Matt VanFossen on the new sheriffs in town: state regulators

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Matt VanFossen, CEO of Absolute Home Mortgage and the chair of the MBA’s state legislative regulatory committee, about new and pending state regulations on AI, CRA and zombie mortgages.   Related to this episode:   ⁠Matthew VanFossen⁠  https://ahmcloans.com/loan-officers/matthew-vanfossen/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.

Transcript

00:00Welcome, everyone. My guest today is Matt Van Fossen, the CEO of Absolute Home Mortgage,

00:05also a fintech guy, and now he's chairing one of the MBA's most important committees. So we

00:10wanted to have him on to talk about what's happening at the state level on regulation,

00:14what people need to be thinking about. Before we dive into that, I want to say thank you to

00:19Trust & Will, our sponsor, for making this episode possible.

00:22Matt, welcome back to the podcast. Thanks, Sarah.

00:30Great to have you back. You know I love talking to you, and you have a new title.

00:34You are now chair of the SLRC. Did I get that right?

00:38Yes, SLRC, the State Legislative Regulatory Committee for Mortgage Bankers Association.

00:43Which is a very timely title, a great thing to talk about because we know that, yes,

00:49this is a deregulatory administration, but the states have stepped up to say,

00:53let us fill the gap. So tell us what you're seeing out there.

00:57Well, we're seeing a lot of stuff, and first, you know, it's been absolutely a pleasure to work

01:01with everybody at MBA, and when they came to me and they asked if I wanted to do the state

01:07committee this year, I was just so excited about it because it was really an honor because that's

01:11exactly what we're seeing. The federal regulators are obviously being downsized. We know what's going

01:16on with the CFPB. We know the current administration's position, and we're seeing

01:21these individuals flow down into the states. So the state-level issues are more prominent than

01:26ever, and it really just makes me feel that I can get a lot of work done for the industry. So

01:31it's going to be great, and we have a whole bunch of hot topics that we can talk about about what's

01:36going on in the state. One is AI. Everybody, the whole industry is talking about AI, but what a lot

01:43of us don't know is that this past year, over 200 legislative attempts have been made for states

01:50to pass some type of AI mortgage bills or AI data bills, and we've been tracking this stuff like

01:57crazy, and it's really remarkable, and what's really interesting is you actually saw a couple

02:02of states last year actually successfully pass legislation. So Colorado is one notable one,

02:08and when you go look at Colorado, what's interesting is they passed it, but it seems like they really

02:12raced to be the first to get an AI bill through, but a lot of them didn't really know what was

02:18inside of it, and it doesn't look like they're too happy with it right now. Okay, so I saw the

02:23coverage afterwards where people seemed to be surprised about that, and from my perspective,

02:27when I think about a mortgage company, they've got to think about their own practices, but also

02:31all that vendor risk they might have when you think about their, you know, how are their vendors

02:36using AI, handling AI, especially with all the personal information? Well, you know, part of my concern

02:41with it is what I call a broad stroke approach at AI legislation, that we as an industry have been

02:49using certain forms of AI in maybe what you wouldn't define as a definition of AI for years,

02:54rule-based decision making. A lot of our GSEs have automated engines tied into it, so having any type

03:02of legislative bill that says that you have to allow a consumer, let's say, to completely opt out

03:07from AI has all of these unintended consequences, well, maybe I can't sell that loan to the secondary

03:13market because I can't even run AUS on it, then. What about servicing? When you call into the

03:19servicing system, it's an automated attendant. Well, does that have certain components of what

03:25we think is AI is, okay, using chat GPT maybe at times, right, using these LLM engines, but when you go look

03:32at the legislation and how detailed it gets, some of these items start crossing over into our other

03:36systems, and that's the most important part of it. So what we're doing is we're really focusing on

03:43educating. Through MBA, we're working with the Education Committee, and this is really across all

03:50aspects of MBA. All the committees are working together to figure out, okay, how do we go and

03:55educate regulators and educate legislators at the state level to go and inform them, hey, there's a

04:02bunch of systems and tools that have created consumer efficiency at the mortgage company that

04:07have saved consumers' costs. When you're passing these bills, let's not look at that. But what we do

04:13want to look at is things like the application takers, the conversational consumer-facing AI,

04:20and design what we call off-ramps, where a consumer that maybe doesn't want to have a conversation with

04:28a bot, and they want a human-based process, they have that ability to get to that human loan originator

04:35and have that done transparently, where they know they're not, it's very clear and transparent to them

04:40that they're actually not talking to a human. They don't want to be unfair, misleading, or deceptive.

