How Draper and Kramer is using income and payroll data to upgrade its mortgage borrower experience
- On this episode of the Tearsheet Podcast, we look at the history and maturation of Draper and Kramer, highlighting its growth from a small broker to a national mortgage banker.
- The conversation delves into the role of technology, specifically Argyle's verification platform, in evolving various aspects of the mortgage process, such as enhancing borrower experiences, tackling fraud, and managing costs efficiently within the industry.
It’s been a wild ride for mortgage lenders the past few years. With rates high, they’ve been primarily focusing on two things. The first is to cut costs – that can manifest in reduced headcounts, but mortgage lenders are also thinking about using technology smartly to do more with less. And for those lenders who’ve seen a cycle or two, they’re thinking about using technology strategically, too. It’s not just about efficiency – they know the cycle will turn back in their favor at some point, and will they be ready to scale when demand kicks back in? Will they be proactive about growth when things start ramping up again?
For this episode, I’ll be joined by Courtney Schaefer, COO of Draper and Kramer, a real estate firm that’s over 100 years old and one of the top 30 mortgage banks in the US. She’ll take us through how her firm is positioning itself to be ready for a mortgage rebound. She’s clearly looking at technology and data tactically – to reduce costs and increase efficiency – and strategically – to be able to grow smartly when the market dynamics shift.
Also on this episode is John Hardesty, GM of Mortgage at Argyle, a leading provider of income and employment data that does deep work in financial services.
Tearsheet has partnered with Argyle to create a four-part podcast series (Part 1, Part 2) that explores how different parts of the financial industry are using modern technology and access to new forms of data to power their businesses today and into the future.
Highlights of this conversation
- History of Draper and Kramer Mortgage Corp.
- Response to rising mortgage rates and the impact on staffing and technology.
- Adoption and challenges of technology in the mortgage industry.
- The importance of borrower experience and the role of technology in enhancing it.
- Argyle's verification platform and its impact on the mortgage industry.
- Strategies for cost reduction and efficiency in a changing market.
- Future opportunities and innovations in the mortgage industry, including coverage, conversion, and distribution.
The following excerpts were edited for clarity.
The history of Draper and Kramer
Courtney Schaefer, Draper and Kramer: My name is Courtney Schaefer, I am the COO of Draper and Kramer Mortgage Corp. I have been here for 24 years, I guess I can't even count anymore. We've been in the business just as long. I've spent almost my whole career with Draper and Kramer, which was formerly First Advantage Mortgage, so I've had a lot of different jobs, and a lot of different roles here at the company.
Draper Kramer is one of the largest bankers in the United States -- the top 30, I believe. We've been around -- we have the oldest HUD number in the nation. Back in 1997, we were founded and it was called First Advantage Mortgage at that time. We were a broker. I think I was the third or fourth employee back then. I've seen the company grow from a small little broker to the large mortgage banker that we are today.
Draper and Kramer acquired us in 2007 -- 2008. And that was kind of a great opportunity. That was obviously during the mortgage banking crisis. We've really grown from just a small little company in Chicago to a national company licensed in all 50 states. It's been great to be a part of this growth and expansion.
How technology helps in low-rate environments
Courtney Schaefer, Draper and Kramer: It always happens in our business, right? We're very cyclical -- they're either moving up or they're moving down. In the last couple of years, during COVID, we had really low rates for a long period of time. That was probably a one-time event that we all hope that does not happen again. It was great for us in the mortgage business. We were super busy. The hardest thing for me to handle during these big swings is staffing, being able to be productive, and hiring.
So as we look at that, technology is something we really focus on, because you can't hire enough people with the swings and volume that we have in our industry. So you find ways to leverage technology to really take away some of those tasks that I wouldn't like to hire people for, especially in our business, which is super complicated. It is an assembly line, but it's a very complicated one. So you break apart the pieces that you can to take them away from individuals or humans, and to make them more automated.
