David Kittle of the Mortgage Collaborative #551

David Kittle

On Friday, September 22, the Norris Group proudly presents its 10th annual award-winning black tie event I Survived Real Estate. An incredible lineup of industry experts will join Bruce Norris to discuss perplexing industry trends, head-scratching legislation, and opportunities emerging for real estate professionals. All proceeds from the event benefit Make a Wish and St. Jude Children’s Research Hospital. This event would not be possible without the generous help of the following platinum partners: HousingWire, Coach Fullerton, Coldwell Banker Town and Country, PropertyRadar, the Apartment Owners Association, the San Diego Creative Real Estate Investors Association, InvestClub, Las Brisas Escrow, MVT Productions, Inland Empire Real Estate Investment Club, Realty411, and White House Catering. Visit www.isurvivedrealestate.com for event information and tickets.

Bruce Norris is joined this week by David Kittle. David began his mortgage banking career in 1978 with American Fletcher Mortgage Company. As a top producing loan officer, he moved to the management side in ’86. He opened his own company, Associates Mortgage Group, in 1994 and sold it in 2006. David is founding partner and vice-chairman of the Mortgage Collaborative, the nation’s premiere mortgage cooperative. David is past president of the Louisville and Kentucky Mortgage Bankers Association. He is the past chairman of MBA’s political action committee MORPAC and former vice chair of MBA’s residential board of governors. He served on MBA’s board of directors from 2004-2010. David is past chairman of the Mortgage Banker’s Association in Washington, D.C., completing his term in October 2009. David’s principled and straight-forward approach served him well in the industry. He testified 14 times before Congress and lead the industry during the most tumultuous period he has ever had

Episode Highlights

  • When did he begin his career in mortgage banking?
  • Could common sense underwriting come back any time soon?
  • What is the Mortgage Collaborative, and how are they involved with their clients?
  • What kinds of topics is David planning to discuss at his upcoming conference August 20-23?
  • What is the mood like in the industry right now?
  • What role does technology play in the industry?
  • What percentage of loans are refis?

One of the things Bruce saw when looking over David’s introduction was he had really good timing with everything he had done. Whether it was accidental or intentional, when he got into the mortgage business in 1994, which is just about the start of when things go crazy for the next twelve years. He sold in 2006 at what was pretty much the peak. He is an expert in the business, and they need someone like him sitting in front of Congress telling them they know they will mess it up and to not do it too bad since it is still worth having. It seems like he has landed in the right spot. When the rules became so different, he know has a mortgage collaborative business that puts all these smart minds together and helps each other. It is all brilliant.

David said he actually had nothing to do with it and that it was all timing. He was wondering himself how he got through all of that when he was so young. Bruce said we can all say we don’t really plan out a lot what we were all doing. People look back at it sometimes and think it was a brilliant move, not realizing how accidental it was. David said you do not get to pick your years or the events that happened as chairman. He was blessed to have a lot of good people around him, and he enjoyed defending the industry because most of the people needed defending. This was an important time period since there were a lot of rules that were probably prevented from being imposed. There were enough of them as they were, but there was probably a lot more aggression that could have occurred if there was no common sense attached to it.

David said they blocked a lot; and even though a lot still got through, they did their part in helping shape it. The MBA never had a problem with it, and they even called for good regulations. They did not call for onerous regulations. Now that they are under a new administration, some of those onerous regulations are being relieved and the market has improved. The whole idea of the word collaborative being attached to business is a little unusual. They talked about this off air a little, and usually you think about competition and everybody being a competitor. Meanwhile, David’s business model is saying they should put the brightest minds in a room and share their model with other competitors.

David got together with Gary Acosta, the CEO of the National Association of Hispanic Real Estate Professionals, Jim Park, and John Robins in May of 2013. They decided they were not going to be concerned with how big things got, but that it would get to a point where if he could walk in the room and know everybody’s name, then they were not going to let in anybody else. If you use the same premise most people have, you take your customers and give them an environment where they can collaborate. Everyone can talk and learn from each other, better their execution, and make better margins through their collaboration. This has been extremely successful over the last four years.

Bruce would think the hardest thing would be ending up with a margin and going through the processes and changes as well as the fines. Bruce gets news emailed to him constantly, and he does not think a day goes by that somebody is not settling some type of lawsuit or fine that stemmed from something they did a decade ago. David said they have had a very punitive DOJ and HUD; and if they deserve to be gone after, then so be it. If you look at how many times Bank of America was taken to task, at the end of the day they were actually forced to purchase Countrywide. They ended up paying fines with Countrywide originators. When you look at the trail behind you, it scares a lot of people as it should. Fines are being paid years after these loans were originated.

