The mortgage industry continues to experience its fair share of shake-ups. As the fed raises rates and we’re seeing consumer sentiment at all-time lows, trusted financial advisors are needed now more than ever to help consumers navigate choppy waters. In this episode, Total Expert Chief Lending Officer Dan Catinella joins Joe Welu to break down the recent headlines and find the silver lining among tumultuous times.
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Tales From The Trenches With Dan Catinella
I am super pleased to have with me Mr. Dan Catinella, who is the Chief Lending Officer at Total Expert. This is the first time to had you on the show as a part of the Total Expert team. Great to be with you.
I’m excited to be here.
What do you think of the week?
It was an interesting one, for sure. Fed made a big adjustment, which everybody projected. Another 3/4 point adjustment. I’m hearing that they’re quoting in 7%. There were certainly some new challenges for them out there.
We’ll give the audience a little bit of context, but both you and I have been on the road extensively.
Where are we at now?
I was trying to remember what city I was in. I’ve been to Boston, Cincinnati, Vegas, Atlanta, and somewhere else. You’ve been where?
I’ve been in digital mortgage and The Mortgage Collaborative. It’s been a whirlwind.
You were in Chicago doing digital mortgages. The unique part is that we’re both having a lot of conversations with executives in mortgage lending and executives in the tech partner community that serves the lending community. We’re also talking to some of the salespeople as well.
They are top producers all across the country.
Let’s maybe break down a little bit of what’s going on fact-wise in the market. As we mentioned, Fed raised rates, and rates are quoting into 7%. What are some of the other data points that a lot of people are talking about? Give me feedback.
We got home price appreciation. We’re starting to see a level off all across the country. I’m listening to other economic people that are a lot smarter than me. They’re projecting some dips in various geographic markets. We’re going to see some of that. Ultimately, mostly flattening in appreciation trends, as we would’ve expected at rates increasing at the rate they have. Customers still have all-time high equity. We’re trying to figure out how to leverage that equity and place them into different products. We’re also seeing customer sediment at all-time lows according to Fannie Mae’s purchase of the consumer price index.
Fannie Mae came out understandably so, with prices still pretty elevated. The amount of money that it takes to have that monthly payment has gone up massively. We’re finding ourselves in this interesting environment where you’ve got elevated rates and home price appreciation. What’s interesting is you’re starting to see the signs of the market correcting itself. We were talking about this.
We are rebalancing the market to the pre-pandemic level.
It’s a good part about this market versus a lot of people being pretty fearful right now. We’re both spending a lot of time talking to the leaders, getting their perspectives and how they’re seeing. What do the facts tell us versus the buzz and the fear, which tends to be people to panic short-term? Long-term, people are incredibly bullish on the US housing market, in general. Homeownership in America, nobody is betting against that long-term.
Talk about consumer sentiment. It’s somewhere around 73% of consumers who don’t think it’s a good time to buy. Obviously, most of that is driven by the media. We know the media is always going to project most of the negativity and not necessarily optimistic.
It’s never really as bad or as good as they ever say it is based on my experience. Do you agree?
Absolutely. What we’re seeing lenders do is be at the forefront of that information stream, make sure that they’re educating consumers, and creating winning strategies that are still applicable to this market now. To your point, as far as demand goes, there is still high demand for homes. That’s never going to go away. How do you put together and help consumers get into those dream homes? In any market is where we’re seeing some of the lenders focus.There's still high demand for homes, and that's never going to go away. Click To Tweet
We were in Cincinnati. Samantha, one of our sales engineers, was with me and we had a few of us out meeting with an executive team and a team of top producers, talking about the next twelve months’ strategies and priorities. It was interesting that Samantha had bought her first home. It just closed. I’m like, “You have an interesting perspective right now because a lot of people are like, ‘Nobody is going to buy a house.’”
She walked me through. “My payment is higher than it would have, but it honestly took us two years to find a house. We’re looking at it as, ‘We’re going to pay more right now, but we get to own our own house. We get to build equity and divorce our landlord,’” which is one of my new favorite terms. She’s like, “This is a long-term life decision for us. We want to be homeowners.” People forget that that underlying need is not going to go away.
