T=b/t

Some people say trust is an emotion. One of my favorite, and oft-repeated phrases, is that “trust is an equation.” Now, I love equations almost as much as I love emotions. I love excel. I love math. I dig crunching numbers and reaching a conclusion based on traceable evidence. It’s nerd comfort. So, how is trust – a human emotion – an equation? We can trace evidence that leads to trustworthiness, or vice versa. We trust clarity and we distrust the opaque. We trust what is linear and distrust deviations. Why?

Simply put, trust equals behavior over time (T=b/t). And it’s really that simple. The longer we observe the steady, reliable behavior of something, of anything, the more easily we trust its next move. After all, the best predictor of the future is the past. This is not only true of people but also industry.

The mortgage industry is not immune. For the past 2 decades, the mortgage industry has been the epitome of change, painting and re-painting itself over time and again. It has been a laggard of innovation. Archaic technology has redirected and frustrated borrowers amidst an already complex process. While some new technologies are promising, most are terribly confusing, creating massive organizational inefficiencies. When the bulk of your day is spent trying to get software to function as advertised, mission failed. Investor appetites have produced tectonic shifts in jumbo underwriting guidelines and loan sale-ability. There is no standard for jumbo underwriting. This is sorely needed, not only for consumer clarity, but to ease loan sale-ability, which will only encourage investors to offer these products. Entire product lines have appeared and disappeared in the past decade. Internet lending, once a laughable idea, is now commonplace. But performance at the closing table is poor – just check with any closing attorney. The good faith estimate, completely redesigned in 2010 to replace the single-page financing worksheet, has been scrapped altogether in favor of a new format, the Loan Estimate. This three-page LE struggles to accurately represent what the original, one-page worksheet provided. TRID rule implementation, while beneficial in many ways, has also left lenders accountable to unclear or poorly-defined rules. If lenders take the most conservative interpretation, they do so to competitive disadvantage. The alternative approach is even more dangerous.

Some may call these “cycles” or even “progress.” My vantage point, here in the day-to-day, is that our industry needs to evaluate what will truly augment the public’s trust. Shouldn’t all initiatives should be filtered through this lens? In no particular order, we need:

• Standardization of jumbo lending guidelines, including an automated underwriting platform
• Mortgage technology companies should be mandated to publish reliability metrics, with client and consumer ratings (if Amazon can do it…)
• Before rolling the next wave of TRID, the CFPB should seek to clarify the confusing metrics of last years’ implementation. And, more importantly, address whether certain components are actually beneficial to the borrower or the industry (why can’t the borrower waive the 3-day waiting period, if they so choose?).

 Steady behavior over time will help renew trust in the mortgage industry.