Tales from the Trenches

Joe Welu: Hello, everyone. I'm Joe Welu. Thanks so much for tuning in to Expert Insights, where we talk with industry leaders across modern financial services, to discuss leadership and innovation. Let's get started. All right. Hey, everyone. Welcome to Expert Insights. I am super pleased to have with me today, Mr. Dan Catinella, who is the chief lending officer at Total Expert. And this is the first time, Dan, had you on the podcast actually as a part of the Total Expert team, so great to be with you buddy.

Dan Catinella: Yeah, excited to be here.

Joe Welu: What do you think of the week, man?

Dan Catinella: Man, it was an interesting one for sure. You had the Fed making a big adjustment this week, which everybody projected. Another three- quarter point adjustment, and I'm hearing from LO's, they're quoting in the sevens this week, so certainly some new challenges for them out there.

Joe Welu: Yeah. We'll give the audience a little bit of context, but both you and I have been on the road extensively, the last couple of weeks.

Dan Catinella: Where are we at now?

Joe Welu: I was trying to remember what city I was in yesterday, but I've been in Boston, Cincinnati, Vegas, Atlanta, and somewhere else, all in the last few weeks. And I know you've been.

Dan Catinella: Digital Mortgage, Mortgage Collaborative, it's been a whirlwind the last three weeks.

Joe Welu: Yeah. You were in Chicago, and at Digital Mortgage, and so the unique part is we're both having a lot of conversations with executives in mortgage lending, but also executives in partners, the tech partner community, that serves the lending community.

Dan Catinella: For sure.

Joe Welu: And then, we're also talking to some of the sales people as well.

Dan Catinella: Absolutely. Top producers all across the country.

Joe Welu: Yeah, I mean, let's maybe break down a little bit of what's going on fact wise in the market. As we mentioned, Fed raise rates. Rates are quoting in the sevens. What are some of the other data points that a lot of people are talking about and give me the feedback?

Dan Catinella: Yeah, you got home price appreciation. I think we're starting to see a level off all across the country. I think listening to other economic people that are a lot smarter than me. They're starting to see projecting some dips in various geographic markets, so I think we're going to see some of that. But ultimately, mostly flattening in appreciation trends as we would've expected at rates increasing at the rate they have. Customers still have all time high equity that we're really trying to figure out how to leverage that equity and place them into different products. And we're also seeing customer sediment at all time lows according to Fannie Mae's consumer price purchase index.

Joe Welu: Yeah, Fannie Mae came out and understandably so with prices still pretty elevated. Now, the amount of money that it takes to have that monthly payment has went up massively, right?

Dan Catinella: For sure.

Joe Welu: And so, we're finding ourselves in this really interesting environment where you've got elevated rates, elevated home price appreciation. But what's interesting is you're starting to see the signs of the market correcting itself, right? We were talking about this earlier.

Dan Catinella: Rebalancing of the market to pre- pandemic levels.

Joe Welu: A good part about this market versus a lot of people are pretty fearful right now. We're both spending a lot of time talking to the leaders, getting their perspectives and how they're seeing. What are the facts tell us versus what's sort of the buzz and sort of the fear, which tends to be people kind of panic short term. But long- term people are incredibly bullish on the US housing market in general. Home ownership in America, nobody is betting against that long term.

Dan Catinella: I think, so talk about consumer sentiment. I think it's somewhere around 73% of consumers don't think it's a good time to buy. Obviously, most of that is driven from media. We know the media is going to always project most of the negativity and not necessarily optimistic.

Joe Welu: It's never really as bad or as good as they ever say it is, right?

Dan Catinella: For sure.

Joe Welu: It's been my experience, do you agree?

Dan Catinella: Yeah, absolutely. And I think what we're seeing lenders do is really being at the forefront of that information stream and making sure that they're educating consumers and really creating winning strategies that are still applicable into this market today. But to your point, as far as demand goes, consumers, there's still a high demand for homes and that's never going to go away. How do you put together and really help consumers get into those dream homes, really in any market, is what where we're seeing some of the lenders really focus.