04:45Wow. I mean, I think the other challenge I see with any sort of legislation is how fast

04:50AI capabilities are changing. So how in the world is that legislation keeping up? And then

04:56that's just another layer, I feel like, for companies, trying to really do the efficient

05:01thing, the cost-effective thing for the borrower. They don't need that.

05:04Well, I actually think that's a phenomenal point. When you look at certain provisions of RESPA and

05:10marketing guidelines that were passed 30-plus years ago, and we still haven't reformed it and

05:18updated the guidelines to internet-based marketing procedures. So we're going to go past some of

05:23these laws, and then how do we ever go and unwind them when we have a track history in our industry

05:29and in our country of, okay, yeah, we pass it, and then now it's codified into law, but it doesn't

05:34cover the natural evolution of where technology in the industry goes. So I actually think it's a

05:40phenomenal point that we shouldn't be racing to the gun for it, but we still do need to have proper

05:47consumer protections in place.

05:49So you told me that, which I was not aware of, you guys have a resource for lenders, for NBA members

05:56on these state-level things that are coming through. Tell me about that.

06:00Well, like I was saying, we saw with the downsizing of federal oversight, as it appears,

06:06particularly at the CFPB level, we're seeing a lot more activity at the states, and I think you and

06:12I talked about this even on previous podcasts. When Chopra left, he left a manifesto of how to do

06:20state-based regulation to the regulators, and they're taking that seriously, and it's even going into the

06:26state legislators. So what NBA has now is we have the lookup database, where you can go into your

06:34NBA portal, and you can go look at all of the state legislation that's actively being worked

06:40on and being proposed. Not even the stuff that's being passed. As the bills are being proposed in

06:45real time, it updates every single day, and you can see it in real time. And this is, I'll do a plug

06:50for Mortgage Action Alliance really quick. This is the importance of MA, that we need loan officers

06:57to now get engaged. We need loan officers to log into their portal for the first time, sign up for

07:02MA because you can see all the state bills, anything that affects your business, and then you can click

07:07two buttons and write a letter to the state senator. They make it so easy for you. So we have tons of

07:13resources at NBA for anybody that wants to get involved. I think this is so key because this is

07:19why there is an advocacy organization, because you sitting out there as a loan officer, even you own

07:24a mortgage banking company, if you own a mortgage lender, what kind of resources would you have to

07:30put out there? To be able to even know this is coming, much less like we have a plan, here's the

07:35action you need to take. This is why you have a trade org. Sure. You know, it's interesting. I own

07:41and operate Absolute Home Mortgage, and we're a midsize IMB. We're not a small company, but we're

07:46a midsize company. But I don't have the budget. I have the budget for a compliance department, but not

07:50an entire regulatory affairs department. Absolutely. And some of our top, you know, top 10, top 20

07:56lenders, they do have that. And that's awesome. But for the average mortgage banker, this is why

08:03MBA is so important and so important to be involved, because we need our political action

08:08committees. We need our lobbyists. We need our trade organization to go and keep us informed of

08:14what's going on, but also get the feedback from its members and say, okay, yeah, this is what we

08:18really need for our business today. And it's so powerful when you have that ground level, when you

08:23have an LO reach out to their rep or to their anybody that, you know, there's in Congress or

08:29House of Representatives, because that says to them that this has reached this level. It's not just

08:34like, oh, we're hearing from an advocacy organization. We're hearing from this. It's like, that's where the

08:39strength lies. And I think it's easy for people. I long time ago, I did an internship on Capitol Hill, and

08:44that is a huge thing. Like they read those things. Well, because those are their constituents. Yes. When you go

08:51into Mortgage Action Alliance portals, it goes down to the exact town and county that you live in. You're

08:56putting your home address in. So it's routing it to your constituent right inside of their district.

