Heidi Patalano (00:09):
Hello, I’m Heidi Patalano, editor-in-chief of National Mortgage News. Welcome to today’s Leaders episode. I’m so glad to welcome, and I’m honored to be sitting with Kristy Fercho, the head of home lending at Wells Fargo and the chair of the Mortgage Bankers Association. Thank you so much for joining us today.
Kristy Fercho (00:30):
Oh, it’s so good to be with you.
Heidi Patalano (00:32):
It’s awesome to have you here. It’s a very interesting time to be talking mortgage. It’s becoming more challenging. We have enjoyed a great two years, so I wanted to know where you think there are opportunities for lenders at this moment?
Kristy Fercho (00:50):
Well, it’s definitely a more challenging market, and especially coming off the last two years where the business just came in. [With] low interest rates, we didn’t have to do too much to get the business to come in. I think now vendors are having to really focus on, “what is my strategy? How are we taking care of our customers? How do I differentiate myself in a market versus some others? What are the key products that we’re going to offer to be able to differentiate us?” I think it’s a little bit of going back to basics in some ways. We tease about, loan officers have to figure out how to call the phone out, because it’s not just people calling in, in the refinance market. So, it really does feel like going baseline and really understanding, “what are your unique and distinctive strengths in the market? How are you going to provide a value proposition to your customers that others aren’t offering? And then really, how are you going to be able to compete, whether that’s new products, whether that’s better service. Really just going back to the basics and figuring out what you’re good at and really leaning in. I think that’s the core of what’s happening in the market. People are figuring out how to continue to serve their customers
Heidi Patalano (02:09):
And we’re often covering how lenders are arming themselves with more advanced technologies, to try to make this experience better for customers. I was wondering if you could talk about what Wells has done and is doing, if you could give us an idea of what’s coming down the line.
Kristy Fercho (02:29):
In our strategy, we had said we want to take people and technology and create this simple, predictable and personalized experience for our customers. And it really is about thinking about the entire home ownership journey, not just the transaction of getting the mortgage. As the largest servicer in the country, once we at the closing table, close that transaction, it does enter into this 30-year relationship that we have in servicing that loan or however long the loan is going to be on the books. So it really is about thinking about the transformation, all the way from application, all the way through to closing until we disposition that loan. How do we make it easy for a customer to engage with us, whether it’s engaging up front in terms of understanding what products are available to them or in the transaction, being able to automate all of the data.
And as a bank, we have a lot of information on our customers, so it’s [a question of] how do we take that information, put it in a kind of digital experience that has the customer confirm information that we already know about them versus having to provide us all the information? I say to people all the time, in getting a mortgage, we ask for your firstborn. Well, what if we have it all there in a digital experience that you can just confirm that that information is indeed your information and it is correct. That would be a much easier experience with our customers. And since we have all the information, then being able to decision that so customers can have some certainty about, “am I going to get approved for this transaction or not?” because it’s still a really anxiety provoking process, going through and getting a mortgage. We’re really thinking about technology and digitizing that process to make it as easy for a customer to get through as they can.
Heidi Patalano (04:28):
Absolutely. Well, I also want to ask you about your time as the chair of the MBA. [You’re] first black woman to hold the role, fourth woman to hold the role. And I’m sure it’s been a very interesting year. I wanted to ask you about the biggest challenges you faced and what advice you would give to the person that’s stepping into your role.
Kristy Fercho (04:54):
It’s been an incredible year. This isn’t one of those roles that you’re like, “Oh, sign me up, I want to do it” in addition to your day job. But it’s been extraordinary. First of all, just representing the industry in this way and traveling all over the country. Now that we’re back open and we’re having in-person conferences, it’s been extraordinary to get to know more people in the industry, hearing about what the opportunities are and challenges with their business, and then being an advocate for all those companies in Washington D.C. with our policy makers and stakeholders. I think that’s been really one of the big things, that first as we went through COVID, but now as we’re going through this change in market environment, from strong refinance to this rising interest rate environment with purchase, it’s really about, “how are we representing the industry, what the needs of the industry are, in Washington?” and trying to really drive some of those with the stakeholders.
