Kenon Chen, EVP of corporate strategy at Clear Capital and co-host of the ClearCast Podcast, sat down for a conversation with Julian Hebron, founder of The Basis Point, during MBA Annual 2021. They discuss conference happenings, the future of today’s ever-growing housing market, and more. Listen or read the transcript below!
Kenon Chen
All right, well, we’re here on day two of MBA Annual in San Diego. And I get to actually put Julian Hebron in the hot seat. Usually he’s talking to me and interviewing me. I think he’s gonna try to turn it around on me.
Julian Hebron
Maybe so, maybe so.
Kenon Chen
But, but yeah, thanks for sitting down and taking a few moments.
Julian Hebron
Absolutely, happy to be here, man. So, day four in a way. I arrived on Saturday. But the MBA Annual catchphrase, together again, is very true. It’s super fun. It’s fun to be sitting here looking at people and interacting and seeing the beads of sweat when somebody is presenting.
Kenon Chen
Who would that be?
Julian Hebron
So for the audience, we just did — I’m Julian Hebron with The Basis Point. I was hosting some of the demos and Kenon’s demo on Clear Collateral was pretty great. So if you guys don’t know about it, I think we’re gonna maybe talk a little bit about that in our segment here today. But I actually, I’m going to turn it around on right out of the gate. Only because this subject matter that came out yesterday from the FHFA, around desktop appraisals, I have some opinions on it. But I just wanted to see if maybe you would, like, set it up in terms of — this is a breakthrough moment for the valuation community. And you guys are leaders in the valuation community. So I want to hear from you first, if that’s okay.
Kenon Chen
Sure. No, I mean, a couple of things I think struck me about it. So it was the Acting Director or the FHFA, Sandra Thompson that said that. They’re bringing back — keeping extending, we don’t know what to say, remixing something.
Julian Hebron
Yeah. Let’s do remix, that’s good.
Kenon Chen
Ok, remixing desktop appraisals. You know, what was interesting is that during, during COVID, the flexibilities to use desktops for purchase was a little bit of a rip cord sort of sort of thing. Like there was this matrix of how you could do it. But it was very reliant upon the appraiser to determine whether they had what they needed to do it. So yeah, so I guess my take on it is that I’m hoping it’s done in a way that there’s certainty up front for lenders knowing what path to go down before they go down that path. Because like, the one thing that we found with doing hybrids and these other sort of tests-and-learns we’ve been doing is that you don’t wanna have to change products midstream, and interrupt, you know, the process — have to re-disclose to the borrower — all the things that happen, that’s bad. We’re just hoping that there’s a framework for avoiding that.
Julian Hebron
So here’s how I’m digesting it so far: whenever new policy, especially MBA Annual is very well known for major policy announcements, which is fun, it’s not always just either lender deals or FinTech products and deals. So this is meaningful to me especially heading into a major purchase market. And this is eligible for purchases. And the most important bit to me is I’d like think about D1C, remember when that was announced at MBA Annual in Boston, it’s been a few years at least now. But remember how exciting that was? But then let’s also remember how long it took for this to all become a reality because we all went back to our desks back then. And we’re like oh, wait a second. We can’t do anything with it yet and what I found myself doing back then on the mortgage banking side was going immediately to these very early stage POS investors, that one was launched only with one at the time — FormFree — and it was like, oh, wait, our chosen partners in this that are pairing this part of our process aren’t eligible yet. So in this case, I think it’ll go quite a bit faster because there is — it is a remix. There have been versions of this. But here’s where I think it’s incredibly important. And I would love to know, your take here: is that, in the end, the only thing that matters is, I have to underwrite, approve, and sell that loan. Gain on sale is why we’re all here. That’s what this business is about. And so if you can’t sell the loan because your collateral is jamming you up, the default position is we’re doing it the old fashioned way, especially in a purchase market, and we’re doing full appraisals, etc, etc. So, that’s kind of how I think the initial, out-of-the-gate mentality is, to your point that we’re going to see what happens with how the policy evolves. But what I think is useful — since we’re on your pod — is when I’m a lender, that that’s my primary concern, and I’m like, hey, Kenon, Clear Capital, how do you help me prove the case? Because I would love nothing more than to not have to do full appraisals on every purchase so that I can close those in 15 days in a hot market if I need to.