The response to rising mortgage rates
Courtney Schaefer, Draper and Kramer: Rising interest rates are not fun, because that usually means we're slowing down with volume and then I'm having to do reductions and realign, look at costs, that kind of stuff. When rates are falling, I can't hire fast enough and we're trying to leverage technology to make things easier for my people. So this business is a roller coaster. It's never boring. There's always something going on. I think the difference now is technology, as technology becomes more prevalent in our industry.
Technology for the back office vs. for customers
Courtney Schaefer, Draper and Kramer: I think technology is easier to do internally because we have more control of the people in the staff and explaining why we're doing this and how it works. And they see the impact immediately of this technology.
Externally, with our borrowers and our clients, it's a little harder to get that out. With the younger generation, it's easier because they're used to technology, and that's what they expect. For the most part, borrowers are amazed at what technology has done -- it's turned from basically drawing blood and your firstborn to get a mortgage to all I had to do was fill out my information and give maybe one piece of documentation. Now we can verify employment without applicants providing pay stubs and bank statements -- it can all be done through technology.
But people that have done mortgages in the past or have been in the business, they're like, What is this? I've never seen this. Is this spam? Is someone trying to get into my account? Getting over that hurdle, that's been the hardest thing with the external piece of technology.
Pressure on turn times
Courtney Schaefer, Draper and Kramer: We've always been a leader in turn time, but it was a big push and a struggle because everything was more manual. Now, with automation, it's kind of an expectation: if you can't close a loan in like 20 days, you're not going to be picked as a lender.
Addressing costs in a high-rate environment
Courtney Schaefer, Draper and Kramer: It's a struggle right now with the volume being down. Cost is a huge part of what I look at. You need to leverage technology, but technology can be expensive. So you really have to look at the cost-benefit. And unfortunately, the benefit takes a little time to realize.
Be careful in what you pick. There's a lot of technology in mortgages. And you really have to pick and choose and do a few things that really are best for your company. Because if you just do everything, then it just falls flat, like you don't maximize anything.
Argyle: Verifying income and employment
John Hardesty, Argyle: My name is John Hardesty. I lead our mortgage division here at Argyle. As the General Manager, I focus on taking this product and bringing it specifically to the mortgage market. I work with our product, sales, and marketing teams to bring what I think is an innovative and disruptive tool to the mortgage market, and having a pretty good time doing it.
Argyle verification of income and employment platform connects via single authentication into a borrower's payroll accounts, connecting to their payroll accounts, employer accounts, gig providers, and if they are government workers, those accounts. Upon their permission, we shipped back GST-compliant data to mortgage lenders. Think base, bonus, overtime, commission -- restructuring all of these hundreds of data sets and giving it to a mortgage lender in an easy-to-read fashion.
That's decreasing their time to close, and they can make better-informed lending decisions, with accurate and pure data, which is the most exciting part of our businesses. There's no more concern about, hey, when was the last refresh? No, but it's refreshed as of the data that we get it. So that's been exciting.
As we've grown in the mortgage, and I've talked to Courtney about this, the idea that access to pay stubs and W2s might be just as high up there as our data -- whether it's a loan officer or a processor to be able to go in and grab a pay stub or a W2 whenever they need it. We give it all to the lender, so they can continue to push those loans forward. We're providing efficiencies to our originators. And you're really giving the borrower the power to say, here's my data.
Mortgage lenders going back to basics
John Hardesty, Argyle: The last year and a half has been really hard -- straight up, like every originator went through, at one point, the lowest market as it relates to 30-year fixed rate mortgage. A year and a half later, rates skyrocketed, so it's been really hard. Lenders have really gone back to basics: like, people, processes, and technology. Leaning into your referral network is back. During the refi boom, so many things were coming in that you weren't really as concerned with the referral network. But now, whether it's your realtor partners, whether it's focusing on financial literacy and wellness and helping people become credit-worthy borrowers, all of those things are back.
