June 18, 2020
Max Simkoff: Welcome, again, to Ask the Expert (in a crisis) where we ask industry leaders about their unique perspective on how to navigate the most difficult challenges faced by the broader real estate and financial services ecosystem during the current global health crisis, and also giving you a chance to ask the experts some of the most pressing questions on your mind.
My name is Max Simkoff. I’m the CEO of States Title, and today I’m excited to welcome Sierra Pacific Mortgage’s Chief Production Officer, Jay Promisco, to talk about the topic: How to close a loan in seven days.
Sierra Pacific was incorporated in 1986 and is one of the oldest and largest independent mortgage originators in the U.S. The company serves retail and wholesale mortgage banking markets in 48 states through three regional fulfillment centers and originates billions of dollars in residential loans nationwide as a direct lender.
Jay, who’s with us today, was hired as the Senior Vice President of Retail Lending in the fall of 2017 to help restructure and future proof the company and currently serves as Sierra Pacific’s Chief Production Officer.
Welcome, Jay. I’m really excited to talk with you today.
Jay Promisco: Hey, thanks. Yeah, you got me to get into the office and put a collared shirt so I’m super happy about it.
[Both laugh]
Max Simkoff: Well, listen, I know our audience today is, of course, dying to learn how your team was able to close mortgage loans – and when we say close, we’re talking qualified application to notarized close – and how you were able do that in as few as seven days, particularly when 20, 30, even 40-plus day transactions are common across the industry and particularly in the current environment. So we’re going to get to that in a couple of minutes.
But in order to just set some context for how you’ve built what you have and the huge success that you and the Sierra Pacific team have implemented there with some of the aspects of your new model, I just want to get some background on you. You started your career in banking and your family has a strong connection, I think, to the mortgage business. So, walk me through how that influenced your decision to move out of, kind of, broader financial services – and at the time, what I would have called financial technology, places like E*TRADE – and into the mortgage banking world. How did you end up making that decision?
Jay Promisco: Sure. I spent a lot of time at some really great places – you know, E*TRADE, that was a really, really exciting endeavor – as one of the people sitting there trying to figure out if the world was going to end in 2000, you know, when that came apart and doing our TPS reports and all kinds of fun things.
But, I was an options trader there and then I moved over to Barclays Global to get a little bit more broader perspective in the markets. At the time it was – we had probably $900 billion under management – and I was doing derivatives reporting and trading over there, mostly in the fixed income units.
“The ability to make more of an individualized impact on somebody’s life versus kind of globally and figuring out kind of Enron exposure or all the other things that are exciting but don’t help me or don’t help an individual.”
My mother was the Head of Training and Sales at GreenPoint, and at the time, she said: “You know, Jay, you don’t have to get up at four o’clock in the morning for your call at 4:30, and you don’t have to take a nap at 1:00 and get back up at 3:00 and get after it again. You could actually do this thing called ‘mortgage’ and sit in a call center and be a loan officer, you’ll actually make more money and you get to play golf more.”
And so I took her up on that, and oh my gosh, she was right – not necessarily about the golf thing – but I ended up being a loan officer for years and years and years and years and just fell in love with it. The ability to make more of an individualized impact on somebody’s life versus kind of globally and figuring out kind of Enron exposure or all the other things that are exciting but don’t help me or don’t help an individual. So that’s kind of why I fell into it and fell in love with it, and so here I am.
Max Simkoff: So that’s great. Actually, I have a lot of respect for GreenPoint, and I’ve met and spent some time with S.A. Ibrahim, who’s really a phenomenal individual. And actually, one of our advisors who was on this same series a few weeks back, John Kanas, was the CEO of North Fork Bank, which I think ended up acquiring GreenPoint to get into the mortgage business.
Jay Promisco: Yep, North Fork bought GreenPoint and then there was CapitalOne. But S.A., he’s an amazing dude. And, you know, Steve Abreu and all those guys, Pat McCauley, everybody at GreenPoint – you look at people that are running companies today that are doing a nice job – there’s a lot of GreenPoint DNA there.
Max Simkoff: Yeah, definitely, great team. So tell me about when you got into the mortgage business and you spent, I think, roughly a decade in the industry before you got to Sierra Pacific, what did you see transpire over that period of time as you were working in the business? And what were some of the highlights that you think gave you perspective for what you were going to go on to do at Sierra Pacific?