So some of the flexibilities that we had through COVID: desktop appraisals, which drove a level of efficiency through the refinance cycle. Well, why can’t we keep some of those going in the purchase market? And so really understanding what some of the challenges are in the industry and really leaning into that in D.C. with the stakeholders. The other big thing I think has just been the market shift. We had record levels of profitability over the last two years and now with this raising rate environment, a lot of lenders are under stress. The number of companies who had losses in second quarter was certainly higher than we’ve seen over the last two years. I think third quarter is going to be even worse. So it really is trying to be helpful in having companies be able to address some of the concerns that they have about, where are the opportunities for them in business? How do we create new opportunities for them to lean in? As an industry, how do we advocate on behalf of those lenders for the things that are going to make a difference for their businesses?
Heidi Patalano (07:09):
Yeah, definitely quite a challenging time. Interesting about Q3 and what’s ahead. We’ll see.
Kristy Fercho (07:18):
And about your second question, or the second part of that was just preparation for the new chair coming in October, the chair elect Matt Rocco. Matt is the CEO of GrandBridge Capital, which is a part of Truist Bank, and he’ll come in as the commercial chair. It’s been great working with Matt, but one of the things that Matt and I have done is really focused on, as I’ve had my platform being about promoting equity in housing, Matt’s going to take up the mantle, which is in ensuring that equity in housing extends to rental and affordable housing. So it’s going to be a nice continuation. I transitioned from Susan Stewart who made minority home ownership her platform. I carried that into this year and really have advanced that further. Now Matt’s going to add the rental affordability, rental assistance but also affordable housing as a part of his platform as well. It’s a really nice continuation over the years. It’s almost like passing the baton to the next chair. I’m really looking forward to seeing what Matt’s going to do with his year and how he’s going to continue to advance the platform.
Heidi Patalano (08:37):
That’s wonderful. It’s a great way to compliment what you’ve done to continue that on, especially in the rental space. I did want toask you about the “Home for All” pledge, which was one of your initiatives during your term. That’s where you were asking lenders to commit to supporting affordability efforts ,access to home ownership for minorities. I was wondering if you could tell me about any early results that you’ve seen from that effort?
Kristy Fercho (09:09):
Well, I am super excited. We have had over 350 companies actually signed the pledge. What was important to mem and why I wanted it, the Home for All Action pledge was really to get companies to say, we commit. Anyone can write a check. But it was like, we need action to address this issue. If you look at the decades of systemic racism that have impacted some of our housing policies, and you just have to look at the home ownership rates and see how far behind Blacks and Hispanics and communities of color are on when you compare it with the white home ownership rate. That gap really says that we need to take some pretty aggressive steps. I was looking for companies to really commit to say, “We stand with you, we stand with the MBA, and we want to be able to make some changes to the industry.”
There’s three pillars initially. When we rolled it out in October, there were three pillars. One was promoting policies and legislation that would help advance racial equity and home ownership. The second pillar was around place-based initiatives and really supporting CONVERGENCE. The MBA has two Convergence [programs] where we convene stakeholders in a local geography to understand what the housing issues are in that geography. We’ve been to Memphis and Columbus, and then we’ll roll out a third, which is in Philadelphia later this year. Then the third pillar was about advancing diversity and inclusion in the industry. I think it’s important that if we’re going to serve communities, we look like those communities. The mortgage banking industry atlarge does not look like the communities that we serve, so we need to bring in and infuse talent into the organization. As you said, I’m the first black and only fourth woman, so it is an opportunity to really diversify the industry. Those were the first three pillars, and then through conversations with companies and CEOs, they said, “We’re doing a lot, but it doesn’t fit neatly in one of those pillars.” We actually added a fourth pillar, which said, whatever initiatives that you’re doing that are promoting equity in home ownership and diversity and inclusion in the industry. Like I said, over 350 companies have actually signed the pledge. I have been completely blown away by the conversations I’ve had with people, but more importantly, what these companies are doing to be able to really advance equity in home ownership for the industry. It’s been really great to be able to see some of the results and some amazing things are coming out of it that I believe in order to address this issue, we’re going to need sustainable actions that continue to go on, not only in this year that I’ve been chair, but really for years to come.
