Easy Online Mortgage Refinancing Won’t Hurt the MBS Market

Tim Mayopoulos, former chief executive officer of Fannie Mae, is trying to help make applying for a mortgage as convenient as buying vitamins on Amazon. He’s president of Blend Labs Inc., which provides mortgage lenders with online platforms for making loans.

In a Jan. 30 interview with Christopher Maloney from Bloomberg News, he said that while Blend’s efforts may help speed up the pace at which borrowers can react to lower rates and refinance their home loans, the overall amount of refinancing activity that results may be similar to historical norms. His comments have been edited and condensed for clarity.

How did mortgage finance change during your time at Fannie Mae? There were three distinct periods. The first was just after the crisis had hit, when I first was hired. In those early days we focused on how to keep people in their homes. Then came the period of reform with new standards and rules applied to granting mortgages. There was a very significant increase in the costs to originate and service mortgages, leading many lenders to spend a lot of time and resources on information technology.

Then came efforts on how to use technology for the mortgage application process. This was driven not just by reform and rising costs, but by changing consumer expectations. The process of getting a mortgage — paperwork intensive and complicated — paled in comparison to the consumer experience with online businesses such as Amazon and Netflix.

What effect will tech have, or has it had, on mortgage finance? First, the entire process is much faster than it used to be. At Blend we recently announced a one tap mortgage pre-approval where a consumer can sign on to their mobile app and give their consent to start a process that checks their bank statements, income, employment and other characteristics within seconds and let the potential borrower know the mortgage amount available to them and its terms.

Second, people are doing much more from the comfort of their home. They expect to be able to interact with their lender when it is convenient for them using their mobile devices.

The ultimate investors will have much greater visibility into the quality of the loan and the characteristics of the borrower and the properties they are buying.

How will this effect turnover speeds/prepayment speeds for MBS? Consumers will be able to apply for loans or refinancings much more quickly and easily. That presents the possibility that prepayments will increase.

However, secondary market players have been important buffers to surging applications in the past, and this check may prevent the growing use of technology from leading to increased speeds. So while the reaction time may change, the level of speeds may not change much from historical levels.

What is the downside of making it easier for people to refinance a mortgage or get a new loan? Information security is something everyone is acutely aware of and always of paramount concern. The technology to provide it has improved dramatically as the bad guys are working hard to gain access to consumer information. There is a trade-off between the convenience of digital mortgages and security, and everyone recognizes that if we can’t keep information secure we won’t be able to run these businesses.

Why did you join Blend? It provided me the opportunity to help bring technology to bear on a very large and very antiquated mortgage market, to make it better for consumers, lenders, investors and the taxpayers who stand behind the housing finance market.

Consumers could not understand why they could order from Amazon and see delivery within a few days, yet they had to spend a time and labor intensive process chasing after pieces of paper and using fax machines to get a mortgage.

I had gotten to know Nima Ghamsari, the founder of Blend, while I was at Fannie Mae and we had similar views of what the future should look like – that a consumer would be able to apply for a mortgage on their smart phone and know whether or not they’ve been approved in a matter of seconds.

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