This feature originally appeared in the April issue of MReport.
Kristy Fercho joined Flagstar Bank in 2017 as EVP and President of Mortgage. She is responsible for the direction and oversight of all aspects of mortgage and the secondary market for Flagstar, as well as the expansion of its mortgage business.
Fercho previously spent 15 years at Fannie Mae serving as its SVP, Customer Delivery Executive, where she was responsible for the end-to-end strategy and business performance of all single-family customers in the western half of the U.S.—an acquisition volume of more than $300 billion. Here’s what Fercho had to say when MReport recently caught up with her during an industry event.
What defined the past year for Flagstar and you personally, and what goals do you anticipate in the months ahead?
First, last year was a great year for Flagstar and the industry. We started the year with a continuation of trends from 2018, including a rising interest-rate environment. Competition was at an all-time high and lenders weren’t making money.
Then we hit March 2019 and the 10-year treasury yield dropped from 260 to 234, and we’ve been on this run ever since. (It is worth noting that, at press time, the 10-year was under 1%.) The successes of last year were primarily about lenders returning to profitability and helping borrowers refinance. It was one of the strongest years in Flagstar’s history.
Second, I would say that we’ve really started to see the capacity of the industry to expand. People are hiring again. The rate of employment in housing has increased for the first time in recent years.
When the mortgage industry is doing well and lenders are hiring, that’s better for the overall economy, and the consumer gets the benefit. The refinances that we’re seeing are largely loans that we originated in 2018 or 2019. So borrowers who only recently originated these loans are already benefiting from this market.
With ongoing concerns about an economic downturn, how do you prepare for shifts in the market?
One of the things we’re proud of at Flagstar is our scalable mortgage platform and the ability to originate in all six channels. This allows us great flexibility to respond to market shifts and to grow in a way that’s sustainable.
Last year we’ve added a couple of strong teams and loan advisors in our retail channel, and they will contribute to our growth for years to come. Right now we are in the midst of a refinance boom, and like most lenders, we’re focused on scaling our business to help as many customers as we can while still providing great service.
To do that, we use overtime and incentives with our staff, engage third party vendors in the U.S. and abroad, and use our great mortgage insurance partners who do contract underwriting to support us. Then, when the wind shifts, we back away from those vendors’ services without having to let any full-time employees go. That’s been a hallmark of our success—that scalability of our platform.
Where are some key areas of improvement for the industry?
First and foremost: digital. It’s stunning to me that mortgage is the last process in financial services that hasn’t been fully digitized. There’s been some good progress, but a downside of the rally in the mortgage market is that it’s taken us away from investing in the infrastructure for digital transformation.
The focus needs to be on continuing to digitize the mortgage process and remove the paper. According to NAR, 90% of consumers now search online when looking for a house. We are all more accustomed to utilizing technology in our daily lives, so to continue to have a paper-based mortgage process simply doesn’t make sense. eMortgage, eClosing, eNotes, remote notarization—all of those parts of the digital experience, from front-end to back-end— that’s where the industry needs to focus on.
Why has the mortgage industry lagged behind in technological advancements?
Buying a home is the most significant financial purchase many of us will ever make, and it’s complex and time-consuming. Every step of the process is heavily regulated with virtually everything needing documentation. The legacy of the financial crisis has continued to impact the industry on multiple fronts. Take remote notarization. It’s only approved for eClosings in certain states. There are some jurisdictions that won’t allow it— you still have to walk in with the bill of sale and have it stamped.
There’s a lot of existing infrastructure that makes up the industry. You have to look at the entire ecosystem of mortgage and make sure that every part of that ecosystem can pivot to enable digital. And that’s not always the case right now.
What are some of the lessons you learned while at Fannie Mae?
The most important lesson is about serving customers. I lived through two very different markets during my time at Fannie Mae—the height of the private-label mortgage-backed securities market where our shares declined into the teens, and then after the housing crisis, when the majority of the business was being done by the GSEs. In both environments, we always focused on taking care of our customers and never taking their business for granted.
I brought that mindset to Flagstar and every day I work to elevate the voice of the customer and the importance of service in the mortgage division.
What are the most important factors to remember when interacting with borrowers at risk of default?
Early intervention. When you notice somebody is falling behind, there’s a lot we can do before they get three, four, or five payments behind. Early intervention and opening the lines of communication are critical. We want to communicate that even though we’re the servicer, we are invested in the homeowner’s success. We want homeowners to be able to stay in their homes, pay their mortgage and remain sustainable. What we don’t want is to take the home back.
If a homeowner is facing a hardship, it’s important for us to engage early in that conversation and say, “What’s happening? How long is it going to last? How do we help you through this?” Then we can develop solutions together. That initial, early contact and communication are key. Every customer we have, we want to be a customer for life—a customer at the bank and a customer of a mortgage. We take that relationship personally, and so we work hard to communicate that we’re here to put solutions within their reach that will help them stay in their home.