00:06From New York City, I'm Alison LaForgia, Managing Editor of HousingWire's Content
00:10Studio, and today I'm sitting with Joe Steppa, the CEO and Executive Chairman of Spring EQ.
00:16Joe, thank you for joining me today.
00:17Thanks for having me again.
00:19Now, since we've last spoken, the market has continued to shift with interest rates,
00:25Fed policy, broader economic pressure.
00:27What trends most stand out to you in today's housing market?
00:31There's a few trends standing out to me today.
00:33One, affordability.
00:35Two, rates.
00:37And three, the untapped equity that still sits in our country.
00:40So since the end of 2019, from an affordability perspective, we've seen home prices rise 50%,
00:45give or take nationally.
00:47In addition to that, you've only seen median household incomes rise approximately 22%.
00:52So it's significantly less affordable today for the average American in our country than
00:57they were previously.
00:58Layer on top of that, the fact that you've seen homeowners insurance rise nearly 50% to
01:0470% in addition, some in part due to the fact that home prices have risen and they have to
01:09protect that asset.
01:10But 50% to 70% rise in homeowners insurance premiums across the country.
01:14And you have significantly less affordable today than they were previously.
01:18Now on interest rates, how does that layer in as well?
01:21Previously, a 3% fixed interest rate on a $400,000 home was approximately a $1,700 a month payment.
01:29Today, hovering somewhere around 6% interest rate on that same $400,000 loan is approximately
01:36a $2,400 a month payment.
01:38So you've seen roughly a 40% rise in rate P&I payment as well, in addition to all those
01:45other
01:46factors that led to affordability or the lack thereof.
01:49And that's something that we're starting to see play out more and more, which leads back to
01:53the $20 trillion of uncapped equity that still sits in homes across our country, which is becoming
01:59more and more popular for people to think about as a way to use for home savings, home improvement.
02:08And for probably the biggest reason we see today is to see the consumer that wants to consolidate debt.
02:16This would not be a Housing Wire interview unless we talked about technology and AI and how
02:21they are rapidly changing the origination process.
02:24Where are you seeing technology make the biggest impact for lenders and borrowers today?
02:29Technology is changing faster than it ever has.
02:31And it's only going to continue to change faster and faster.
02:34Where we see our customer and whether that customer be a direct-to-consumer customer,
02:39whether it be a client who's a customer, whether it be a broker who's a customer,
02:43whether that be a B2B correspondent partner who's a customer, they care about four things.
02:48They care about speed, they care about price, they care about ease of use,
02:53and they care about customer service.
02:56Technology has a direct impact on several of those.
02:58We've been able to become much more efficient from an operational perspective.
03:03So the speed at which we're able to decision loans is that much faster.
03:07Our ops is also, as it's become more efficient, we're able to then shrink our costs to manufacture
03:14the loan, which leads to margins that we're able to then pass through to the consumer.
03:20So our rates are more competitive.
03:22And that's something that you see, whether that be in home equity rates or in non-QM DSCR right now.
03:28But the piece that's the hardest and the technology helps, but I think we need to go a step further
03:33with,
03:33is the customer service piece.
03:34Yes, it streamlines communications.
03:36Yes, it can make it more easy to interact with the borrower.
03:39But at the same time, we've had to lean in separately away from the technology and the customer service,
03:45the human interaction, which I think is an important component as much as the technology is going to continue to
03:50be a component.
03:51Joe, I want to double down on something that you just mentioned.
03:54You talked about customer service and you were responding to a technology question.
03:59And the industry has shifted to having lots of conversation around technology.
04:04But mortgage lending is still inherently a relationship-driven business.
04:08Can you explain to me why the human element remains critical?
04:13And explain a little bit more about the customer service piece you were just talking about.
04:17Because of technology these days, the borrower or the client has more offerings in front of them than ever.
04:23So they have more decisions that they have to make.
04:26But there is still some part of that that the customer or the client does not believe or doesn't trust
04:36the technology always.
04:37So what you're seeing is them lean into the customer service side of it.
04:42So as much as the technology can put offerings in front of them,
04:44we also want to see the fact that the customer service can be there to support that technology
04:50or to utilize that technology to make it that more impactful for the borrower.
04:54What we've tried to do is now we used to have humans that were supported by technology.
05:01Now we have the technology that's supported by humans.
05:04And that constant interplay between the two is what's enabled us to separate ourselves from the rest of the pack
05:10and hopefully lead to growing continued volumes for us.
05:13Earlier, you were speaking about market trends and you talked about home equity trends.
05:18It has become a major source of financial strength for many homeowners.
05:22How do you see it evolving as a long term wealth building tool?
05:26Good question.
05:27It enables borrowers to diversify.
05:29Many of their biggest asset is in their home.
05:32Much of their biggest asset is in the home.