Joe Welu: Yeah, we were in Cincinnati yesterday, actually and Samantha, one of our sales engineers was with me. And we had a few of us out meeting with an executive team and a team of top producers talking about the next 12 months strategies, priorities. But it was interesting that Samantha just bought her first home, just closed in the last couple of weeks, right? And so, I'm like, you have an interesting perspective right now because a lot of people are like," Oh my gosh, nobody's going to buy a house, right?" And so, she walked me through, right?" Yes, my payment is higher than it would have." She goes," But it honestly took us two years to find a house." And she said, we're just looking at it as," Yeah, we're going to pay more right now, but we get to own our own house and we get to build equity, we get to divorce our landlord," which is one of my new favorite terms. And she's like," this is a long- term life decision for us. We want to be homeowners." And I think people forget that underlying need is not going to go away.

Dan Catinella: For sure. Yeah. Marry the home, date the rate, divorce the landlord, right?

Joe Welu: Yeah. So kind of where we're going with this is actually a lot of the conversations I'm having, and I think the ones that you're having as well, the top originators, the people in the trenches, top companies, top originators, top practitioners are saying," Everybody that purchases a home from me right now. I'm going to help them refinance three or four times."

Dan Catinella: Absolutely.

Joe Welu: Over the next couple years, do you agree with that? What are you inaudible.

Dan Catinella: A hundred percent, same thing. Listen, let's get you into the home. In most cases, home appreciations are still going to tick up, so there's a cost of waiting and not purchasing that home this year. But let's get you into that dream home. And even though we may be locking you in the 30- year mortgage, it's just going to amortize over 30 years. But there's going to be an opportunity when rates do come down for us to talk about a refinance and another transaction to lower your monthly payment. But let's get you in that dream home.

Joe Welu: Yeah. No, that's great. I'm going to shift gears a little bit and maybe let's talk about, a lot of our listeners want to hear what are their peers saying? What are they thinking about? What are they working on? Maybe share with me, you've had a lot of executive level conversations with banks and lenders, some customers, some not customers, you're really plugged in. What is the pulse saying? What are you hearing? What are the themes?

Dan Catinella: Yeah, I think certainly primary number one is cost reductions. How is my organization really starting to look at building the right operational model for the new capacity that I need? So, that has certainly continued to be a trend and I would see that through the end of the year continuing to that.

Joe Welu: Essentially lining up, I'm hearing some of the same, lining up my fixed costs from an operations' perspective and making sure that I look out the next 3, 4, 5 months in everly right sized my operational expense with my sales volume, right? I mean that's.

Dan Catinella: Yeah, absolutely.

Joe Welu: And sounds simple, right?

Dan Catinella: Looking at your tech stack too, and really making sure, I mean, it goes beyond just the staffing model. That's a big component and usually the number one expense on everybody's balance sheet. But also looking at what other investments am I making? What partners am I investing in? Are they providing right level?

Joe Welu: Where am I getting value?

Dan Catinella: Return on investment is a huge one.

Joe Welu: Yeah, some of my conversations have, and give me your feedback and see what you've heard, but have been, look in when the markets are crazy, you're adding people, you're just, it's like," Oh, let's throw headcount at it" right?

Dan Catinella: One hundred percent.

Joe Welu: There's a new tech tool. There's a new shiny, let's buy it. Nobody really looks at running the business like you should be running a business sort of these exuberant markets. They insulate a lot of bad decisions.

Dan Catinella: For sure. I mean, you start being a little less strategic and start being more of," let's just run after the next shiny object." And I think that's what organizations are really looking at today and evaluating," All right, have we done a good job of implementing this? Does it really align with the rest of our tech stack? And does it ultimately provide value for our business?"

