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From Crisis to Solution: The Role of Technology in a Housing-Driven Economic Recovery

From Crisis to Solution: The Role of Technology in a Housing-Driven Economic Recovery

Posted by Buck Collins, Plus Platform on 12/01/2023

I was very flattered when the NAR invited me to write this year’s economic outlook. I have been in financial services and housing since 2006 and have regularly enjoyed the NAR’s research, so this is a real treat.

Now, let's get right to brass tacks: the US economy is currently facing multiple severe stressors. But, housing has led almost every economic recovery in the United States since the Great Depression – so, could housing be the solution this time as well? To find out, let’s focus on the health of the US consumer, which is the main economic engine that drives all of housing.

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Unfortunately for all of us, the US consumer is at a breaking point. We are on the verge of a potential wave of delinquencies and foreclosures which, if left unchecked, would both overwhelm the mortgage industry’s current infrastructure and devastate countless households and neighborhoods across the country.

So, what's going on? What happened, and why are we here?

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As uncertain as the world felt in 2008, we never truly felt the complete effects of the financial crisis because of quantitative easing (QE). We only saw the trailer, which terrified us. So, we kicked the can down the road and repeatedly deployed variations of QE, which initially supported a massive refi wave out of unsustainable or troubled mortgages and bolstered the economy from 2008 through mid-2022.

But the problem is, we essentially created a fake economy predicated on incredibly low rates. These low rates inverted the home price to interest rate paradigm that had always previously existed, and house prices took off like a bottle rocket.

However, because of the Fed’s recent interventions, rates have returned to a long term “normal” but house prices have remained high – and the consumer is getting squeezed from both directions.

A reset of home prices would be painful – but short term it’s unlikely, because the supply of homes in the market is severely restricted. With roughly half of the mortgages in America currently in the mid-3% range or under, many homeowners are essentially locked into their current homes.

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It’s not those homeowners that we’re concerned about (yet). It’s the prospective ones who are facing an illiquid market that drives home prices even higher, while mortgage rates are also maintained at a high level. These hopeful buyers will likely get priced out of homes, which will have ramifications on the US economy for years to come. Or, if they do land a home under these conditions, they’ll be stretched so thin, they’ll be at much higher risk of falling behind if anything else goes awry. And with inflation increasing the cost of all of their other expenses, the heat is slowly being turned higher and higher. The cost of living has continued to rise, and real wages have consistently declined from their peak in 2019. It’s simply not sustainable.

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According to a Lending Club survey in September 2023, 61% of Americans live paycheck to paycheck. A CNBC survey found that 70% of Americans admit to being stressed about their finances. In July 2023, the average mortgage payment was equivalent to 36.5% of median household income, which is the highest share on record (!) – by a meaningful margin. Credit card debt has surpassed $1 trillion for the first time (up from $367 billion in 2008), and subprime credit card and auto defaults are at 2008 levels.

The last time the consumer was at such a stressed breaking point was in 2006, and we all know what came next.

I am not sharing this to scare you but rather to say, let’s admit what’s going on, and prepare for what is potentially headed towards us.

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I don’t expect a national housing collapse, like in 2008 – but I do expect regional collapses, especially in markets that have seen particular run-ups in home prices. And investors are holding reams of low-interest-rate mortgages on their books, which will become less profitable as current interest rates rise, causing further stress on the housing system.

In 2008, we were not ready to handle the massive uptick of delinquencies and foreclosures, and, while certain servicing and loss mitigation capabilities have improved, some critical features remain unchanged and dangerously deficient.

There is currently $13.8 trillion of mortgage debt sitting in Excel. That’s an estimated 55 million first liens – because, astoundingly, no one actually knows how many mortgages there are in the US.

These “55 million” loans squarely sit in Excel, vintage investor platforms, and frustrating component systems. Almost everything in the post-close space has stayed the same since 2008, and it's unacceptable. The current infrastructure, as in 2008, couldn’t handle even a fraction of these 55 million loans going through tough times.

So let’s focus on crafting a solution.

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For my part, I’m creating a common infrastructure for the post-close universe through Plus Platform.

On Plus Platform, originators, investors and servicers can proactively manage loans and flag data discrepancies, so the data can be cleansed and all parties can better understand what’s happening with their loans. Having these cleaner loans reduces investor losses and streamlines trading, which ultimately frees up capital. Ultimately, loans on Plus Platform are held in a state where they are always ready to be traded. This reduces counterparty friction and helps maintain healthy liquidity in the banking system. All of these benefits can drive higher transaction volumes for REALTORS®.

Technology can play a powerful role in solving some of the issues facing the market today. While we can’t meaningfully lighten the load on consumers, we can create better rails for the industry to handle the issues that are headed towards us. And if we succeed in putting those rails in place prior to the arrival of these issues, our industry will be in a much stronger place to handle whatever adversity comes our way. 

About the Author:

Buck Collins has extensive experience across the mortgage industry and was trained by market pioneer and “father of securitization” Lewis S. Ranieri to develop a deep understanding of how the various constituents of the mortgage market think, operate, and fit together. Formerly Managing Partner and Chief Operating Officer of Ranieri Solutions, Buck was the main driver behind the creation of the Single-Family Rental REIT, Home Partners of America. His entrepreneurial background allows him to bring creative insight into enacting positive change within the established mortgage ecosystem.

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