Bruce said it has to stop any aggression going forward. If you are still on the hot seat for something that happened ten years ago, there is no way you can say that you will get involved in something that is new and creative for the industry with more risk. David said there is good and bad risk, and this is the decision you have to make going forward. He was at a conference in San Diego where they talked about how you cannot underwrite loans. The actual art of underwriting the loan is lost because you have nothing but automated systems. David said if he had two loans in front of him and they both had bankruptcies, one because of a lifetime event and the other because of money spent on unpaid credit cards, he could not make a business decision on that day. This is because of all the reps, warranties, and repurchases. Common sense underwriting is a lost art, and the industry needs to get to a point where it can get back to it.

Bruce asked if he sees this as a likely outcome any time soon, and David said they are pushing for it. When you talk about access to credit, you want to make more loans to more people. However, you have to look at the loan on a case by case basis. When he mentioned the new administration, the word cooperative or collaborative hadn’t really struck Bruce yet during the first six months. David may have been seeing it from a whole different perspective, but it just seemed that its ability to get things done was under attack by everyone possible. Some of it has to do with non-politicians who were elected and didn’t really know Washington, D.C. Unfortunately, it is a swamp at times. Housing is very important and drives the economy, and David thinks they will do a good job of it long-term.

Bruce asked about the Mortgage Collaborative and what it does for somebody who decides to get involved with them. David said they have 115 lender members, and 36-38 of them are depositories. They are a very diverse group that also includes some credit unions. Along with this, there are 67 preferred partners which are lenders. When you put them together, they get better pricing like a normal co-op. They do different things at their conferences, they just do not bring in the talking head speakers and listen to someone speak all day long in a general session. They listen to their members, and they ask for massive breakout sessions where they can meet with their preferred partners and each other to discuss best practices. From those requests, they formed Collaboration Labs, and Bruce had actually watched one the day of the interview. Bruce loved the whole concept about the best people sharing what they know. For Bruce, this is a business owner with a lot of confidence that he will still be okay even though he does this. David said what happens is when he joins the group, they ask 5 or 6 to join and only about four can make it. You go to one of their offices, spend a day and a half there, and have dinner. Here they can get to talk with them about what is working as well as what is failing in the business. That is so unique as you want to talk about confidence with your peers. If they are saying what they do not do well and ask for your help, they are not afraid of the competition but rather wanting to collaborate and help each other. It is really down to earth and different from what you would see in other businesses. It has worked very well for them.

Bruce said one of his most memorable conferences he ever attended was one where he met a gentleman who owned Anchor Mortgage and was in the hard money loan business. He shared very specific information about how they did underwriting and gave people all the information. He went up to him after because he was so impressed with him doing this. It was very helpful for someone who did not understand the process, and it has not hurt his business. Bruce likes the concept of somebody doing this, and he was pretty confident that he did not have to worry.

David said the last couple talks he has given have been to state mortgage bankers associations. The talks were about diversity; and one of them had Rodrigo Lopez, who was the current MBA chairman. He was the first Latino chairman of MBA. When David got up to speak, he looked out over the crowd, and what he saw was an average age of 50 or older, and 90+% were white males. David was very curious about this as they had said their hiring was diverse, so he wondered where they were. Since that was a great conference for them to invest in and they were raising up new, diverse Latino, Hispanic, Asian, and African-American people, he did not understand whey they were absent. He just saw blank faces and people there wondering the same thing. The industry is not doing a good job of replacing themselves right now.

David has a conference coming up on August 23 that is a 3-4 day conference. Bruce asked what key points he will be discussing on those days. David said it starts the 20th and goes until the 23rd. The last day is when they will hold the most important event: the Kittle Golf Classic. They will be in Nashville, a great city in town to travel. Nashville is actually one of the epicenters where the solar eclipse will hit as it travels across the country. Now if you want to go to Nashville, the airline ticket is three times what it is normally and there is not a room available within 75 miles. They are breaking their conference for about an hour and a half, going to the rooftop, and will have special eclipse sunglasses to view. They have even engaged a former astronaut to come speak. Ironically, he wrote a book himself on collaboration. With him along with the former commissioner of FHA, they have some people to give industry perspective. Most of it is putting their members up on stage and talking about what they do best with the rest of the members.

Bruce asked what the mood is like in the industry right now. He asked if people are feeling like they are able to make a good living and have bright prospects. Profits are down right now, and applications go up and down from week to week. The forecast for originations is still off from where it should be. They still talk about how access to credit is not as good as it should be. At their last conference, they talked about the decisions Mel Watt was making and are not looking at changing the way they do credit scoring until 2019. Everyone is wondering why.