Jay Promisco: Some exciting times?! Mortgage is an interesting place: there’s some bad times and there’s some good times. And it’s the weirdest thing – it’s the only industry where you see bad news, like in the financial markets, and you’re like cheering it on. You’re like: ‘Yes! Unemployment is high! Yay, lower rates!”
But some highlights? You know, I got the opportunity to work as a loan officer for a lot more years than I’ve been an executive, and kind of feeling what the customer feels, what the realtors feel, and what it feels like to get yelled at and screamed at for not doing your job. Some of the highlights: At Stearns, I ended up being in charge of 10 of our joint ventures, which serviced builder clients, realtor clients…We worked with a company called SoFi, which is kind of a FinTech, and so being able to see mortgage from all the different spaces was really rewarding.
“But some highlights? You know, I got the opportunity to work as a loan officer for a lot more years than I’ve been an executive, and kind of feeling what the customer feels, what the realtors feel, and what it feels like to get yelled at and screamed at for not doing your job.”
And then, you know, we were one of the first companies that dove right in when Fannie Mae came out with Day 1 Certainly. I worked with – our CIO at the time, was a guy by the name of Udey Devalla, who’s just a brilliant man and able to kind of really see forward into what this is going to turn into. And we were the first ones to kind of dive into that component and integrated a piece of software called Empower, Black Knight’s operating system.
That was a long process, but I learned a lot. That was actually a lowlight and a highlight because – if anybody’s implemented a software program – you know that there are good days and bad days. And then coming over here with a fresh set of eyes on a really solid, well-capitalized platform, and being able to learn from all the mistakes. When you do integrations in software, anything having to do with mortgage, you tend to make more mistakes than you make good decisions. And I made all the bad decisions, and now I kind of say, “OK, don’t do that again.”
In the last few years, it’s been amazing here. We really made a lot of progress.
Max Simkoff: Great. Well that’s actually a perfect transition to talking about what you’ve been doing at Sierra Pacific. So, you were brought in to future proof what was, a relatively stable and highly successful company that had already survived the Great Financial Crisis of 2008 and celebrated 30 years in business just before you joined. And so, with everything that’s transpired this year, and the uncertainty that we’re seeing in the current market – we’re seeing even bank lenders and certainly a lot of nonbank lenders, kind of frantically trying to figure it out in the current market – I think it’s notable and unique that this is at least the second time that Sierra Pacific has weathered volatility like this and and is doing so with remarkable success. Maybe we can talk about why was Jim Coffrini, the President and CEO of Sierra Pacific, looking to future proof the company at a time that was relatively calm and stable? And what about your background made you up for the task?
Jay Promisco: Yeah, Jim and I are the resident bears. I mean, I’ve always felt – and I had another CEO, Brian Hale, he’d say, “When things feel real nice, that means something is going to change.” And then from my background in financial markets, every time I’m like, “Wow, man, the stock market is just rallying, and look at these index funds, man, they’re just crushing it!” That’s when it’s time to put the short in, right, and go the opposite direction. So I’m a little bit contrarian in that regard.
And the second thing I’d tell you is: What has helped Sierra navigate literally any of the environments is never resting on your laurels. So it’s great that we’ve been around 30 years, but to be blunt, my customers don’t care. They really, honestly don’t care.
About making smart strategic investments, making smart decisions around product, kind of being the first to react, it gets you out of some pickles, right? And there are people that run their companies and they don’t really care about cash flows or earnings or they’re just going to try to figure it out later – it’s a bad strategy.
“What has helped Sierra navigate literally any of the environments is never resting on your laurels. So it’s great that we’ve been around 30 years, but to be blunt, my customers don’t care. They really, honestly don’t care.”
And one thing that always resonates in my mind, always, is that bad, bad things happen to really good companies that don’t make any money. That’s just how it works. And at the time, it was the same thing, I’m like, “This feels great. Everything seems real calm.” That means that we should focus on improving the process. Because the customer behavior changed so much just in the last, you know, seven, eight, nine years. And it’s – even if you base it on Moore’s Law – it’s just going to continue to change rapidly. And so sitting around saying, “Hey, man, we did a great job.” You should do that for a day, give yourself a pat on the back, and then get back to work and try to fix things.
