Bill Dallas is best known for starting two mortgage companies from scratch: First Franklin and Ownit Mortgage Solutions. In 2009, he acquired Skyline Home Loans along with Upfront Ventures and a team working to modernize the traditional mortgage business. Certain Skyline assets were acquired in 2018 America finance mortgage… Today Dallas leads the combined business.
Dallas holds a BA cum laude from Bowling Green State University and a Juris Doctor degree from Santa Clara University School of Law. He was named one of Bowling Green’s Top 100 Alumni and inducted into the Business Hall of Fame, and co-founded the school’s entrepreneurship center with Scott Hamilton.
You described the current underwriting process as “archaic” – can you talk about the challenges you see and how this is affecting the industry?
Dallas: Probably two or three different influences predominate.
First, it seriously disrupts today’s first-time homebuyer. I have grouped them into massive first-time home buyers, rather than dividing them into Gen X, Gen Y, Millennials, and so on. How this group generates income is very different from how the guidelines and rules were built. So this is the first thing.
Then, on the other hand, all these technologies and all these great advances in various areas of business are held back by our inability to generate income.
Ten years ago, we could disburse 220 loans per month per underwriter. Today we can do 60. Much of this effort has to do with deciphering income. Underwriting principles were created in the 60s and 70s and have not changed much. They were also built for a resident owner. And they were built for the main owner, who was usually a white male at the time. He was a lonely resident (often without taking into account the spouses’ income, because they were often not there).
The idea has always been to try and figure out how to set up a guide that suits the consumer? And I just don’t think today’s rules do that.
We’re talking about empowering people with sustainable home ownership opportunities. And I don’t think you need to take extra risk in the way you do it. You just need to calculate their income and adjust the income recommendations to match today’s consumer.
What are the main obstacles to these changes?
Dallas: Your main obstacle is that the agencies won’t.
I have not issued loans to agencies for almost 15 years. In my opinion, there is a need to modernize the guidelines and regulations. You just need to work with investors, rating agencies, bond insurers and people like that so that they feel comfortable when you are not taking risks and doing something that could lead to default or seriousness in terms of securitization. But the cool thing about this is that, even if you go back to the worst business book ever in the country, 92% of all Americans paid. So 8% is actually what you are talking about.
I think people attach too much importance to the borrower’s DTI. They should look at the asset class and how it works in general, since the severity is low. You create the default yourself. The lower the income and the less stable income someone has, the more likely they are not to default. But at the end of the day, we’re not smart enough to figure out all the demographic stuff. And because of the way the government looks at underwriting, we look at history. So we look at history, while people buy based on the future. This is a discrepancy.
Could you tell us a little about the “misconceptions about the mortgage lending process” that you often see?
Dallas: We talk about relationships all the time. You talk about loan officers, watch and listen to consultants. Everyone talks about the mortgage process being a relationship matter, and in fact, it’s just very transactional. It becomes disposable.
Many years ago, a consumer was looking for relationship lending, and they preferred a general store. They could work with their local banker to get a personal loan, car loan, student loan, home loan and all that. What has happened in the last 30-40 years is that we have shared it all.
We have now created many products with different lenders. Instead of this relational process, you have this transactional process, and consumers are looking for “best in class”. So you got a student loan from the government and now you have refinanced it with SoFi. Then you apply for a car loan from GMAC. The consumer figured out how to make the most of his credit potential, which, in fact, created a debt problem for him.
We believe that we have to get them back somehow and see how their mortgage affects them in general. At Finance of America, I’m trying to completely change the company’s vision to help people make informed decisions about mortgages and their most important purchases in life. It’s a long-term goal to make that connection, and it’s really hard to do when you are transactional.