Vantage Score gives a new credit scoring model as opposed to FICO. This would give people more access to credit, and this will not be available through the GSEs until 2019 now. The major thing is that it over $8,000 to produce a loan now when before ago it was $4,000. All of this is backroom compliance cost. This is a ridiculous number to get to, so they have to find a way to reduce the origination cost. Most of his friends in the business are still very optimistic, and many are expanding. There is business out there, you just have to be technologically savvy. However, you can never forget that this is now and always will be a relationship business. People do business with people who they like and trust, and this is the key to it.

Bruce asked about the role technology plays and how different it is for the consumer who wants to know who to borrow from and with whom he makes contact. He asked if he would ever need to see the person and if this has changed much over the last ten years. David said it has changed tremendously depending on your age. Millennials want the rocket mortgage, and QuickenLoans has done an amazing job with them. The customer service surveys are off the charts, so they have proven that this is their model. Most of the borrowers out there are probably in their mid to late 30s to 60s, and they still want to look somebody in the eye when working with them. David just refinanced a little over a year ago, and he did most of it online or by emailing docs back and forth. The person who closed his loan came to his home, so he did not have to go to the attorney’s office to sign the docs.

The point is that technology took care of most of them. Unfortunately, with the technology also comes the rise in things such as fraud. Most of the fraud is occurring between the closing and the delivery of the loan. Money is being taken and misdirected away from where it is supposed to be going. This is something the industry is still looking at and trying to resolve.

Bruce asked what percentage of loans are typically refis versus purchase in any given year. David said it is 3-5 years, although there are a few that showed a dynamic shift that are mostly purchase. Unfortunately, he does not have the exact percentages. One of the things he believes will still occur by the end of next year is a recession. When there is a recession, we typically back off on interest rates. Bruce’s just wrote a report, “2% Mortgage Rates, $40 Trillion in Debt, and Other Surprise Endings,” so he would not be surprised if we have a mortgage rate that starts with a 2 at some point in 2018. If that occurs, your mortgage business will be completely slammed with refis. It seems like there would be a lot less house-selling going forward if people would just say they had a good rate and were just camping out. David said this could happen, and we may see people fixing up what they already have or adding a room to it. This way, they can stay where they are and don’t have to worry about moving.

At his conference in San Diego, he will be discussing his business and industry. However, the renter always seems to be forgotten. Renting should not be a bad word since everyone deserves a roof over their head, but not everyone deserves to be a homeowner. It depends on how they perform. Good, affordable rental units need to developed, and this is something he will discuss. Affordable housing goals will come up as a discussion topic. He is all for affordable housing; but what he does not like are affordable housing goals that do not have a background or agenda with them. They use it as a political model, and this is a chasm for him. They need to come up with more affordable housing since costs have run off the charts, especially in California and Hawaii. The idea of building an affordable rental from scratch with the cost is not even feasible. Bruce does not want an agenda either that says we have to build exactly one thing that will be government subsidized, and you end up having problems from day 1. A lot of areas that have that type of home are not some place you would want to live after 5 years since it gets dangerous.

Bruce does not know the answer since a builder will not take that on and say they will build something for a great loss. This is not even feasible. David said we have a lack of inventory, and housing prices are back and rising in most areas. The market is back a little bit, but the affordability of a home is the issue. David has always said for a mortgage crisis, the main solution is jobs. Good, paying jobs can solve a lot of ills. As the job market continues to come back strong, that may help as well. If nobody is moving and everybody is refinancing, then we will not have the houses on the market. New home construction is not affordable for the first-time homebuyer. In Riverside, this was a big deal a lot of the time. However, now it is not; and with the fees, it does not make sense to build that entry-level product.

David Kittle will be one of our speakers on our panel at I Survived Real Estate 2017. The Norris Group would like to thank its gold sponsors for supporting I Survived Real Estate: First Lending Solutions, Guaranteed Rate and Nathan Chabolla, In A Day Development, Inland Valley Association of Realtors, Jennifer Buys Houses, Keller Williams Corona, Keystone CPA, LA South REIA, Michael Ryan, New Western, North San Diego Real Estate Investors, Northern California Real Estate Investors Association, Orange County Investment Club, Pacific Premiere Bank, Pasadena FIBI, Pilot Limousine, RealWealth Network, Rick and LeeAnne Rossiter, the San Jose Real Estate Investors Association, San Francisco Bay Real Estate Networking Summit, Sonoca Corporation, South Orange County Real Estate Club, Spinnaker Loans, Think Realty, uDirect IRA Services, Westin South Coast Plaza, Wilson Investment Properties, Inc. See www.isurvivedrealestate.com for event information.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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