Joe Welu: Yeah, largely, I think one of the benefits right now is volumes have slowed down and most of the companies that have leadership, including banks, they're certainly looking at home equity products. And we see a lot of the independent banks that are putting home equity products, some of which are starting to get into insurance and looking at it very, very differently. But a lot of them are saying," This, right now, is an opportunity for us to think about the next year to two years and then make some adjustments, micro adjustments, macro adjustments on strategy, systems, people team, just dial in the business." Is that what you're hearing?

Dan Catinella: For sure. And just to touch on, product diversity I think is a major trend in the industry. You got a contraction going on and you're a traditional, conventional forward business. How are you trying to supplement that with additional revenue streams? And the easiest one is just expand the box.

Joe Welu: Expanding the box.

Dan Catinella: And really trying to cast a wider net out to a consumer base to serve more customers. Are you looking at, like to your case, I might look at HELOCs to tap into a trend of increased equity in the market. Am I looking at reverse mortgages and getting into that market, I mean, that's a tremendous, I think the baby boomers are produced somewhere around 10,000 consumers eligible for reverse mortgage per day.

Joe Welu: Per day.

Dan Catinella: Per day, yeah. non- QM, another big trend. Can I look at non- traditional income qualifying borrowers and really casting that out there to attract and serve more customers?

Joe Welu: I'm just essentially a lot of what you're telling me, the conversations that you're having is they're being really methodical about saying," Okay, the market is what it is. We can't control what's happening with rates. We can't control what necessarily is going to or not going to happen with price appreciation, but we can shift strategy."

Dan Catinella: Absolutely, absolutely.

Joe Welu: And what I'm hearing you tell me, and I would say it definitely is some of what I have heard as well is let's just go down the list and find what are the levers that we have to drive revenue and growth? What are the levers, right? And what you're saying is expanding that product mix is a big lever that can be controlled and we're going to see more on that, do you agree we're going to see more innovation?

Dan Catinella: Absolutely. We're going to definitely see some more product innovation across the board. And it'll probably make some originators a little uncomfortable. And it's got to be implemented the right way to not create friction around the originators. Originators traditionally aren't that keen on selling a HELOC program from a financial aspect. It just doesn't always make a lot of sense. But if it's a frictionless process and it just allows them to keep a consumer in their environment, it's a win long term that they can then service that customer for the next mortgage transaction.

Joe Welu: Do you think this is forced, a mindset shift for a lot of originators?

Dan Catinella: It's a great question. I think the short answer is yes. I think nine out of 10 originators I talked to today have completely changed their mind shift into more an advisory role. I think the transactional loan officers, if they're not exiting the business already, they shortly will be. But I think the guys that will be in this business long term over the next 10 to 20 years will be the guys that really are that advisor. And we're certainly seeing the local mortgage advisor win in this market.

Joe Welu: Sort of this resurgence of," Hey, I'm in your market. I know the economic factors, housing pricing that impact your community."

Dan Catinella: Absolutely. And they own the real estate agent relationships too, which is primary source for purchase businesses inaudible.

Joe Welu: The other financial professionals such as realtors. We talk a lot about, consumers got all these different financial milestones in their life and great brands, great originators, great advisors, whatever the line of the business you're on thinks about it holistically. They think about what's going on over all these different financial milestones and how can I be a partner along every one of those? And it was the last couple years, people were just like," Whatever, I just need to close my deals." Right?

Dan Catinella: Yeah, I mean when you got deals just falling out of the sky, whether you talk to a consumer or not, they're just coming to you. People have, now, this year shifted back into the mindset of," All right, now I'm back to a hunter and gather versus just a rainmaker coming out of the sky."

Joe Welu: It's so funny because I was having a conversation with a group of originators and I'm like, you didn't really think it was that easy do you. Could you forget. When you and I were coming up in the industry, it was like you had to get up and hunt for your food every day, right? You had to go find the business.

Dan Catinella: For sure. I mean, two years is a long run to be able to just have deals just falling from the sky. So I get it. It's easy to forget, but most of the guys have been into the business for much longer than that.

Joe Welu: You think this is, the cycle is going to be good for the industry as a overall?

