlearn some stuff more than learn things. But I think it's for sure. It's the fear of the unknown. It's never really been a territory for anyone.

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To dive into outside of your local banks or your credit union, it's not something that people normally touch. I think the industry has just been in a state where we haven't necessarily needed them recently. Perhaps the the panic after the fallout of 20, you know, 2008 has made people shy away from a loan like a HELOC, but they're not scary. There are places to sell them, there are places to do them and I I really think it's the unknown.

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They don't know what, they don't know you're behind the 8 ball. If you're not doing it, don't reset your borrowers rate just because that's what you feel more comfortable with like you know give them the options that's best for them. I like how you, you know, you kind of you made the distinction of you know Helox might be a bit more risky right, just because of the terms overall home equity lending. Maybe you can help to guide our our listeners on what the differences are between.

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You know he lock in a HE loan like you said, sometimes the sales teams that are selling these products, they need to be educated on those differences. You know, variable versus fixed, revolving versus not revolving, just a flat out loan. Maybe you could take a little bit, maybe a couple minutes and a couple minutes and help our audience learn what those distinctions are. So you're gonna have a he loan is more of your traditional loan on your equity, right.

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Your key lock, you're going to have more of like A and this is not a bank term, so you know don't use this, but it it's more of like a checking account on your house. You're going to write a check based on your equity. With most key locks, you pay far more interest than you will principal for the life of the loan. With key loans, you'll be paying more principal and interest. So I think a lot of people feel more comfortable when it comes to a key loan. Our ancestry through the industry has taught us that maybe.

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You know I O isn't always the best to go. So a lot of people feel more comfortable with the he loans, which is understandable. You're going to find more options that are variable through your he lock versus your he loan. You'll have more of a fixed rate option. Again, you're you know there's principal and interest on those payments and it's a fix and there's different kinds of He locks too. You can have a he lock and just have this open-ended checking account that you have these checks to for your your home equity right. That you never write a check. It's just always sitting out there and you know it's almost like your rainy day fund.

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If something happens, you know you can tap into that and it's open and ready for you. Now there's other key locks where you take what's called a draw at the table. So when you sign, you say I'm gonna have an open-ended line of $100,000, but I'm gonna take 25,000 of that at the closing and you still have that 75 that you can play with and that you can leave and never touch. You can leave it until the boiler goes or you can, you know.

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And then tap into it. Or you can just leave it. So when it comes to your equity, it's yours, right? You can have a loan where it's solid and you know it, you're paying it, it's done. Or you can have it where it's almost like an overdraft fund or a rainy day fund and you tap into it when you need it. Or you can

just tap into it and pull some and leave some. Your options when it comes to your equity lending is and almost say it's endless because there are.

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When you look at he locks, there's different structures of what kind of loan it is. And that's one of the really cool things about using Encompass is that you're entering in your rate and term situation, you're putting in what your rates are when your adjustments are, and the system knows what kind of he lock you're doing based on that information and it's going to generate the documents you need.

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To be compliant for those terms the system is smart enough to know how you're flowing your loan even sometimes when your users are not. I really like how you made that call out to encompass and how and how easy based on how how easy it is for your Los to understand the loan that that is being input that's being processed right. It's really important to have that have that you know ability to leverage the right Los for for your programs. I'm glad you mentioned that. I'm curious though you made you made a really important comment.

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Pertaining to, you know, teams that are looking to manufacture and and take advantage of of of home equity lending and there's a few things that they need to unlearn. What are some of those things in the back end?

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Taking a look at lenders that you know, very traditionally, perhaps, you know George Mason Mortgage as an example, have traditionally done home equity lending and there's some of the things in the back end that needed to be on, you know, unlearned some of the things that needed to be modified. Maybe you can speak to some of those things for for for lenders that have traditionally done home equity lending, but they kind of went away from it for a little bit, right. The market conditions always dictate that and now they want to go back into that as an option for borrowers. Yeah, it's funny. I think the biggest thing.

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And and I have to laugh because this is our biggest hurdle for us was you're undoing everything. You know, when you're putting rules into your system, typically you feel pretty strongly that it's needed and it's, you know, you're really doing something good and you're fixing something or you're, you know, you wouldn't do all of them for heat lock. It's kind of like if if your rule isn't for Honda or it's not something for like your, you know, compliance reporting, you don't need it.

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You know you still have some of your triggers and some of that stuff, but for us for sure it's a totally different milestone workflow. They're not as intricate. There's not as stringent of a underwriting process. So you know you're not doing any automatic underwriting, you're they're all manual because of the nature of the relationship when it comes to doing a HE lock, 9 times out of 10 you have every document you need at prop at application. So the loan goes.

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Goes right through processing, you know it it you have everything you need application it goes right through and boom, it's an underwriting and that quick. So there's a lot of those processing milestones or functions that you have coded to in your system that are so important for a traditional loan that you need to bypass to do a heat lock because otherwise you're slowing down the loan manufacturing process for things you don't need. So for us it's really the unwinding you know getting it on its own milestone workflow, getting all the rules to.

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Not fire, which you I think is for most system administrators just doesn't seem to make sense. But it really is. It's a is it Honda Okay. I'll keep it. It's a compliance even some compliance. I'll modify it. I might not need it. You know what automated services are running or what have you built that's automated that you no longer need that you need to, you know have the caveat harmed out for these loans. That's that's your biggest system workflow. Work on these.

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Is undoing you know what you put so much pride into building. So if if I hear you correctly, what you're saying is there's really no need to have a million different business rules for something as simple as a home equity lending program, right. There's no need to kind of overdo it and just long gate the process unnecessarily. You can have a two week turn around time on home equity lending versus a traditional, you know, 30 to 45 days for yeah, you should. I mean you if you're over two weeks on a HELOC there's something.