09:02And that's why it's so impactful. And the conversation of loan originator level and involvement is

09:08happening more so than ever at MBA level, because we need the ground game. I love that. Okay. Besides AI,

09:14what else is coming up? So we have a couple other interesting items going on at state and local.

09:20One is this thing called zombie mortgages, as they're referred to. We like to call them dormant

09:26leans. That's a nicer way to say it. Not as catchy, though. Not as catchy, right? Not as much of the

09:33buzzfeed. But California in particular, we're seeing more activity on this. But it's HELOCs and

09:40paid off seconds that have never been discharged. And they're sitting dormant at these servicers and

09:46they were closed, closed off. And even back, I remember, I don't remember the Wells Fargo

09:50issues from years ago. I'm not saying they were opening HELOCs, but we know that there's all of

09:56these banks that had HELOCs open. They just weren't discharged. So getting these dormant mortgages off

10:01the books is really, really important and closing them out and having transparency with the consumers.

10:06So we're going to see a little bit of legislative action around us monitoring that.

10:11And that's at the state level.

10:12That is at the state level. Yes, that's at the state level.

10:16So we have that going on. Oh, man, there's so many other things, too.

10:19Let's see, you have CRA concerns, correct?

10:21CRA concerns, yes. So this one hits a little home for me because the current most prominent one is

10:31New Jersey. So my home state, you know, I served four years as the president for New Jersey Mortgage

10:37Bankers. And we currently have a bill that it looks like it's trying to get pushed through. And we're

10:43going to find out really in the next two weeks, it comes down to the gubernational election. Because

10:47if Jack Cidarelli gets in, what you could see is them try to fast track the CRA legislation to go get it

10:57passed in a lame duck session. And then once it gets passed, you know, it's very hard to unwind it.

11:04So we've been educating the sponsor of the bill and their offices on it. It's going well. But we've been

11:13doing the talking points. We've been showing that, you know, IMBs already represent the underserved

11:18community. We're already servicing this community and we are not depositories. There is nothing to

11:24reinvest. And what our biggest concern in New Jersey in particular is they have a mandatory item

11:30inside of the bill that says every lender licensed in the state needs to be audited on CRA once every

11:38three years. And what we were showing the sponsor of the bill is, look, the department has limited

11:44resources to begin with. Right. The cost attributed, there's over 1100 licensed lenders. And by the way,

11:51most of them are not located in the state. Exactly. These are all remote examinations. So you're going

11:56to take lenders that are not in the state that have in office or state requirement, in office marketing

12:02requirements, potentially because of the CRA bill, because they want involvement in those communities.

12:09And then you're going to try to examine them. This is a burden. And all it's going to do is rack up

12:14examination costs on the state, increasing the state budget for the department. And then on the

12:19lenders, we're going to be spending more money on compliance than actually doing what we do now,

12:23which is service servicing that community. So New Jersey is definitely going to be a state to watch by

12:28the end of the year for CRA. And then we see trailing bills all over the Northeast. We saw one

12:34in New York where we're seeing Pennsylvania and Connecticut line up as well. So I think everybody's

12:38kind of watching that Northeast corridor for CRA right now. I feel like it goes back to the

12:44understanding, like when you talk about the rest of the laws before the internet, CRA laws in the world

12:50that we live in now, where IMBs are the majority of mortgage, you know, lenders, and that, like you said,

12:57they may not have a brick and mortar. They may not even be there. It's just like this. It's like

13:02a dinosaur coming in from the past. Like if there's an issue there, let's figure out what

13:07actually the risk is or the underservedness is in the reality and not just whatever is left over

13:13from before. What's difficult is CRA makes sense on paper. When you look at it, you say, okay, yes,

13:18we're not going to take deposits from within a community, take money from the community, and then

13:24go take that money outside and bring it to other communities. Now, we're going to invest that back

13:28into infrastructure of that community, giving those loans back to that community for real estate

13:32development, marketing, home ownership. But the problem we face with IMBs is we don't take in

13:38deposits. Right. So what do you want us to do? Right. I said we should just be calling it the

13:44Community Investment Act, not Reinvestment Act, because we're just investing in the community. But

13:47I think the most comical part about all of it is that's who we're serving to begin with.