Dan Catinella: I think the industry, listen, industry average, and we talk about this all the time. Industry average is still one out five consumers come back to the same originator and or lender.

Joe Welu: Which is shockingly low.

Dan Catinella: Our industry is one of the lowest, if you look at all the industries.

Joe Welu: 20% Retention of customers.

Dan Catinella: Yeah. It's not good.

Joe Welu: And we see that across the board.

Dan Catinella: And I think that's the big shift that's going to happen next is really seeing that shift to these advisory role, making sure that we use data intelligence, the services opportunities to make sure we're staying in front of customers in the right way and surface the next opportunity and being more of that advisor than ever before.

Joe Welu: One of the words that I've heard a lot from the conversations that I've had is how do we translate? How do we show empathy to our customers more than we have before, customers and partners and whatnot. It's something I hadn't really heard for a while.

Dan Catinella: Yeah. I mean, we used to use the saying, serve your customers, don't sell them. So I think it's kind of in the same humanize serve. Those are the kind of mindsets that I think originators are starting to focus on. Hey, I may serve you with a HELOC today, because I really think that's the best solution for you financially.

Joe Welu: It's you're helping them, what you're saying is people are saying, I need to help them make good financial decisions.

Dan Catinella: For sure, for sure. So I may position a cash out, but ultimately they may end up with a HELOC, and if that's the best way to serve them, then I'm going to offer them the HELOC. But I know it's going to build a long term relationship and trust that I'm going to get their next 2, 3, 4 transactions down the road.

Joe Welu: How many of the conversations that you're having are related to in some way, shape or form, maximizing lifetime value of a customer?

Dan Catinella: More so than ever before, for sure. We talked to a bank or a lender really looking at every customer they acquire and mapping out their entire financial journey and all those milestones like you mentioned, and really figuring out really, how do we engage them at the right time? How do we know when the next opportunity presents itself to take an advisory role?

Joe Welu: How do we educate them and keep them informed?

Dan Catinella: Educate and advice is never, I mean, we talked about the media, right? I mean, you got to combat the media with solid education and advice and position yourself as an expert in the marketplace. So they're not going to call somebody from the media to ask advice and questions. They're going to call the advisor, the expert in the field.

Joe Welu: One of the execs on the sales side that I was talking to earlier this week had made a statement. The question he's asking his sales team is, look, do your prospects and customers turn to you for information? Do they look to you to give them the real answers.

Dan Catinella: Absolutely. And I think it even goes to your referral partners too. Are your referral partners deferring to you for information?

Joe Welu: Are you a trusted source? And you have to earn that, right?

Dan Catinella: You got to earn it.

Joe Welu: The way you interact, the way you present yourself online. This is not a, Hey, throw out a banner, we're the greatest lender ever. We're going to close on time. That I would say is a little bit out of fashion.

Dan Catinella: Absolutely. And having a digital presence with reviews that are meaningful is more important than ever before.

Joe Welu: It really is about, in a lot of ways, focus, again, focusing smaller, local, focusing on the relationship elements, longer lifetime value. That makes a lot of sense. The things that we're hearing considering what's going on. If I think about what people are really thinking about the next 12 months, maybe get a little bit more specific on what we're both hearing. I will say from my perspective, I think people are largely saying, look, we think, sometime, give or take a month or two, by the back half of next year, probably Q3, we're going to be an environment where we can start having refis again, agree or disagree?

Dan Catinella: Yeah. So I'm no economist, but I certainly listen to a lot.

Joe Welu: I thought you were this, that's actually why we named you chief lender. I'm just kidding.

Dan Catinella: So I think all the projections that I've seen, and I hear, and I truly do believe this, I think we'll be in a normalized market come Q2 in next year. So hopefully set up for success. All this volatility's behind us, we get inflation in check and we really be to a 2019, 2018 level of origination. I'm hoping we're somewhere back in the fours from an interest rate perspective.

Joe Welu: That's maybe a little more bullish than I would've thought. You think really there's a chance of that?

Dan Catinella: I do. I do. Yeah. Maybe it's a little deeper into the Q2, Q3.