Max Simkoff: So, yeah, we have a very similar worldview here at States Title. I subscribe to the belief of “Just because you’re paranoid, doesn’t mean that everyone isn’t watching you.” And yeah, it’s usually when things are great, that’s usually right before the other shoe is going to drop.
I do want to make sure we turn our attention here to what you did in terms of cleaning up, overhauling, and streamlining all the back-end and front-end tech at Sierra Pacific, and going through this process of having to review all the legacy solutions to get to your ultimate configuration of what the right solution is.
So walk us through – and this will get us into the meat of the discussion around how to close a loan and what really enables you to close a lot in seven days – what strategy did you use to go about this journey of cleaning up and overhauling and streamlining a lot of the tech and processes? How did you decide whether to keep or replace particular partners? Did you distinguish between internal and external solutions in tech? How long did the process take? Just set the stage for what you did over the last several years to put in place the foundation that enables you to close loans in seven days.
Jay Promisco: When I got here, they’d already engaged with a vendor, an outsourced vendor to build the front-end solution. What’s really frustrating to me is, even to this day mortgages are done exactly the same way they were 30 years ago. So we take an application, we process it, we order an appraisal, we underwrite it, and then we close it, right? And that has never changed.
So they started with this project with an outside vendor to work on the front end. And I came in and it was the same vendor I’d utilized in a prior life. And so getting the front-end up and the consumer experience right first is what we heavily focused on. It reminded me back to my time at E*TRADE, we had this really beautiful, amazing website, but underneath it, it was a bunch of hamsters running around, kind of like the Wizard of Oz. Really, what it looks like underneath the hood is of no concern to your consumer. So the first step is kind of getting that front-end process looking nice.
“And the way we were able to figure out real quick whether it was the appropriate vendor or not, is saying, ‘Hey, what is your roadmap three years from now?’ And if they didn’t have an answer for that, we knew we were working with the wrong vendor.”
I came in, we did a vendor due diligence on every current vendor we had, whether that would be credit reporting, appraisal vendors, title vendors – anybody that was a vendor of Sierra, we did a deep dive.
And the way we were able to figure out real quick whether it was the appropriate vendor or not, is saying, “Hey, what is your roadmap three years from now?” And if they didn’t have an answer for that, we knew we were working with the wrong vendor. A lot of vendors – and it’s mortgage companies and companies as a whole – they get really excited about the shiny, bells and whistles [solution] that fixes one of their problems, but it doesn’t fix the global solution. If all you’re doing is fixing one problem, go find a different vendor that can solve for multiple issues and has more of a future vision of what it should look like, because it’s really expensive to bring a vendor on and do all the integrations and spend time and your developers’ time and then to find out six months from now, it’s outdated.
So we spent a lot of time with the existing vendor stack and getting rid of some vendors, adding some new ones. And then, really, we spent a lot of time on a whiteboard – I mean like weeks – saying, “At the end of all of this, what should it look like?” I think that that’s another mistake people make is, they don’t spend enough time saying, “Well, what am I really trying to accomplish here?” In software, there’s no such thing as “Hey, it’s all done” – you know that every year there’s going to be a new ‘something’ I’ve got to integrate.
“But redesigning and reimagining how a mortgage should work – and that takes a lot of planning, we spent hours and days and weeks in the planning stages – and then we figured out a baseline workflow on what we think the mortgage should look like in the future.”
But redesigning and reimagining how a mortgage should work – and that takes a lot of planning, we spent hours and days and weeks in the planning stages – and then we figured out a baseline workflow on what we think the mortgage should look like in the future. Then we started strategically either using internal resources. What we ended up with, which is a beautiful thing, is we own our own code, so we’re not relying on somebody else’s software, whether it be Encompass or Empower, where you’re hoping they’re making good decisions.
We decided to bring it all in-house. We built our own. We have an amazing set of developers here. They produce better work than the vendors that we were working with did. And then, if I want to make a change, I can walk down the hall and say, “Hey, Brian, you know, I’m thinking about doing it this way,” and then it’s done. So it eliminates a lot of the gestation period that you have – if you’re working with a big, gigantic vendor and you want to make a change – it’s got to go through, you know, millions of hours of project management and maybe you get the thing done in six months.