13:52Absolutely. And I don't think you'll ever meet an independent mortgage banking loan officer

13:57that has the opportunity to take an application regardless of where it is. And they're going to

14:02say, no, no, no, I don't want to take that application. It's like, have you met loan officers?

14:06Right. Just saying, okay, anything else on your radar?

14:09So, you know, the AI stuff is going to be really, really prominent. We're educating ResBog on a lot of

14:16these items. But more so than anything, it's going to be about watching what is happening across these

14:2250 states. And I think that's kind of going to be the most important thing is that we have to monitor.

14:28And we are working very hard to have better alignment with our state and local NBA trade

14:36associations, because we believe that that's where this fight now has to happen. That we have federal

14:45covered, but we need loan originators and mortgage companies to be more engaged with their state and

14:51local associations. So they're finding out what's going on inside of their home state. You got to play

14:57home game defense, if you will.

14:59I love that. And, you know, just from our perspective, we see a much more active state

15:03level organizations. I mean, at least, you know, our activity with them, our connections with them

15:10have grown over the last year quite a bit.

15:12Yeah, we're seeing some great conferences at the state level. And the worst part about all of it

15:19is they need better attendance. Everybody needs better attendance for this industry. And it is a lot

15:25of executives. It's a lot of vendors that go out. But what we need is we need the compliance

15:28officers to show up. We need the underwriting managers to show up. We need the loan originators

15:33to show up. We need to get back in person in this industry at each state association, start having

15:40that conversation. So the state trade organizations are reporting back to us on our monthly calls and

15:45saying, this is the hot button issues. This is what's going on. This is what we're seeing. And then we have

15:52a more combined voice together.

15:54I'm going to be at Texas NBA on November 4th. I think it isn't in Austin.

15:57So I think this is really a great message to get out is like, this is a different battle. Okay,

16:03so yes, the federal part's taken care of. People still need to be active there. But like, if you

16:08don't do it here, it's going to affect your actual business. It's going to affect your bottom line if

16:12you don't know what's going on in your state.

16:14Sure. Absolutely. It's more, we've been saying it for a year. Well, almost like when did Chopra send a

16:22letter January 14th. So almost a year, but we knew for like 350 somewhat days already that the

16:33environment and climate was going to change. And there's so much going on at the federal level

16:40too. You know, we're, we're seeing a potential reform for MLO compensation, RESPA reform, right?

16:45So I don't, I feel bad for some of the great people at NBA because they, I don't want to say

16:52that they're spread thin by any means because they have a great ground game and they're truly amazing

16:57people, but they are just working on fighting so many fights right now, but it's all positive. And

17:02something that's been really great is I think we've had one of the best lit legislative years at NBA we

17:08have seen in so long. We got, we got trigger bills through, right? We got, we got, uh, our, our, uh,

17:15VA issues through. We just had a great legislative year. And I think that's going to continue. Uh,

17:22you know, we'll see GSE reform, like I said, MLO comp reform, hopefully next year, all this has to

17:28take proposed rulemaking and, and take, uh, go through that, um, that standard cycle on the Hill,

17:34but we're actually seeing activity and action. Okay. Our audience, if you're out there listening,

17:40uh, take this as your call to action to get involved at the state level. And of course,

17:45with the national organizations, Matt, thank you so much for stepping by giving us this, uh, insight

17:51and we will be checking back with you quarterly to find out what's going on. Yeah, absolutely.

17:55I look forward to it. Thanks, Sarah. Thanks.

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