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Linked within your system or within your workflow that's causing that or appraiser. I guess you always have to give that little bit of a credit where it's due that sometimes the appraiser has far more control than you know they should. Yeah yeah I know it's interesting. The lender that that we worked with. I won't name them. I didn't even know that they were they were on Encompass. I asked them at the end of the process I asked them hey by the way this was pretty quick what what what Los are you guys do you guys use And they said oh we use Encompass. Interesting. OK.

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So I mean it's it's that easy as long as you can undo and not just in your system, but undo it in your head too, which I think is you know possibly harder, dare I say just do the bare minimum then you're okay, right, right. Doing the bare minimum while while being completely compliant in the in the process, correct, right, right. What are some of the recommendations that you would have for for lenders they do home equity lending?

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Right. It's it's part of their, it's part of their DNA but they're not doing it the way that they that they could. They're not doing it really the way that they should. They're not leveraging an Los that processing a home equity loan should not be difficult and through through Encompass a great deal of of that work is dynamically generated, right a great deal of the documents and disclosures. It's all dynamically generated through Encompass. What are some recommendations for our customers that are not doing, they're not you know.

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Fracturing their home equity lending through Encompass. What are some of the recommendations that you would have for them whether they do it through Encompass or not to identify you know there's a better way to do this. There's a more efficient. There's a more compliant way to do this. I think you need to see your process from the other side. Be a client whether it be real or fake. You know really really big. Into that and I think you'll find that your system like you said Encompass is dynamically programmed out-of-the-box you're putting in your.

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Your information, whether it be from your investor or from your product department, telling you exactly what it is and you can have confidence in knowing that you're compliant document wise and stuff like that. So take that pressure off and focus on your process. What are you doing that's extra? What are you doing that is disjointed to a HELOC process? Eliminate it.

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It's going to feel weird. We've been conditioned where things are very we over document. We overdo, right? Be compliant for sure. But wherever you can overlap your processes, do it. Don't. But don't overdo it. An important thing for us when we put our He locks onto Encompass was getting them out of the old system and getting them into the same system. The amount of work that was eliminated of, you know, now all of our He locks.

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All of our document work is already done. We already have our E folder for everything, so we're not overdoing that work. But at the same time we now know that all of our documents, key lock in or otherwise are in the same, you know, repository where everything else is. So now we have the beauty of totally different loan type, but they're all in the same place. When we were talking about putting our key locks on to Encompass, I said well it's as if we would we wouldn't put FHA loans in this system and conventional loans in this system.

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So why don't we just think of these all as mortgages and put them in the same system? So I think a lot of people that are doing key locks aren't thinking of Encompass as a key lock provider. I think that a lot of them are thinking that they have to stay in those older, older systems.

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And keep them disjointed. Keep them outside of your your Los keeping, keeping them outside of your system of record. At least for us, that's what we were doing. We had two systems of record and it's a mess. You know I said before about your hum rules are so important. Try doing humdad a few different systems and putting them together and then this one has rules system doesn't have it it it makes things so much harder than they have to be. So look at your process, not only from the borrower side.

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From your employees side, right, whenever I have a big change coming up, I love to sit down with my users and have them walk me through what they how they would do it and how they're using the system today. No matter how much you code and you build and you design, I guarantee you that not every one of your users is using it the way that you've designed. So if you build a new process off of the process you built, it will have even less adoption than the process before that.

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Because you're building off of a non adopted process, it gives you an opportunity to right size your old processes and it also gives you the opportunity to build something that will have a higher option of adoption just simply based on the fact that it's how they how they would be doing it anyway. So why not build it to that. It sounds like there's a great deal of value that comes out of moving home equity lending under a single system of record. Oh the ROI, yeah, I mean the, the time.

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That's, you know, you can get back this year, you know you're only paying for one system of records. That's an incredible amount of ROI about. But the amount of time that we saw in the east of Honda was night and day. You couldn't could not at all, you know, knock that. Also the documents, we had a very archaic system of pulling the documents out and then having to manually itemize them and then and then upload them, not having to worry about pulling documents out of the old system and putting them into a new one, the amount of time you gain on that.

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Again, the amount of money you gain not having to do that and that was part of our decision to invest in the automation of that DAC process or do we invest in the software that's going to, you know, keep us compliant throughout the changes of Helox as well. I think and this is you know my crystal ball, that Helox are going to gain in such popularity within the market that products that gain in popularity quickly gain in regulation.

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So I think you're going to see some, you know some changes that come too and knowing that you have ICE mortgage technology behind you for those changes, at least for me that gives me comfort in knowing that my products can evolve and can say knowing that you know I've got a partner that's going to keep me compliant as well. There's something to be said about a product right in a solution that that grows with your business as the as the industry changes, as the regulations change.

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Having, having that, that the Los, having that platform that that grows with you and helps you, guides you through these different regulations and levels of compliance within within the industry is is just invaluable. Absolutely. Well Margie, this has been an awesome conversation. I really appreciate your time. We could we could discuss this for another another hour easy, but unfortunately I don't think our listeners want to hear me talk to you for an hour, they rather hear just you talk for now.

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Thanks again for for joining us and we look forward to having you having you back. Thank you so much. Thanks so much for having me. I appreciate it. And that concludes another amazing episode of the ICE Mortgage Technology Open House podcast. Be sure to be on the lookout for future content, including some of the industry's foremost experts on automation underwriting and home equity lending. As always, stay safe out there. Thank you. See you soon.