Ask the Expert ft. Jay Plum: Consumer Lending Predictions for 2021

Thanks, Max. It's great to be here.

Sure. Well thanks again for letting me join you guys today. I'm sorry that the expert that you had signed up backed out and you're left with me, but I'll do my best to answer a few questions for you guys. 2020 started off still pretty strong. 2019 was not a bad year. 2019 was a little more surprisingly good than we had expected. We really began staffing up sometime in June and August, and frankly we went to work from home for most of our job families in mid-2019. That ended up creating some flexibility for us that we really capitalized on when all the lockdowns began. Nobody has ever attempted to do what the mortgage industry has done in 2020, which is deal with the pandemic, service customers well, and see your business nearly double in a record amount of time. What that's meant for colleagues as well as managers are just unprecedented challenges. When I think about the managers, not only did you have to think about different scheduling options, but you also had to think about different communication options if you couldn't have a staff meeting and you couldn't plan out work as a group in an office. How do you do that effectively so that you know what your daily workflow is? We were fortunate that we had tackled a lot of those logistics because we had moved to work from home. The reason why we moved to work from home partially was because it was easier for colleagues and they enjoyed that flexibility, but partially was because we were so busy that the extra commuting time made a difference in overall overtime hours that were available to get things done. Everybody had to be on their toes and everybody had to think about things, but I think that the key issue that the industry really has had some challenges dealing with, and we certainly had in the first half of the year, was that this was great for like 90 days, and then for nine months it became just exhausting. The exhilaration and the idea of super low rates and record volumes quickly became exhausting to so many job families as it just went on and on. That represented a real challenge for managers. Some of the things that we did to address it was to do silly things. There's a chance that I have been known to wear a costume or two, but very rarely on a Zoom call. But I certainly tried to do silly things and encourage my managers to come up with new ways of communicating and relating with folks so that we had outlets for some of the pressure that was building. Because again, we've never had a break. I think there was a quote in Mortgage News a couple months ago where I often say you gotta make some hay while the sun is shining, but farmers do get nightfall. What we've had in mortgage is almost nine months of sunny days. That's hard for any team, but it's been particularly hard for most mortgage teams when you add in the level of volume. Besides the occasional costume thing, we would send out personal notes. I myself sent out probably about 500 personal notes to different folks on the team at various points. All my managers did as well, because the personalization and the communication with the colleague that 'Hey, we know that everything in your life is kind of crazy, and you're dealing with all kinds of homework situations and bandwidth issues of your home office that's now in your bedroom because your kids are using the dining room,' just trying to relate back to how crazy it is. I'll close with one final story that probably says a little bit about the wackiness that we had endured but also speaks to the idea that in a situation where everybody is so tense, you really have to think outside the box. We have about 1,600 colleagues in consumer finance at Huntington. We have different advisory boards where folks give us some feedback, which we think is really helpful. On one of my advisory boards, I asked what we could do to help. Could we provide tutoring services for colleagues? Could we send a pizza home? What would it be? Because we couldn't buy lunch for everybody like we would normally do since everybody's at home. Somebody said, 'You know, it would be great if you could just do something in the afternoon that might be a little different to give people a break.' Jokingly they suggested that I read a book. Naturally, because I like to take ideas and make them extravagant, that became Mr. Plums' Neighborhood. Once a month we would get everybody together and I would play Mr. Rogers and do a few things and I would read a book to people's kids. We probably had about 30% of the department show up. It doesn't sound like a lot, but it gave folks a sense that you gotta keep some balance here. Even though we have so much work to do and so many customers to help, we still have to keep in perspective the organizational values and our willingness to look out for colleagues and to occasionally do a few silly things to entertain folks. No, we will not be showing that video today, but it was a fun way to get folks engaged.

I think the first one was the favorite one. It was Frozen, and it was a Frozen pop-up book. Yes, I dressed as Olaf, and it matched my enormous round head to act like a snowman. But it was just silly enough that people took a break. They laughed a little bit. Their kids liked the book. We gave out some prizes. It was just something unusual that we never would have thought of, except that we realized we've got to connect a little differently if everybody's at home.

We've seen lots of changes, and it's been dramatic. In 2019, everybody was talking about electronic closings as a nice idea, and then we would look at the stats and see that nationwide maybe 10,000 people close loans electronically. We knew it was coming, but it was going to be pretty low on the IT prioritization list because it just was not being demanded by customers. All that changed in March and going into April when closings started getting cancelled. We did a variation on DoorDash and had DocDash, where we worked with some of our partners to bring the documents to somebody's home, put them on the front step in a bag, and then ask the customer to call the settlement agent from the title company who was in their car to walk them through the documents. Then after the customer had signed them, put them back in the bag and put them back on the front porch. That bought us some time, but then we really accelerated our efforts on electronic closings. We got something up and running that was serviceable by May, which was close to impossible, but the team did great. We've continued to refine it so that it's a much more robust tool now that customers are using. We've rolled that out for mortgage and home equity, and we'll try to have that available for some other consumer lending products by the end of the year into Q1. I still don't know if everybody's going to want to use it, but in an era where we closed our branches, opened our branches, and with the second wave we've closed the lobbies again, we have to have that flexibility and give customers options so that both they can stay safe and the colleagues involved can stay safe. I think you'll see even more of that coming in 2021.