Joe Welu: inaudible. Look at what's happening. They're shocking the system right now. Dropping a bomb on inaudible.

Dan Catinella: They got to get inflation in check. I mean, when interest rates are not going to come start coming down until they get inflation in check.

Joe Welu: And when they do, you're going to see fairly immediate, at least some relief.

Dan Catinella: We're going to start to see trends down for sure. And my hopes are is that by the spring market next year we're in a much more normalized market. So we're really hopefully talking about two- quarters of some significant challenges. But to your point, is what you do today is going to set up for future success come next year? And if I can get a customer into a home, even if it's at a six and a half or 7% interest rate today, I can help that customer refinance next year or the year after and lower their monthly payment.

Joe Welu: If I think back through a lot of the conversations, and I was going through my notes this morning and all the conversations that I've had over this last couple of weeks, and it really is clear, there's two different buckets of how people are thinking about this. People are thinking about how do I accelerate on the backside of this and how do I put distance between myself and any competitors? There's that rule of thought or that mindset. And then there's the other mindset to where my head is on a swivel, I'm trying to figure out where I'm going to get hit in the face with a baseball bat next, like rates and margin calls and originators leaving and recruiting or lack, like all of these things. So they're really, they're having hard time. Some people are having a hard time figuring out, just reacting to the pace of what's happening out there.

Dan Catinella: For sure. I was just saying another way, I think there's people that really have built a pile of equity within their company and are now using this market to really make smart investments and organically grow and or look at M& A activities. I mean, the reality is we're going to see more probably M& A activities and more movement in the industry than probably we've seen since the meltdown.

Joe Welu: Yeah, no, I would say that that has been 100% consistent, were seeing that manifest itself in deal flow. The advisors and consultants that we stay in touch with are saying, Hey, there's a lot of deals moving around right now, which happens in these times. And I think it's just important to have context.

Dan Catinella: And I think some of it is driven just by, there hasn't been much movement in the industry. The originators ultimately had so many deals and their pipelines were so full. No originator, typically from lenders I've worked with in the past, we would always see the movement starting in the fall through the winter when their pipelines are a little shallower. But that never happened in 2020, 2021. So there's I think, a little pen up demand of a moving out of an organization into another one. Whether they think it's a better fit or not is questionable. But yeah, I think that's one of the drivers as well.

Joe Welu: Yeah. Some of the questions that I get are really around people that are tech companies that serve the space. Some of our own internal team at Total Expert are having a hard time digesting the headlines. They're like, Oh my gosh, every day there's a mortgage headline. What's happening? And how do you respond to that because I think it's important?

Dan Catinella: I mean the only way to respond is through really true solid education and advice. And consumers are seeing all those headlines too. So I don't want to buy a home right now. The sky is falling, the housing markets going to is crashing, and those are all just false. There is no credit crisis, right? I mean, we're not having a credit crisis. We're having a rebalancing of the market to pre- pandemic levels.

Joe Welu: And prices shouldn't have doubled in less than 24 months on some of these houses, right?

Dan Catinella: Yeah. I mean 30% appreciation in some markets.

Joe Welu: I Think people are quick to forget that. Do you agree? They're quick to realize that, wait a second, the house that I paid 600, 000 for nine months later is worth 900 or whatever the number is. Literally a lot of these markets saw prices double in less than 24 months.

Dan Catinella: Absolutely. And my personal opinion is, I don't think it's all going to come away. I think there's going to be some decline in some certain markets that just we're crazy inaudible.

Joe Welu: Yeah, not, neither one of us are predicting prices are going to go back all the way down. I do think you're going to give some of those gains back.

Dan Catinella: Absolutely. I think most people are hoping not too much, but I do think some of them will come down. But I also think that it's also created, that is one of the trends obviously, especially if you didn't have an asset, if you didn't own a home, you're at a stronger disadvantage than ever before, right? There's a higher barrier of entry now, especially for first time home buyer. So there is a bit of an affordability crisis going on that we're seeing.