Levers in the borrower experience
Courtney Schaefer, Draper and Kramer: I think for the borrower, for their experience with mortgages, the phone is where everyone's at, where they do most of their communication, and where they do most of their work. So for us, we have the point of sale on our phone, we have a mobile app, where the borrower can easily check the status and request and upload documents all in there in the palm of their hand, without having to go through and look in file drawers to find documents or make a meeting. That's been a really important thing, to make it easy for the borrower and for it to be secure.
What we've used for verification of employment in the past was very expensive. And it still took a review by individuals to confirm the data. Still, things would be outdated or not current -- it's just super expensive. Argyle has come out with some way better technological solutions to get direct access to employers’ information at a way more competitive cost. I mean, It's been a huge impact. This is going to have a huge impact on the industry.
The role of humans in mortgage lending
Courtney Schaefer, Draper and Kramer: Loan officers always say," Well, there won't be a loan officer anymore." I don't know how that can happen for a very long time, because mortgages are so complicated, and there are so many different things that need to be addressed or talked about. Yes, I think technology will continue to pick away at some of that stuff to help make those decisions, but you still need a person. And to be honest, this is likely the biggest purchase in probably everyone's life. Financially, you can't just trust to put it into a computer and then it's going to spit out the right answer. You need a human behind it -- that connection with referrals and that relationship. It's really the loan officer that is connected to the borrower -- they are the ones that they feel confident to know about and talk to.
John Hardesty, Argyle: Whether it was 30 years ago or today, it's still a relationship business. There are ways to bring efficiency to loan officers to enhance the borrower experience. But at the end of the day, that borrower is going to pick up the phone and call their loan originator and say, hey, talk me through this product. Talk me through this FHA loan. If I put 5% down, what does that mean? They're the consultants. And you know, I hear more and more talk about financial well-being and how this purchase aligns with financial health. And I think that's where we're going -- going back to the basics of understanding the purchase and then being that advocate for the borrower. So it's a relationship business. And trust me, I love technology, I work in it every day -- the mortgage business will always start with the relationship.
Technology also improves the mortgage salesperson experience
Courtney Schaefer, Draper and Kramer: I think you're giving us quicker access to information to make those decisions and help make those decisions for the borrower. So that's usually when I'm asking the borrower for something, and I have to wait for them to bring it. Well, now, just log into the system, and do your quick app. And then I can be sitting at my kids' game, watching my kids play basketball, have the borrower apply online, upload their info, and apply online. I get the income information, the asset information, they pull the credit -- I can look into that right in the palm of my hand. So, it's not only like better for my customer, the borrower, it's also good for my salesperson, because now it gives them the ability to make some quick decisions and give answers and leverage this technology quickly, without having to wait for days or the borrower never calls them back.
John Hardesty, Argyle: We also know that cost per lead acquisition is at an all-time high. There are not as many leads out there. So you have to find ways to qualify and get leads faster. And selfishly, Argyle is one of those if you get a borrower to authenticate and give you all this information -- it's a pretty good buying signal. I just think with the cost per lead acquisition, it's just another tool in your belt to get the process moving quicker from pre-qualified to app and right.
Fraud in mortgages
Courtney Schaefer, Draper and Kramer: There's a lot of fraud in mortgages. What has been a problem is when borrowers or whoever is providing bank statements, pay stubs, or W2s, are getting very good at manufacturing these and looking like they are real and correct. So it's important to have a system where we can easily go in and get this from the source. From a company standpoint, that gives us a way better feeling about the fraud being detected and being able to catch things ourselves without having to look at every loan like everyone's lying. You want to believe that you're getting good documentation.
So when you're using a third-party service where they've been audited and proven that this is a good technology and they have the proper documentation and access, you utilize their system and then they have a monitoring system that allows for that. Sometimes we go to verify employment before closing, and the borrower just left a job -- they don't even think about telling their mortgage person. It's not that it's fraudulent, but we need to know. And then we read the document. So Argyle has the ability to monitor changes in employment and to notify us as a company.