So bringing it in-house, narrowing the vendor stack, aligning with vendors that have a vision of the future that are well-capitalized. That’s really key, there’s a lot of vendors that have the one solution and they’re here today and gone tomorrow, and that’s a problem, too, so you’ve really got to vet out your vendor stack, for sure.
Max Simkoff: Perfect. And then maybe the last question before we get into the elements of the 7-day close. Were there specific opportunities that you uncovered – process, team or technologies – that might be worth our audience considering. We got a lot of folks from the mortgage lending universe on the call, and full disclosure and not necessarily any formal endorsement, but just stuff that you looked at or ended up using that you thought is worth it, they met those criteria that you mentioned: well-capitalized, have a 3-year roadmap, pushing the envelope on tech they could move at the pace that you guys were – anything that you think is worth mentioning there?
Jay Promisco: Sure. The key part to a data validated mortgage – that’s what we call it because that’s what we’re trying to get to – is using data instead of emotion to originate process of mortgages way better. So it’s garbage in, garbage out. Making sure that the data I’m getting from the customer is accurate, it’s a complete 1003, it’s all those things. We utilize, for our front-end online application component, SimpleNexus – it’s cheap, it’s easy. I was really frustrated because at my old company we decided to build our own – that took a while and took a lot of money – and then came over here and I looked at SimpleNexus’ product. I’m like, it’s kind of like the same exact thing, so it saved us a ton of money and integration time.
And again, it’s that front-end user experience. It’s the loan officer experience. It’s getting your application in a native mobile environment, which is key. If you look at our consumer base, if it’s not on an app, it doesn’t exist. If you look at people that are 21 to 30, if it’s not a native mobile app, it’s not a thing, so SimpleNexus did a great job there. Looking at disclosure portals, that’s another front-end process. There’s a couple of excellent vendors out there.
And then the alignment for the data validations, working with companies like Finicity and Work Number – that’s the Holy Grail, and we can talk further about that. There’s 4000 different versions of point of sale systems and there’s a reason why the acronym is POS.
[Both laugh]
There’s a lot of them out there and they all kind of do the same thing. There’s no magic to it. It’s like, “How do I get a full 1003 that has accurate information? How do I ingest that into my system? And how do I do that quickly – how do I take an application in like six minutes instead of 15 – super key factors.
Max Simkoff: Perfect. So, closing a loan in seven days. How did you weave all this stuff together? And maybe talk a little bit about the process of what did you have to put in place – maybe some of the things you just mentioned, maybe some additional stuff, and over what period of time, involving which people and processes – and how did that all come together to enable you to be able to close a loan in as few as seven days?
Jay Promisco: Yeah, we had a meeting for a half hour. I snapped my fingers, and it was all done.
Max Simkoff: That’s what all our customers say. It’s just, like, it’s really easier than people think, right?!
[Both laugh]
Jay Promisco: It’s really hard. I tell you, the first thing that we did is – back to the normal workflow of a mortgage – I always thought that it was a little bit counterintuitive not to get the customer and answer way up front on the transaction. As a loan officer, like when I worked at a couple of companies, I’m going to take your application and I’m going to find out if you qualify three weeks from now. That’s a mistake, right? It’s going to sit in processing for two weeks, and then I’m going to sit in underwriting for two weeks. Meanwhile, I don’t even have any idea if I can underwrite this mortgage and get it approved, so I wanted to move the approval status before we process the funds – a quick yes or a quick no upfront.
“As a loan officer… I’m going to take your application and I’m going to find out if you qualify three weeks from now. That’s a mistake … I don’t even have any idea if I can underwrite this mortgage and get it approved, so I wanted to move the approval status before we process the funds – a quick yes or a quick no upfront.”
We did that by making sure that all of our product guidelines were integrated in our pricing engine. So I pull a credit report, I have the income in there, and I know pretty much up front this is going to work. But then it’s layering on a couple of other processes: making sure your security income and asset validation are happening at point of sale. So that is running your work number and seeing if I can get an income or an employment waiver through your work number.
If I don’t have a work number, or they’re not in the database, we use a partner called Veri-Tax. And Veri-Tax does the same things that a work number does but they do it manually and then they go out and solicit these HR companies to go and be in their database. So I can get the same rep and warrant relief, whether I use work number or I use Veri-Tax, and I do that upfront.