Joe Welu: One of the other conversations that I've been having multiple times over this last month or so is people looking at the sort of underserved areas where people, home ownership hasn't necessarily been available to a lot of areas, a lot of neighborhoods. And it seems like there's an increased focus from the Fed on federal government on serving these communities. I listened to the top seven, six or seven banks, a couple of which are customers of ours, testify in front of the house and talked about one of the things they were getting grilled on is affordability and access to credit. What are you hearing in that space?

Dan Catinella: Yeah, there's a lot going on there. It's mostly around lower to moderate income families and how do we help them get into homes? Did they always have to be renters? Can we create creative credit models if maybe they just can't get a credit score or maybe they have untraditional income models. How do we support those homeowners as well? I mean, the fico model has traditionally been the baseline for understanding somebody's credit and not everybody fits into that model.

Joe Welu: One of the things that I've heard a lot about lately that seems to be an important component to that is paying rent on time is now going to help build your credit. So you have people that maybe didn't have or don't have a credit or very thin credit file and now if they're able to so. I bring this up because I think this is a whole other segment of home buyers that there's energy and focus and interest in turning the page and getting those people access to homeowner they really want to.

Dan Catinella: Absolutely. Getting the access to credit to be able to qualify for a mortgage and some of the agency works that's being done is really try to expand that box and target those consumers that have traditionally just been told no, that they don't qualify.

Joe Welu: So man, we've both been put a lot of miles on. We're going to put a lot more on the next couple of months, basically both inaudible.

Dan Catinella: I feel like I work for FedEx now.

Joe Welu: Yeah. I was going to say, somebody asked me, Well, where do you live? I said, I kind of think sometimes I live in Delta Airlines, but actually Minneapolis. But no, it is as always a privilege to be able to get out and have so many absolutely conversations. Any other comments that you're hearing from the trenches that might be relevant to chat about?

Dan Catinella: Yeah, I think we're also hearing, obviously with so much movement, a heightened focus on recruiting efforts. So if I want to make an investment into growing my business, how am I systematically looking at my recruiting efforts and how can I really scale that out and really optimize those efforts in this time? I mean, this is a great time to be able to refocus on recruiting and really seize that opportunity. So that's definitely one of the trends for sure. And just overall LO retention with all that movement, how do I make sure that I'm providing as much value to my originators as possible. So anything that you can really do to showcase the value that your organization is providing to originators is a good thing to do right now.

Joe Welu: And we saw, for a lot of the year, we saw a lot of people chasing big signing bonuses, guarantees. Is that largely going away?

Dan Catinella: Definitely don't hear that as much.

Joe Welu: Not hearing as much either.

Dan Catinella: I mean, certainly not as nine months ago even. So I think organizations are starting to get smarter with their cash. And I also think that originators smarter. I mean, they know if they're going sign a big signing bonus, they're smart enough to know that, hey, it's going to be built into my rate sheet over the next two years.

Joe Welu: Yeah. I think one of the things, it's not just about money. A lot of people think, well, they're going to pay a more, it can be about money. But I think what the long term strategy is, it's the whole picture. You got to be there for your sales people, are you helping them sort of get through the peaks and valleys mentally they go through, have the growth mindset.

Dan Catinella: Absolutely. Are you giving them the right products to arm them and go out and serve as many customers as they can, especially in this market, for sure, products. And you got to put aggressive price on the street. I mean, it's ultra competitive out there. I mean, you can't be a half a point or a point difference in rate, that you're going to lose some significant business this day. I mean, there's more rate shoppers than ever before. So understanding, when you're generating approved approval and being able to put the most aggressive thing you can in consumer's hands is really important right now.

Joe Welu: Yeah, no question, buddy. Well, hey man, great catching up my friend.

Dan Catinella: Always.

Joe Welu: All right, buddy. Thanks everyone. Catch us next time on Expert Insights with Total Expert. Thanks so much for joining us today. Be sure to subscribe wherever you get your podcast.