Heidi Patalano (12:14):
Right, absolutely. And it’s a very complex and huge issue. We’ve talked about appraisal bias and certainly there are initiatives looking into how can we train better. There are all sorts of things happening. I wanted to ask, if you could talk about some of the most concrete things, the most immediate things that you could see lenders put into action today. What can they change right now? I know that it’s such a broad, deep issue. What would you say to that?
Kristy Fercho (12:49):
Well, I’ll share one of the things that we’re doing at Wells Fargo. In the spring, we announced that we would be launching a special purpose credit program where we would invest 150 million of Wells Fargo’s money to be able to write down the interest rates, and we’re starting with black customers. We said for black customers that weren’t able to refinance during the last refinance boom. So for whatever reason, with these historically low rates, these families, customers in our book, they didn’t refinance or they came in to refinance and they were denied. What we said is, we’re going to outreach to them. We’re going to write down their interest rates to 3.75% and we’re going to make them an offer to be able to refinance their loan and Wells Fargo will bear the cost of that. I’m excited we are actually in-market. We launched that program initially four weeks ago.
So we’re starting with our black customers who have an FHA loan. It’s a great opportunity, something like a special purpose credit program that acknowledges that there is a certain group that has been impacted or left behind and says, “We’re going to create a special purpose to be able to get you either into home ownership through a purchase program or to help through refinances and recognizing the sustainability of that with the lower interest rates. That’s something concrete that we have launched and that we’re doing. Again at Wells Fargo, we have our Dream Plan Home. It’s our affordable product, 3% down, but we match that with a closing cost credit, so a $5,000 closing cost credit, which really then allows these customers who may not have a 20% down payment to be able to come in with a down payment assistance program and get a closing cost credit and then be able to get in the market.
So, there’s a lot of tangible things that are happening right now in the market, and that’s what it’s going to take, whether it’s a special product, whether that’s a special purpose credit program, really being creative.
Then on the MBA front, we really are challenging the agencies not only to support special purpose credit programs, but to really think about, “you talked about appraisal bias? What are some of the PAVE report from the White House? How do we take some of the actions that came out of that and how do we really ingrain them into our system?” I know FHFA, they’re looking at alternative credit scoring. How do we look at alternative models, right? A FICO score isn’t the only way we should be able to assess credit, especially for these communities of color. In order to address this issue, we’re going to have to think creatively about new and innovative ways to be able to solve the problem.
Heidi Patalano (15:53):
Yeah, absolutely. That’s interesting. The credit scoring is a fascinating thing and you can see that Fannie accepting rental payments as something in your credit history, that some steps are taken, which has been really great.
Kristy Fercho (16:09):
That was really exciting, to finally get that through. The data will show you that the more data that you have on a customer, the better that performance is. How do we aggregate all these pieces of data: rental history, cell phone bill, utility bills, none of those contribute to a FICO score? They actually demonstrate ability to repay and payment history. That should be going toward building credit history. So how do we take all that information to really help advance the industry?
Heidi Patalano (16:41):
Yeah and another thing that I liked about what you said with the special purpose program is that it’s preemptive, that you’re reaching out to these people because I think we find a lot that there’s just not an awareness that these things are out there as they come out.
Kristy Fercho (16:57):
Education is absolutely key. It’s amazing how many people don’t know the programs or the opportunities that are available for them. That’s what we’re really trying to drive forward with outreaching to these customers to say, Here’s an opportunity. Would you be interested?
Heidi Patalano (17:14):
That’s wonderful. One thing I’ve heard you say before in terms of the diversity, equity and inclusion initiatives, is that they have to be intentional. I just wanted to hear at Wells Fargo in the mortgage sector specifically, what are you doing to push that forward?