Looking ahead in mortgages
Courtney Schaefer, Draper and Kramer: I think for the rest of this year, it's going to be a tough year. We've done a lot of consolidation. We grew, doubling our size during COVID. And now, we've downsized quite a bit. We're more of a virtual work environment -- we have people in the office for a couple of days. We're just looking to cut costs to obviously offer the same service and same experience but with fewer people and less overhead. We're thinking about how we leverage technology to get us there, without it being too expensive. It's a lot of juggling, and it isn't the first time we've done this.
We have great referral partners, and they're working with what they can get right now and it's our job to continue to deliver the great product and experience that we have, and keep evolving that to make sure that we are better than others. That we can differentiate ourselves. It's not that we're the only company that can use technology but it may be how we leverage it in our company and how we utilize that can be a differentiator for our company.
We've been here before, so we know that rates will go down eventually. When they do, I can't always rely on people and hiring because everybody in the mortgage will be hiring, and everyone's looking for people. So you start having to break apart pieces to automate. So we're doing a lot of that -- not just with Argyle, but like a lot of looking at the bots and being able to do remote, heavy computing automated things at night and off hours. It's a huge bottleneck for us when you need those people to review the credits and approve. It's just hard with how complicated the mortgage is. So we really are trying to go after that group to find out technologically how we can leverage some of these things. So they don't have to spend as much time looking at files, and they can look at more files in a day.
We're stripping back down, but we have to know how we turn it back on. We have to be ready when the market turns back up.
John Hardesty, Argyle: I think one thing I'll add -- just to give Draper and Kramer and Courtney a shout-out here -- that you guys save money when the markets are like they are today. But you're also thinking about like, how can what I'm doing today be adapted in a different marketplace? How is today's cost savings turned into efficiency? And I think more and more mortgage companies are starting to think like, hey, I can just strip down and get rid of tech and get rid of people. But I think the good ones are thinking about what they can keep on hand in this market that's going to 2x to 3x another market.
The future at Argyle in mortgage
John Hardesty, Argyle: I think, first and foremost, we're always really focused on coverage and conversion. How can we continue to add coverage, add employers, and payroll platforms in our network, and increase our conversion? When we think of conversion, we think of when a borrower gets to that login experience and how Argyle can get them to, input their credentials -- whether it's password reset or multifactor authentication, we're just really focused in on that piece of our platform first and foremost.
I think we're getting to be more and more of a leader and first innovator in credential verifications. We're getting asked now to be more of a thought leader with the mortgage GSEs, the MISMOs, and things like that. So really dabbling into using our expertise to help drive long-term change in mortgage, which is super exciting.
And then distribution. We have some really exciting announcements coming out about ways that you can not only use our platform experience, but use this in your everyday mortgage technology. And I think that's going to be super exciting. We're just really focusing on our distribution.
And then on the product. I don't like to share too much about what we're doing under the hood. But I am really focused on making sure every time we get a connection, that we're delivering two years worth of employment for our mortgage clients. There have been a lot of job changes since COVID -- how can I make sure that as soon as that file hits that processor, that underwriter, they have two connections if needed. We are just continuing to make this product an everyday necessity for mortgage clients.
When we were built in 2018, we were built for the gig-only economy. As we progressed in mortgage, and then with lender feedback, we've taken what we thought this product was going to be, and now we've made it a mortgage-ready product. We can always improve but we've planted our flag here in mortgage. And it's cool to see the reception with Draper and Kramer and really across the industry. Firms are saying I'm behind this disrupter now because you're providing me something that no one's ever provided me before. That's what we're really bullish about. So it's exciting to hear some good feedback.
Courtney Schaefer, Draper and Kramer: We love being you being a partner with Argyle. I feel like maybe this is the first step into other options of technology. We're just looking for people who are looking outside the box and to make things better for our industry into things that really can help us make an impact. We're really good at processing mortgages and bringing them to the finish line, and we know our craft, but technology? That's not what we are. So we have to look at partners and partner with people who are in that technology business to help us move the needle.