HousingWire Editor in Chief Sarah Wheeler sat down with Jason Cave, former deputy director at the FHFA where he ran their FinTech Office, to talk about where mortgage tech is falling short, and what the government should do to help.
Sarah Wheeler: What led you to leave FHFA for the private sector?
Jason Cave: I spent 30 years in the government — 27 at FDIC and three at FHFA. It was the right time to make a change and I figured it would be neat to work on some of the issues with the fintechs. There are a lot of banking challenges, just like with mortgage, and it felt like a good time to be part of the solution. So, I’ve been helping companies navigate the D.C. landscape, and just helping improve engagement. And it’s a lot of fun to wake up and do a bunch of different things on a given day. I guess I’m a gig economy worker now! A month in, I’m enjoying it.
SW: Looking at the mortgage space, what are some of the challenges when it comes to technology?
JC: There are several, but I think for IMBs specifically, it’s finding a way to get a stable investment track — something that allows you then to be able to continue to build in good times and bad times, because this industry is so boom/bust. And it seems like with technology, even when times are good, a lot of companies aren’t interested because there’s so much money to be made. That’s a broad generalization, but this is coming from discussions with lenders as well as vendors.
And then when times are tough, you know, you’ve just got to hang on and putting that kind of money into technology is tough. Many players in the mortgage space are well behind technological advances, and they need to find ways to really smooth that out, so that they’re continuing to make some investment in all the cycles. That would make them so much more efficient.
SW: You launched FHFA’s Velocity tech sprint in 2023 to bring the industry together to collaborate on solving some of the tech problems we face. What were some of the areas it focused on?
JC: We got a lot of different ideas! A lot of the discussions were very much: ‘let’s not just make incremental changes, let’s really look long-term. Like, how could we actually use blockchain or some form of distributed ledger to really build a better mousetrap?’ But the issue with so many of the ideas is that you have to have the policymakers or regulators, the GSEs, the lenders, and all the other parties on the same page. Now, the positive thing with that is, if you can get that, I think you can make real change.
The downside is that it takes a lot to get everybody there. But I think some of the problems we have today is because it’s so difficult to get everyone at the table. You have a lot of solutions, where it’s like, well, I’m not going to get everybody — I’m going to get a lender and I’m going to get a vendor and then we’re going to do this. And then somebody else says I’m going to get a title company and I’m going to get a POS provider, and we’re going to do this. And that’s quicker and easier, but I don’t know if it’s effective.
At the end of the day, I think we’re finding that companies are having challenges both on adoption and integration. And so maybe this idea of really putting in the time to get everybody at the table and start building makes sense.
A lot of people brought up things [in the tech sprint] that were not heavy lifts, but so important, like down payment assistance. There are so many programs out there, but sometimes in Washington, we forget that just because there are a lot of programs out there, doesn’t mean they’re accessible, doesn’t mean everybody knows about them. We also had some really good ideas about the front end, really being able to pull customer information quicker.
SW: What were some of the themes that came out of the tech sprint that you’re excited about?
JC: The trusted repositories. I’m excited because I think this is something that has not gotten a lot of investment and attention. And I think it goes back to the need for collective action. Just that word itself means you need to have a lot of people that are agreeing to move forward and do these transactions in a different way. And it’s going to affect all of us, but we’re going to be okay with it — we’re going to find a way to make money at it and also be efficient and lay the tracks down.
Blockchain sort of gets a bad name because it’s often connected with crypto. But a lot of these trusted systems run on distributed ledger technology. I’m not a techie, but I’ve looked at it and talked with a lot of people. And when you read what distributed ledger technology is meant for and where it really can bear the greatest fruit, it seems made for mortgage. And I think that’s something that the government and the GSEs are going to really need to encourage — I don’t think this is just going to happen from the bottom up. It’s too much money and it’s too big of a change. So I would like to see that become a priority.
SW: Where else do you think it will take government incentives or at least clearer regulation to advance tech?