Kenon Chen
Well, the good news, right, is that at least there’s a form that’s, agreed upon by both GSEs. I think the question is going to be what’s the data standard or datum ,the minimum threshold, that is required to support that standard form? So you know, we, actually, for hybrids, we have an agreed upon form between both GSEs — the 1004h. And so that helps with the saleability. Right, where it’s like, at least I know, if I deliver this, that it’s going to meet the AUS standards, get through the system, all those things. But to me, saleability is also about how you manage your vendor solutions, and if you only have certain ones that are capable of doing this standard, and others doing this standard, that becomes a problem. So, you know, that’s one of things we’re focusing on, right, digitizing the home, ensuring that we have the data with confidence early in the process. So you know, you can confidently go down that path, because you have the data to support it. Regardless of who you’re going to exit your loan to.
Julian Hebron
Yeah, no, and I think that that is — without that, that’s the first question everyone’s going to ask on the lender side is great, love the policy, but it’s all about selling the loans. And until I know that I have a way of being able to make that case. And to me, that’s where FinTech isn’t just a utility, it is becoming more and more a part of the process. It is absolutely part of the business that every lender in our community is in
Kenon Chen
Any final thoughts on anything surprising here to you that you’re seeing?
Julian Hebron
I think that for the most part, my most interesting observation is that the COVID acceleration of of all the FinTech is real. You know, you see it in the headlines, you especially see it in the amount of fundraising that has happened in the challenger bank sector, our sector tends to be quieter with respect to, if you will, the national conversation. Big national headlines are mostly grabbed by the big FinTechs, raising billions of dollars, adding millions of customers. But here we are, we did 4 trillion last year, we’ll do 3.8 trillion this year, the MBA just increased — two nights ago. I always love the data from Mike, and Marina, and Joel. And so they just revised 2022. There’s two critical revisions to 2022. Number one is that it was 2.3 trillion for next year. Now it’s 2.5. And the biggest adjustment that happened there is that we were going to be a 75% purchase market, which is a very stark adjustment that everyone was quite rattled about. And now that has been brought down to like 67%. So you went from three quarters to two thirds purchase, which just eases up that transition a little bit. And it’s very important, and I have a thesis around home values and tappable equity. If we go off the BK stat of 9.1 trillion in tappable equity — and you guys know this better than anyone — people do have record equity. And so for me this golden age of responsible cash out is one reason why I think refires are going to be more meaningful in 2022. Because for those who don’t know, the tappable equity definition, is you take out equity, the definition of tappable equity is equity that you can take out and still have an 80 LTV. And so that to me is incredibly important because it’s not going to create this systemic problem. And one of the things that we do at The Basis Point is peel into these misunderstood national headlines and try to influence the national conversation more because our stuff bubbles up to these mainstream journalists who frankly, aren’t in the trenches, like we all are, right? So for me, it’s everyone’s like, oh, homes, or ATMs again in 2022. And it’s like, no, let us look at some numbers here with you. And explain. So that part’s actually super exciting, because it’s not just, you know, and then when you look at the record debt, if you look at the New York Fed data that comes out every quarter, in terms of the headlines that get grabbed, it’s about record, student record, auto, etc. And it’s like, if you combine that with the record tappable equity, and our jobs in our $2 to $3 trillion industry, is to help people manage that debt, then responsible, cash out, that’s the debt consolidation side of it. Yeah. And you can take that non housing debt, put it into housing using some of that equity. And even if rates coming up a little bit, those are still drastically lower than all those non housing debt rates. And then the other side of that, of course, is the home improvement side, the cash outside. And to me, that’s another incredibly interesting
Kenon Chen
It was already a record year last year, right? For home improvement? So we’re gonna see that see that continue.
Julian
I don’t know which data you study the most. I mean, I always look at the Harvard study, but like $433 billion was projected for home improvement this year. So if we combine that with the amount of tappable equity, there’s this amazing opportunity. And you guys sit at the center of all this helping make sure that the lenders do help keep the system safe.
Kenon Chen
It’s an incredible amount of responsibility when you really think about the people. And the fact that we’re putting a number on that equity for 120 million plus homeowners. And right now, we’re putting a number that’s right in front of them through their consumer apps. So they’re looking at it every day, they can pull it up, see, where am I at? And what should my choices be based on?
Julian Hebron
That consumer experience is something that is new, as we know, and for folks to be able to not just as as the previous era, the recently previous era was more about like, oh, let me creep on my neighbor and see what their home is worth. It’s not about that anymore. It’s about like, what can I do with this asset that I have, and I have a real time lens into it. And combining that with the loan data and actually the pricing engine data and making it actionable so people can do things and connect that back to the lenders. That’s all the stuff that that at The Basis Point we’re super tied into and putting all those dots together, and it’s real now.
Kenon Chen
Awesome. Well, as usual pearls of wisdom. I really appreciate taking a few minutes and absolutely and dropping in. It’s good to see you.
Julian Hebron
Likewise, man. All right. Take care. See ya.