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» VISIT US ONLINE @ DSNEWS.COM 69 69 the risk discussion. at is, you should also look at it from the perspective of those close to the homebuyer—real estate agents, lenders, builders, etc. ey want the same things—affordability, fairness, and flexibility. So, let's evaluate on those criteria. AFFOR DA BILIT Y In terms of affordability, any reduction in loan default risk will reduce mortgage costs. e costs savings could go to the buyer or any other player in the system. But the challenge in most of the RFI submissions is that they don't reduce risk, as a majority of submission ideas kick in after a loan defaults. So even by moving the risk from one side of the pail to the other, it is still the same pail of water. us, costs cannot be removed from the system in a scalable way. ere may be improved efficiencies but nothing that greatly improves affordability. FAIR NESS On fairness, some of the submissions propose new entities be created to pool risk outside of the current structure or expand existing risk pools. e challenge here, again, is that they do not reduce risk. ey only add in more players. On top of that, the assumption is these solutions will need to be funded, requiring someone (the homebuyer) to pay more to insure the creditors. It may even be worse for those with lower down payments or poor credit. To counteract, lenders, real estate agents, or builders may choose to cut their fees to maintain transactions, but that would hit their bottom line. In all, adding more to the debtor side of the equation doesn't seem to help with fairness, and it will likely cut into everyone's margins. FLE XIBILIT Y Finally, flexibility. Defaults hurt everyone. But no one is hurt more than the homebuyer. Homebuyers in the event of loan defaults have likely already faced a major hardship, and because of a loan default, would also stand to lose their home and their credit. is effectively takes potential homebuyers out of the market for years to come. Again, the submissions primarily looked only at what happens after a default occurs. ey provided flexibility and options to handle the risk at that point but don't look at the big picture to provide options that can help avoid the default altogether. In turn, by focusing on the debtor side of the ledger, they also did nothing to provide customer-facing players with options to encourage more Americans to buy homes. ere will no doubt be further diversification on the back-end risk transfer, ensuring that the impact of loan defaults is minimized. But the idea of front-end risk transfer is to try and remove risk before it happens. e even bigger idea is to remove fear so that more homebuyers will jump in and industry pros can have something with which to excite this entirely new generation of buyers. e real solutions need to come from the front-office—real estate agents, lenders, builders, and the buyers themselves. ey know what it takes. Buyers want a home they can afford at a fair price and with the flexibility to move on to that next great job or to accommodate their growing family without having to sell at a loss. e more we can address these needs from the outset, the lower the risk is on the back end. is reduces the fees and costs paid into the system and benefits everyone. So why should you care? Bottom line: modern mortgage programs and experiences that address modern consumer preferences will win out. We lost a decade's worth of buyers due to the crisis. As they begin looking for their first home, they care less about mortgage lender brands—a key reason big bank lenders are losing market shares—or buying a home the "old" way their parents did. ey want to protect themselves against what they witnessed happen to their loved ones and neighbors 10 years ago— losing their home and becoming financially ruined. Modern homebuyers are suspicious of anything that injects more costs to protect the status quo. Identifying solutions now that address these concerns will not only make you more attractive to today's homebuyers, but it will also ensure you aren't forced into less desirable (and more costly) solutions later. "There will no doubt be further diversification on the back-end risk transfer, ensuring that the impact of loan defaults is minimized. But the idea of front-end risk transfer is to try and remove risk before it happens. The even bigger idea is to remove fear so that more homebuyers will jump in and industry pros can have something with which to excite this entirely new generation of buyers."

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