Marry the home, date the rate, and divorce the landlord.
Where we’re going with this is a lot of the conversations I’m having and the ones that you’re having as well. The people in the trench like the top companies, top originators, and top practitioners, are saying, “Everybody that purchases a home from me right now, I’m going to help them refinance 3 or 4 times over the next couple of years.” Do you agree with that one?
A hundred percent. It’s the same thing. In most cases, home appreciation is still going to tick up, so there’s a cost of waiting and not purchasing that home. Even though we may be locking you in a 30-year mortgage, it’s going to amortize over 30 years. There’s going to be an opportunity when rates do come down for us to talk about a refinance and another transaction to lower your monthly payment, but let’s get you in that dream home.
I’m going to shift gears a little bit, and let’s talk about what a lot of our readers want to know. What are their peers saying? What are they thinking about? What are they working on? You’ve had a lot of executive-level conversations with banks and lenders, some customers, some not customers. You’re really plugged in. What is the pulse saying? What are you hearing and the themes?
Certainly, number one is cost reduction. How is my organization starting to look at building the right operational model for the new capacity that I need? That continued to be a trend, and I would see that through the end of 2022 continue to be a trend.
I hear some of the same. It’s lining up my fixed cost from an operations perspective and making sure that I look out for the next 3, 4, and 5 months in every right-sized operational expense with my sales volume.
Looking at your tech stack, too, and it goes beyond the staffing model. That’s a big component and usually the number one expense on everybody’s balance sheet. Also, looking at what other investments am I making? What partners am I investing in? Are they providing the right level of return on investments? It’s a huge one.
Some of my conversations are like, “Give me your feedback and see what you’ve heard,” but I have been looking when the markets are crazy. You’re adding people. It’s like, “Let’s throw headcount at it.” There’s a new tech tool. It’s like, “Let’s buy it.” Nobody looks at running a business like you should be running a business. These exuberant markets insulate a lot of bad decisions.
You start being a little less strategic and start being more of, “Let’s run after the next shiny object.” That’s what organizations are looking at and evaluating. They are like, “Have we done a good job of implementing this? Does it align with the rest of our tech stack? Does it provide value for our business?”
Largely, one of the benefits right now is volumes have slowed down in most of the companies that have the leadership, including banks. Banks are certainly looking at-home equity products. We see a lot of independent banks that are putting home equity products. Some of which are starting to get into insurance and looking at it very differently. A lot of them are saying, “This, right now, is an opportunity for us to think about the next year to two years and then make some adjustments. Micro or macro adjustments on strategy systems, people, and teams dial in the business.” Is that what you’re hearing?
Product diversity is a major trend in the industry. You got a contraction going on in your traditional, conventional forward business. How are you trying to supplement that with additional revenue streams? The easiest one is to expand the box and try to cast a wider net out to a consumer base to serve more customers.
Like your cases, am I looking at HELOCs to tap into a trend of increased equity in the market? Am I looking at reverse mortgages and getting into that market? The Baby Boomers are producing somewhere around 10,000 consumers eligible for reverse mortgages per day. Non-QM is another big trend. Can I look at non-traditional income-qualifying borrowers and cast that out there to attract and serve more customers?
A lot of what you’re telling me, the conversations that you’re having, is they’re being methodical about saying, “The market is what it is. We can’t control what’s happening with rates and what necessarily is going to or not going to happen with price appreciation, but we can shift strategy.” What I’m hearing you tell me, and I would say it definitely is some of what I have heard as well, is let’s go down the list and find the levers that we have to drive revenue and growth. What are the levers? What you’re saying is, expanding that product mix is a big lever that can be controlled, and we’re going to see more on that. Do you agree that we’re going to see more innovation?