05:34Now, how can they think about diversifying away from that?
05:36That's one.
05:37Two, it enables them to think about tax efficient strategies.
05:41So because they have assets that sit in their home and they may have assets that sit in other
05:47areas, not having to sell equities to then tap into their home equity to then potentially satisfy
05:52certain obligations.
05:53So there's a tax efficient strategy to think about as well.
05:56And third, and probably the most important thing for borrowers to think about these days,
05:59or clients to think about these days, is the fact that they're able to pass down
06:02generational wealth through their home.
06:04So as the market continues to evolve, like we talked about in the beginning of this conversation,
06:09where do you see the industry's biggest opportunities over the next few years?
06:13Great question.
06:15Non-QM certainly has to be up there, top of most people's lists.
06:18I think it'll probably be around $100 billion of originations done this year in non-QM.
06:22I think over the next five years, that could grow three to five times.
06:26Bank Statement and DSCR being the two leaders there.
06:28We've rolled out a DSCR platform at this point.
06:31I think you'll see this come with Bank Statement shortly, next month or so.
06:35So I think that's going to be a big opportunity to set most lenders very focused there.
06:38Competitive.
06:40Second opportunity will be in the home equity space.
06:43We've been a leader there.
06:44We've been fortunate that we started there.
06:46But now the competition has certainly increased.
06:49$20 trillion of untapped equity that I think you'll see more people playing in.
06:54You've seen the likes of the Rockets United step into that space in a big way.
06:58That kind of validates where we were from the beginning.
07:01But now you're seeing them become a bigger presence in the space.
07:05And the banks have returned to home equity as well.
07:07You're starting to see some of the biggest banks,
07:08the takeouts for a lot of the home equity you're seeing.
07:11And the last thing I think over the next few years that you have to think about
07:14is some of the consolidation or some of the opportunities to grow platforms
07:19or add platforms that are accretive to your strategy.
07:22There's a few that we're looking at now.
07:24But if you think of the servicing landscape, how that's been transformed over the last few years
07:28with the Rocket Cooper acquisition, with the potential Two Harbors acquisition,
07:35there's some consolidation going on there for us.
07:38You have PennyMax Sendlar.
07:39PennyMax Sendlar is another great example.
07:41There's a lot of that going on right now.
07:43And I think there's going to be opportunities,
07:44kind of this coming together of technology platforms, origination platforms,
07:51and who's can become the bigger powers.
07:55There's going to be consolidation that continues across both the origination
07:57and servicing landscapes for years to come.
07:59Absolutely.
08:00Let's dive into what you just mentioned as your forecast for things that are going to
08:06continue to be interesting in the next few years.
08:08Why do you think DSCR and other non-QM products and these loan types are becoming increasingly
08:17important for the industry to watch?
08:19There's an underserved part of our country that are still great credits that need loans,
08:25that need the capital.
08:26And that's one of the things that we're able to provide.
08:28So if you look at many of these programs, whether it be on the DSCR side or the bank
08:33statement side, yes, you have a wide range of credits.
08:35But overall, you're seeing 750 plus FICO borrowers.
08:38You're seeing 70 LTV or lower borrowers.
08:41You're seeing debt service coverage ratios well north of 1%, north of 1.25%, so 1.25 times.
08:48So you're seeing still very high credit quality borrowers that just don't have the capital
08:52available to them through a traditional lender, maybe like a bank.
08:55So the IMBs have filled that role.
08:57And I think that's one of the reasons that you're going to continue to see that going forward.
09:01Now, Joe, I want to end with a forward-looking note.
09:06Looking ahead, what's next for Spring EQ?
09:08And where do you see the company focusing its growth?
09:11Good question.
09:12We've seen continued shift towards our operations moving west to support West Coast Ops.
09:17We have roughly 40% of our loans come from some form of the West Coast states.
09:22So we've seen an Arizona office that we've recently grown and is continuing to add headcount to
09:27there to support the West Coast presence that we have now.
09:30I've also seen the growth of DSCR and Bank Statement that has supported that as well.
09:35And you've seen us roll out that DSCR product.
09:37I think you're going to see us with a Bank Statement product out within the next month or so,
09:40which is exciting for us.
09:42Obviously, late to the party, so we'll have to show up and be aggressive on price.
09:45And then I think the third thing that we're thinking about is,
09:48what other geographies can we get into?
09:49We applied for our New York license in January of 2025.
09:53Any day now, we're hoping that the New York license comes through.
09:56But obviously, a big part of our country, whether it be from a home equity perspective
09:59or just an overall lending perspective.
10:01So I anticipate being in New York sometime in 2026 as well.
10:04Well, Joe, I can't wait to see what's next for Spring EQ.
10:07Thank you for joining me today.
10:08Good to see you again.
10:09Thanks for the time.
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