Well, it's not insignificant from a technology standpoint. When you look at a lot of our budgets for a lot of regional banks or mid-tier mortgage banks, it's kind of a big deal to course correct when you have as many priorities already lined up and say we want to add this new service. Many of us have been working on portals like Blend and other tools like that. Adding one more item to the list is just hard. Then there's the second issue that you can't necessarily do a full e-closing in a lot of our states; you still have a hybrid process, and that piece is certainly challenging. On the home equity side, you also have some regulators who won't necessarily accept an electronically signed home equity as a viable document for a financial institution to commit as collateral. That has changed a bit, but the requirement is that it's a hybrid close, so some documents have to be wet signed and others can be electronic. It makes it a little cumbersome for customers to understand: 'We're going to electronically close most documents except for these two really important ones that we'll get to you.' We're not quite there yet on process as consistently as we'd like to be. Then we just got to make it easy. Doing it as part of a Zoom conference call or any number of the video options that are available now from a variety of firms is certainly getting there, but making sure that the customer feels that way as well and that all the right follow-up preparation, the actual experience, how they get a copy of it, making sure that all of that is as customer friendly as possible is something that will just refine over time. Most folks put it in place because they needed that option and customers were afraid to go into a bank or some random place to sign docs. They're just nervous, so you've got to acknowledge that.

We're going to have an awesome year, and we're still going to be tops in Ohio. All right, okay, now that I've thrown out the challenge, I'll step back. I think we're probably all a little concerned about refinance fatigue and whether or not there are opportunities there. But I do think that there are a number of segments of the population that have not refinanced. Hard to believe, but there are still folks out there who haven't refinanced. I also think that there are folks who have refinanced who still view a cash-out first mortgage as a superior product and they're going to do it again. With folks noticing all the cracks in the paint, you could probably see some behind me, and different home improvement projects as they walk around their house, they're going to want to keep doing all of that. For a surprisingly high number of folks, they will have the opportunity to refinance at a rate that can be just about the same as their current first mortgage, in some cases slightly less, and they will use that as a cash-out option again while rates are still low. It's hard to sell a home equity, even an interest-only payment of a HELOC, when you're looking at 3% 30-year fixed rates. That rate will rise over the course of the year. I think the first half will be materially different than the second half. But I think the second half, particularly as we get to spring selling season, is going to feel a tremendous amount of pressure on the home purchase market. I think folks will be persuaded to list their homes because the increase in prices will be matched by continual demand. We also have a lot of millennials who are now not just encouraged to refinance by the housing market, they are enabled to refinance by these low rates. If we go up half a point, that's still an incredibly great rate. There will be a lot of people who can afford a lot more house because of that rate. So I think we'll have a really good 2021, but I would not be surprised if the fourth quarter gets a little tighter and we see the beginnings of things declining. Our own expectation is to do a little less than we did this year, but we'll see how it goes. I think everybody's expecting the market to be a little bit more normal next year. Hard to believe that we can be a $4.4 trillion year, so it should come down a little bit.

Well, I don't think it'll be likely, but I wish they would change the adverse market fee, which was just a tax. It was not the best public policy, and it will disproportionately impact consumers who could use some help with their finances as opposed to a penalty with this higher rate. I would suspect that that will get at least looked at, but it's going to be the same guy at FHFA for a while, at least, applying pressure to maintain it. I'm not sure that conservatorship is going to be a hot topic for 2021 just from a practicality standpoint. Whether it's this administration or the Biden administration, $283 billion in capital as a requirement means that not much is going to happen for a little bit. I think people look at that and might stretch it out a little bit longer because it seems like we're rushing to it as opposed to planning for it. Housing policy needs to be a little more coordinated than what we've had in the past few years. We have CFPB doing one thing with TRID and some of their rules, we have the OCC doing a few things with banks, namely in the affordable housing area, and then FHFA seeming to be singularly driven towards conservatorship exit. The coordination between all of them has at times not been great. As far as whether I see compliance being a huge issue for 2021, I really don't. I think there will be some fine tuning. I think it will take a little while for compliance to become a larger issue again for many of the agencies. But I do think that we'll see more regulation, more pressure to do more affordable housing loans. Frankly, how can you argue against that? It's a good thing to help people get into a home. It's what makes the industry special. If we can help more people, great. We should. Some of the compliance efforts we should welcome and not shy away from.

Well, I think that is the number one issue. We have made it through 2020, yay, but the first quarter is also going to be tough. We've got all these folks with huge amounts of pipelines, tremendous amounts of loans per person in the back office, and just an awful lot of pressure on everyone. I think we're going to have to get creative with scheduling. I think we'll have to have a lot of flexible hours. I think you'll see more job sharing because folks are just going to be burnt out. I think somehow the industry is going to have to come around to the fact that we can't simply recruit each other's folks. While sometimes that's fun, it's not if you're on the side where you're losing folks. I think you'll see more job training of inexperienced colleagues to be brought into the industry to help with overall capacity. Simply because we can't ask everybody to keep running at the pace that they're running. It's just too much and it's not healthy for the colleague or frankly in many cases for the consumer, because it's tough to just keep at this pace and keep up your standards. So I think we'll see this as a key issue going forward. I will probably get some more costumes as well and read some more books.

Is this a trick question? We implemented it. I mean, we were very grumpy about it, but I think the difficult part is that we probably implemented it a little bit sooner than some of our competitors in our footprint. That impacted some of our third-party business. It wasn't a fee that we were prepared to eat, and we have tried to make do with it as best we can. I think everybody in the industry feels the same way: this is a tough one. If it was a little smaller, it would have been a non-issue, but this was a big issue. I think we're going to have to keep this in mind as we think about some of the market segments that we serve, like in affordable housing where if rates rise, this fee will become difficult for a lot of families. We'll have to reconsider how we approach it at that point. But most folks have implemented it as of December 1st, and that little hiccup has shown up in everybody's secondary marketing results. It is what it is.

Happy to do it. Thanks very much for the opportunity. I hope everybody has a great holiday and stays healthy and safe.

Bye.