JC: We need that sort of strong encouragement/directive even in areas where there’s already been work done. So one of the first things that we wanted to tackle with Velocity was the consumer information and the services that can quickly allow people to transmit what’s normally done in a paper-based, labor-intensive way. Tools such as Day 1 Certainty and AIM have been around for so long — six, seven, eight years — but take up was so low. What is the holdup? What are the bottlenecks? And how do we really push through them? And I think that’s something FHFA and the GSEs need to really push.
When adoption rates are so low, it becomes a vicious cycle. Adoption rates are low, that means people don’t think that the tools are effective, that means that they don’t use it, that means adoption rates go lower.
But think about Day 1 Certainty. I mean, one of its main reasons for coming into existence was to deal with the rep and warranty issue years ago. This isn’t just innovation, this was Fannie Mae and Freddie Mac getting the benefit of a secure, true document — it’s not something I can pull out and doctor up, it’s the actual record. And so it’s safer. You would think some of these tools are just a no-brainer, but I don’t think that’s the case. So that’s an area where Fannie and Freddie as well as FHFA should really push on it.
I would even be so bold to say I think the enterprises should be required to be getting adoption rates of 50% or more, and if they’re not, to really be able to explain why people aren’t using these very important tools they’ve developed. A lot of money has gone into building those tools. Also, to be very transparent, I am advising Argyle and they are one of those providers, so just full disclosure there that I’m advising them. But they and other companies like them are doing really interesting work.
SW: Let’s talk more about direct source data, since it seems like low-hanging fruit, whether that’s credit scores or verification of income and assets.
JC: I couldn’t agree more. And whether it’s The Work Number or credit scores, those are two examples where the consumer is paying that bill directly. And as we already know, closing costs go up every year. It’s an impediment for people — especially those with lower to moderate income — to be able to refinance and get the credit they need. So the more people do what Sandra Thompson is doing by looking at credit scores and trying to create greater competition, the better.
I mean, anytime somebody all of a sudden gets to double their fees because they see that their potential monopolies is threatened, I think it’s a sign that it’s a monopoly! As a taxpayer, I’m flabbergasted to see companies say, now that we might have to lose some of that, we’re going to increase our fees and make it up in the meantime. I think that’s a problem.
And I think that what CFPB did with the proposed Personal Financial Rights Data rule, they have started down that path with making banks share this information. Banks have been able to have a lot of our information locked up, but it’s not locked up for them — they get to use it. And when we want to use it or allow others to use it, it’s not that easy. I applaud the CFPB for really taking issue with that because it is the consumer’s information.
Now, I would say it’d be very nice if the CFPB expanded that to look at things such as payroll and credit scores, because the companies that I just talked about, are unfortunately not getting picked up. It’s the banks, right? And I really do hope that CFPB looks at some of these other companies, who are saying well, we built the pipes, and so we should be able to charge what we want. I don’t think so. There are a lot of subsidies in this housing space. I don’t know who built the pipes. I don’t think anybody on their own, with all their own private money, did it — I think there was a lot of help along the way. And, and again, when you look at who’s paying the bill at the end, it’s really troubling.
SW: What about alternative data? Where is that headed?
JC: I’m not sure where it’s going. I think it’s another one of those areas that with some guardrails, is going to be necessary because of demographics. The reality is that if you do 1099 work, it’s really hard to get a mortgage. I know that from the work we did at FHFA. Those processes are still geared to the 1950s Ward Cleaver family. I’ve heard concerns that some of the alternative credit information is not as robust, it’s not being based on longer-term data histories. I think it’s fine to raise those issues. I don’t think it’s fine to say that means we’re not going to factor it in or we’re going to be very stingy with whatever credit we give for those sorts of things. I think there are some companies like Argyle and others that are finding ways to be able to get that information from good verifiable sources so that lenders can bring that information in into the equation.
SW: What happens to the FHFA’s Velocity tech sprint now that you’re gone?
JC: The Velocity tech sprint and just the FinTech office in general is in very good hands. At FHFA Anne Marie Pippin is continuing to do that work. She did most of the heavy work when I was there, so you’re seeing Anne Marie at the various conferences and panels. FHFA Director Thompson continues to strongly support the work. She has Tracy Stephan, who we brought on board, who was a long term executive at Fannie and also Leah Price has joined recently. And while they have a small group, you’ve got some good leadership and also some people that have actually done this work.