We’re definitely going to see some more product innovation across the board. It’ll probably make some originators a little uncomfortable. It’s got to be implemented the right way to not create friction around the originators. Originators traditionally aren’t that keen on selling a HELOC program from a financial aspect. It doesn’t always make a lot of sense, but if it’s a frictionless process and it allows them to keep a consumer in their environment. It’s a win, long-term, that they can then service that customer for the next mortgage transaction.
Do you think this has forced a mindset shift for a lot of originators?
The short answer is yes. 9 out of 10 originators I talked to have completely changed their mind to more of an advisory role. The transactional loan officers, if they’re not exiting the business already, will shortly be. The guys that will be in this business long-term over the next 10 to 20 years will be the guys that are advisors. We’re certainly seeing the local mortgage advisor winning this market.
It’s this resurgence of, “I’m in your market. I know the economic factors and housing pricing that impact your community.”
They own their real estate agent relationships, too, which is the primary source for purchase business.
We talk a lot about consumers got all these different financial milestones in their life. Great brands, originators, advisors, or whatever line of the business you’re on think about it holistically. They think about what’s going on over all these different financial milestones and how I can be a partner along every one of those. In the last couple of years, people were like, “I need to close my deals.”
When you got deals falling out of the sky, whether you talk to a consumer or not, they’re coming to you. 2022 shifted back into the mindset of I’m back to a hunter and gatherer versus a rainmaker coming out of the sky.
It’s funny because I was having a conversation with a group of originators. I’m like, “You didn’t think it was that easy, did you? Did you forget?” When you and I were coming up in the industry, you had to get up and hunt for your food every day. You had to go find a business.
Two years is a long run to be able to have deals falling from the sky. I get it. It’s easy to forget, but most of the guys have been in the business for much longer than that.
Do you think the cycle is going to be good for the industry overall?
We talk about this all the time. The industry average is still 1 out of 5 consumers come back to the same originator and/or a lender. Our industry is one of the lowest if you look at all the industries out there.
It’s 20% retention of customers.
It’s not good.
We see that across the board.
The big shift that’s going to happen next is seeing that shift to this advisor role. We use data intelligence that surfaces opportunities to make sure we’re staying in front of customers in the right way, surface the next opportunity, and be more of that advisor than ever before.
One of the words that I’ve heard a lot from conversations that I’ve had is, how do we show empathy to our customers and partners more than we have before? It’s something I hadn’t heard for a while.
We used to use the saying, “Serve your customers, don’t sell them.” It’s the same humanized serve. Those are the mindsets that originators are starting to focus on. It’s like, “I may serve you with a HELOC now because I really think that’s the best solution for you financially.”
What you’re saying is people are saying, “I need to help them make good financial decisions.”
I may position a cashout, but they may end up with a HELOC. If that’s the best way to serve them, then I’m going to offer them the HELOC. I know it’s going to build a long-term relationship and trust that I’m going to get their next 2, 3, or 4 transactions down the road.
How many of the conversations that you’re having are related to, in some way, shape, or form, maximizing the lifetime value of a customer?
More so than ever before. We talked to a bank or a lender. They are looking at every customer they acquire and mapping out their entire financial journey and all those milestones as you mentioned. They are figuring out how do we engage them at the right time. How do we know when the next opportunity presents itself to take an advisory role?
How do we educate them and keep them informed?
We talked about the media. You got to combat the media with solid education and advice and position yourself as an expert in the marketplace. They’re not going to call somebody from the media to ask advice and questions. They’re going to call the expert in the field.You have to combat the media with solid education and advice and position yourself as an expert in the marketplace. Click To Tweet
One of the execs on the sales side that I was talking to had made a statement. The question he’s asking his sales team is, do your prospects and customers turn to you for information? Do they look to you to give them the real answers?
It even goes to your referral partners, too. Are your referral partners deferring to you for information?
Are you a trusted source? You have to earn that. The way you interact and present yourself online. This is not a, “Throw out a banner. We’re the greatest lender ever. We’re going to close on time.” That, I would say, is a little bit out of fashion.
Having a digital presence with reviews that are meaningful is more important than ever before.