Kristy Fercho (17:39):
I say it’s D, E and I now, but when it was D and I said the D and the I are deliberate and intentional, and I do, I think these issues, because they’ve been around for decades, they’re not just going to solve themselves. It’s not enough to have good energy or good excitement or good desire to be able to solve some of these problems. We really have to lean in and say, what concrete actions, what concrete solutions can we actually take to be able to drive this forward? Product development is a great one. I talked about the Dream Plan Home. That is being very intentional about rolling that product out. The closing cost credit, we initially rolled it in eight markets and we learned, and now we’re extending that to another 10 markets. Going into those communities and being very intentional with product offerings, with a closing cost credit to say these are going to meet the needs of the community, partnering with nonprofit partners.
To the point that you made earlier about really wanting to get the word out so people can be educated, having intentional partnerships, we’ve partnered with the National Urban League and UnidosUS to be able to go in those communities, [groups like] HomeFree USA who are on the ground in the communities, and they can bring us along to one, help build trust in those communities, but two, to help educate around what are the specific issues that we need to address. I think it’s strategies that really help drive that forward.
The final thing I’ll just say is since I got to Wells two years ago, it was really about looking at our entire process and seeing where in our process that we might not have had a process that was user friendly, especially for communities of color. Wells is lucky that we’ve got bank branches all over nationally. How do we make it so that if a person walks into a branch, that there’s somebody there that they can have a conversation with about a mortgage? So, realigning our sales model to make sure we had people sitting in branches to be able to address customers needs when they come in. It’s intentional strategies like that, that say, “How do we understand what the needs of our customers are?” And then, “how do we create strategies and solutions to be able to meet?”
Heidi Patalano (20:04):
Yeah, absolutely. Being at the news organization, there are good and bad headlines. There’s all sorts of stuff going on, so I think what you’re talking about really speaks to my next question, which is just what are you at Wells doing with improving your mage with your customers and letting them know that, I don’t know, that they’re safe with you. What, just to acknowledge some of those things, what would you say to them?
Kristy Fercho (20:40):
Yeah. Well, I love the question, because we have certainly had our issues at Wells Fargo for sure. One of the first things I did — and truthfully it was, I think one of the most important — was just acknowledging that history, not acknowledging that we haven’t always gotten it right, that there’s been some issues along the way. We defined our mission, vision, and strategy with that in mind. The first thing was we created our aspiration, which is we want to be America’s most trusted home lender. The power of being America’s most trusted home lender is recognizing that we haven’t always earned our customers trust, but that purchasing a home is the single largest financial purchase that many people will ever make. We’re asking them for all of their personal information, their bank account, all their financial information. We need to be worthy of that trust.
So every day, how do we build the experience with our customers where we really are worthy of the trust of going through and navigating that process? That was the first thing we did. The second thing we did was really trying to put the customer at the center of everything we do, recognizing that we’re in the American Dream business. This really is about having customers realize their dream of home ownership. So how do we ensure that our process, how do we ensure that the experience that they have, that it really is a great experience for them and it doesn’t turn into a nightmare? So working through to really acknowledge that the customer has to be at the front of everything that we do. Then the final thing was thinking about our culture. We’ve created this acrostic called COMPETE.
It really was about driving forward the expectation that I wanted all 30,000 people that focus on home lending. I wanted them to think about when they come to work every day, that there’s a customer at the front and center of this, that we have to operate in a strong risk and control environment, that we needed to be profitable for the company, but we needed to execute with excellence. It was really about unleashing the power of our people to be able to deliver those results for our customers. So, the acrostic really kind of created this culture of COMPETE where people knew we were fighting for our customers and we had to create an experience every day that made them choose Wells Fargo over and over again.
Heidi Patalano (23:17):
Right, right. That’s great. Well, Christie, it was so wonderful to speak with you today. Thank you so much for taking the time and thanks for joining us.
Kristy Fercho (23:26):
Thanks, Heidi. Great to be with you.
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