Servicing the Underserved

MReport spoke to Ray Brousseau, President, Carrington Mortgage Services, LLC, and Andrew Taffet, Chief Investment Officer and Head of Asset Management, The Carrington Companies on what drives their company to originate and service a market for borrowers who have a less than ideal credit score. With nearly 30 years of experience in the mortgage and banking industry, Brousseau is responsible for overseeing all aspects of Carrington’s lending and servicing divisions, from origination through fulfillment, as well as servicing operations. Under his leadership, the company’s full-service mortgage lending business, with wholesale, retail, and centralized sales and operations, has experienced unprecedented growth and operational results.

M // On the lending side, can you speak to a few recent trends that you're seeing impact the market?

Brousseau // The two most notable trends on the lending side have been a shift away from a very high volume of rate and term refinance business toward cash out. We've had record low rates for years, and consumers have had ample opportunity to take advantage of refinancing. Although we're still doing a decent amount of rate and term refinances, it's not nearly the volume it was, as consumers have capitalized on those low-interest rates. What we see now is, along with HPI, which has been very healthy for years, consumers have got some equity built up in their homes. So, rather than just do a rate and term refinance, they're also taking out some cash for debt consolidation, home improvement, or college expenses.

The second trend I see has more to do with the current housing market than anything else. There seems to be an increasing sentiment around the willingness to extend credit. However, when you look at the average FICO scores on various reports, you still see that the vast majority of mortgage production being done is with FICO scores north of 700.

M // How is Carrington addressing servicing the underserved borrowers?

Brousseau // Carrington has focused its lending efforts on the underserved market for the bulk of its existence. We focus on lending to borrowers who have credit scores that are below 650. That amounts to about 100 million people across the nation who fit into that category. We have focused our efforts on lending to that client base for years now.

The QM loans serviced by us fit into agency guidelines, and through these, we have serviced loans to borrowers of FHA loans, VA loans, USDA loans. Over the years, we've gained a lot of experience as a specialty servicer with expertise in servicing those types of loans. The history of our company, dating back to its inception nearly 20 years ago, revolves around managing credit.

Recently, our efforts in this direction evolved with the introduction of our non-QM or non-agency lending platform. We now offer products beyond what is available through Fannie, Freddie, FHA, USDA, and VA, so borrowers that don't qualify for an agency product can have other options too.

M // How does the servicing side of Carrington’s business ensure these borrowers remain in their homes?

Brousseau // We wouldn't make these kinds of loans if we didn't have the servicing platform or expertise that is required.  Taking care of a borrower who is underserved requires a company to build a relationship with them. You must have people who are trained to help these borrowers stay in their homes. Again, if we didn't have the servicer, we would not be originating these loans. When we underwrite the loans and deposit them into our servicing shop, we know we have the right type of expertise to help those borrowers become successful in completing the terms of their loan and staying in their homes.

M // How has technology helped Carrington to address the needs of the borrowers and government agencies you service?

Brousseau // There are certain types of loans that are out there that lenders just don't want to continue to service because they're complicated. Or there are institutions that just no longer want that type of risk. Carrington has stepped in to fill that gap. We service all the agencies, and because they all have different rules, it makes being compliant, being effective, and operating efficiently extremely difficult. Using technology to help enforce those guidelines, due dates, and timeframes are extremely important. We've invested quite a bit, over the last few years, to make our technologies current and have considerable investments on the table for 2018.

M // What challenges do you see the mortgage industry facing in the near term?

Brousseau // Regulation continues to be a challenge. We spend an inordinate amount of our day trying to make sure that we remain compliant and keep everyone happy, and that continues and will continue to be a substantial burden for some time.

Regarding new challenges that the mortgage industry could face in 2018, yes there’s expectation that volumes will go down considerably and, therefore, for lenders to survive, they need to gain market share and have a plan to do that, or they're going to be impacted. Making sure that companies have that plan to increase that market share from others, to sustain themselves through the next couple years, is critical.

The natural disasters we saw in 2017 were unprecedented and indeed have inflicted pain on many servicers and lenders alike. The hope is, we've learned something from those experiences, and we can do things a little bit differently going forward.

Taffet // While there's no publicly disclosed information on what other servicers are seeing in those various affected areas, we've shared our results with different government bodies that we service for, which I know has been very helpful for them.