It really is about, in a lot of ways, focus. Focusing on smaller, local, relationship elements and longer lifetime value. The things we’re hearing make a lot of sense, considering what’s going on. If I think about what people are thinking about the future, maybe get a little more specific on what we’re both hearing. From my perspective, people are largely saying, “We think, give or take a month or two, by the back half of 2023, probably Q3, we’re going to be an environment where we can start having refis again.” Agree or disagree?
I’m no economist, but I certainly listen to a lot.
I thought you were. That’s why we named you Chief Lending Officer.
All the projections that I’ve seen and heard, I truly do believe this. We’ll be in a normalized market come Q2 in 2023. Hopefully, set up for success with all these volatilities behind us, we get inflation in check, and we’ll rarely be at a 2019 or 2018 level of origination. I’m hoping we’re somewhere back in the 4% from an interest rate perspective.
That’s maybe a little more bullish than I would’ve thought. Do you think there’s a chance?
I do. Maybe it’s a little deeper into Q2 to Q3.
Look at what’s happening to the Fed. They’re shocking the system right now. They’re dropping a bomb on inflation.
Interest rates are not going to start coming down until they get inflation in check.
When they do, you’re going to see fairly immediate, at least, some relief.
We’re going to start to see trends down for sure. My hopes are that by the spring market in 2023, we’ll be in a much more normalized market. We’ll be hopefully talking about two-quarters of some significant challenges. To your point, what you do now is going to set up for future success come 2023. If I can get a customer into a home, even if it’s at a 6.5% or a 7% interest rate now, I can help that customer refinance in 2023 or 2024 and lower their monthly payment.
I was going through my notes on all the conversations that I’ve had. It is clear that there are two different buckets of how people are thinking about this. People are thinking, “How do I accelerate on the backside of this, and how do I put distance between myself and any competitors?” There’s that rule of thought or that mindset.
There’s the other mindset to where my head is on a swivel. I’m trying to figure out where I’m going to get hit in the face with a baseball bat next with rates, margin calls, originators leaving, recruiting, and all of these things. Some people are having a hard time figuring out or reacting to the pace of what’s happening out there.
I’ll say it another way. I think there are people that have built a pile of equity within their company and are now using this market to make smart investments and organically grow and/or look at M&A activities. The reality is we’re going to see more probably M&A activities and more movement in the industry than probably we’ve seen since the meltdown.
I would say that that has been 100% consistent. We’re seeing that manifest itself in deal flow. The advisors and consultants that we stay in touch with are saying there are a lot of deals moving around right now, which happens in these times. It’s important to have context.
Some of it is driven by the fact that there hasn’t been much movement in the industry. The originators ultimately had so many deals and their pipelines were so full. Typically, from lenders I’ve worked with in the past, we would always see the movement starting in the fall through the winter when their pipelines are a little shallower. That never happened in 2020 and 2021. There’s a little pent-up demand of moving out of an organization into another one. Whether they think it’s a better fit or not is questionable. That’s one of the drivers as well.
Some of the questions that I get are around tech companies that serve the space. Some of our own internal team at Total Expert are having a hard time digesting the headlines. Every day there’s a mortgage headline. What’s happening? How do you respond to that? I think it’s important.
The only way to respond is through true solid education and advice. Consumers are seeing all those headlines, too. They are like, “I don’t want to buy a home right now. The sky is falling. The housing market is crashing.” Those are all false. We’re not having a credit crisis. We’re having a rebalancing of the market to pre-pandemic levels.
Prices shouldn’t have doubled in less than 24 months on some of these houses.
It’s 30% appreciation in some markets.
People are quick to forget. Do you agree? They’re quick to realize that, “The house that I paid $600,000 for, 9 months later, is worth $900,000,” or whatever the number is. Literally, a lot of these market prices double in less than 24 months.
In my personal opinion, I don’t think it’s all going to come away. I think there’s going to be some decline in certain markets that were crazy for us.
Neither one of us is predicting that prices are going to go back all the way down. I do think you’re going to give some of those gains back.
Most people are hoping not too much, but I do think some of them will come down. I also think that is one of the trends, especially if you don’t have an asset. If you don’t own a home, you’re at a stronger disadvantage than ever before. There’s a higher barrier to entry now, especially for first-time home buyers. There is a bit of an affordability crisis going on that we’re seeing.
One of the other conversations I’ve had multiple times is with people looking at the underserved areas where home ownership hasn’t necessarily been available to a lot of areas and neighborhoods. It seems like there’s an increased focus from the Federal government on serving these communities. I listened to the top 6 or 7 banks, a couple of which are customers of ours, testify in front of the House. They talked about one of the things they were getting grilled on affordability and access to credit. What are you hearing in that space?
There’s a lot going on there. It’s mostly around lower to moderate-income families and how we help them get into homes. Do they always have to be renters? Can we create creative credit models if they can’t get a credit score? Maybe they have untraditional income models. How do we support those homeowners as well? The fight go-model has traditionally been the baseline for understanding somebody’s credit. Not everybody fits into that model.
One of the things I’ve heard a lot about lately that seems to be an important component of that is paying rent on time is now going to help build your credit. You have people that maybe don’t have a credit or very thin credit file now if they’re able to. I bring this up because I think this is a whole other segment of home buyers that there’s energy, focus, and interest in turning the page and getting those people to access the homeowners’ credit they want.
It’s getting them access to credit to be able to qualify for a mortgage. Some of the agency work that’s being done is to try to expand that box and target those consumers that have traditionally been told no, that they don’t qualify.
We’ve both been put a lot of miles on and put a lot more in the future.
I feel like I work for FedEx now.
Somebody asked me, “Where do you live?” I said, “I think sometimes I live in Delta Airlines, but actually Minneapolis.” It is, as always, a privilege to be able to get out and have so many conversations. Is there any other comments that you’re hearing from the trenches that might be relevant to chat about?
With so much movement, we’re also hearing a heightened focus on recruiting efforts. If I want to make an investment into growing my business, how am I systematically looking at my recruiting efforts, and how can I scale that out and optimize those efforts in this time? This is a great time to be able to refocus on recruiting and seize that opportunity. That’s definitely one of the trends for sure and overall, our retention with all that movement. How do I make sure that I’m providing as much value to my originators as possible? Anything you can do to showcase the value your organization is providing to originators is a good thing to do right now.
For a lot of the years, we saw a lot of people chasing big signing bonuses and guarantees. Is that largely going away?
I definitely don’t hear that as much. Certainly not too long ago. Even so, organizations are starting to get smarter with their cash. I also think that originators are smarter. They know if they’re going to sign a big signing bonus, they’re smart enough to know that it’s going to be built in their rate sheet over the next two years.
One of the things is it’s not just about money. A lot of people think they’re going to pay more. It can be about money, but the long-term strategy is it’s the whole picture. You got to be there for your salespeople. Are you helping them get through the peaks and valleys mentally they go through and have a growth mindset?
Are you giving them the right products to arm them and go out and serve as many customers as they can, especially in this market? You got to put aggressive prices on the street. It’s ultra-competitive out there. You can’t be a half a point or a point difference in rate. You’re going to lose some significant business this day. There are more rate shoppers than ever before. Understanding when you’re generating approval and being able to put the most aggressive thing you can in a consumer’s hands is really important right now.
No question. Great catching up.
Thanks, everyone. Catch us next time.
- Dan Catinella – LinkedIn
About Dan Catinella
With 20 years of experience in mortgage technology, Dan Catinella is a seasoned technology executive focused on driving digital transformation through all channels of lending. In an ever-changing digital landscape, Dan keeps a constant pulse on the next innovation that could change the way business is conducted. As Chief Lending Officer for Total Expert, Catinella identifies and develops high-impact innovation strategies that align with the company’s business goals and growth priorities. He works with Total Expert’s customers to dig into the problems they’re looking to solve and aligns Total Expert’s innovation strategy with their business goals.