Similar to that, there is kind of a natural progression of waterfall, because we want to make sure to capture as many customers for the sake of validation and I can say yes or no upfront.
The other key component, which is huge for us, is that one of the things that holds up transactions the most is the appraisal. And again, it’s a vendor I have no control over, in certain parts of the country it’s anywhere from five days to get an appraisal to 30 days, a month in Oregon or some of these other states.
And so we wanted to maximize – the agencies want to get rid of appraisals. To be blunt, if the agencies could get out of the appraisal business, they’d be super happy. With the tweaks they’ve made with property inspections, waivers, and ACE [automatic collateral evaluation], making sure upfront when I take a loan application that I run both of these AUSs [automated underwriting systems] at the same exact time and you get yourself a scorecard and you’re like, “Well, this one’s giving you a property inspection waiver, this one isn’t. This one’s giving you income, this one’s not.”
By putting both AUSs and running them at the same time, we’re now at like 38 percent of our applications have an inspection waiver. So that’s 38 percent of our loans – I don’t have to worry about an appraisal anymore. That, by itself, saves you five to seven to 10 to 15 days. And I know it’s going to come in at value and from a credit underwriting perspective, that’s less time I have to work on that.
And so maximizing the ability to get this income and employment waiver upfront – so effectively, I’m underwriting the file upfront. Now I’ve got effectively 65 to 70 percent of my loans in this approved state at application, and then – we now utilize, we call it our ‘fast track team’ – so if I’ve got an income waiver while I’m disclosing it and we’re running these processes before, while I’m disclosing a loan at the same time, it goes to my fast track team.
“So I disclose a loan and I approve it the same day, usually within six hours.”
Then the rest of the mortgage: What else am I working on that I’m kind of getting a payoff and I’m kind of getting a homeowner’s insurance binder. And in that process, again, you’re relying upon the other vendors you’re working with, and getting a payoff right now is super hard. You know, if it’s with our company, we can get it kind of pretty fast. Other companies will move slower.
And the other key component is a collaboration with your title and settlement providers way upfront. So, for example, we use ClosingCorp as our fee engine and our disclosure portal. And ClosingCorp allows us that, when I open the order, ClosingCorp reaches out to the title and settlement provider. They collaborate, they send their fees, and I don’t have to worry about under disclosing or over disclosing, it’s already guaranteed. And then, using ClosingCorp as you move down the process helps me collaborate before I’m getting to the closing disclosure. Because that’s another big hang up, it’s like “I’m ready for a CD,” and now I’m like, “Well, I’ve got to call the title company and then I’ve got to wait two days – I’ve got to do all these types of things.
“… you take your close of escrow date and you’ve got to re-engineer the workflow backwards. So if I want to close on June 30th, I need to make sure that the CD is going to go out seven days prior to that, which means I need to start collaborating 12 days before that to give me enough time to get the fees in.”
So really, you take your close of escrow date and you’ve got to re-engineer the workflow backwards. So if I want to close on June 30th, I need to make sure that the CD is going to go out seven days prior to that, which means I need to start collaborating 12 days before that to give me enough time to get the fees in. And what that’s helped us do by the time we are ready for a CD, the fees have already been validated, I’m pressing a button and kicking a closing disclosure out. It’s reengineering the workflow from the front end, but really working your way backwards. Like, “How do I save time here, here, and here?”
And it’s like every other part of manufacturing – if you’re collaborating, you’re communicating, and you’re doing it way ahead of time. And the argument is like, “Well, I’m going to work on all these loans that aren’t going to go anywhere.” And I hear that a lot from companies like, “Well, I only want to work on loans that are going to fund,” and I’m like, “Well, good luck with that, because, you know, I’d like to just do that, too.” So maybe you spend some extra time on loans that don’t go anywhere. But by speeding up your process, you eliminate the ability for the borrower to go shop and go somewhere else.
“Every customer that applies with me, deserves for me to work on their loan. That’s how I look at it.”
I’m getting this loan done in seven to 10 days, they don’t have time to go somewhere else. So a lot of companies miss on that, too. They’re so focused on saving their resources for loans that are for sure going to go – and you should work on every loan. Every customer that applies with me, deserves for me to work on their loan. That’s how I look at it.
Max Simkoff: Awesome. You must have a pretty amazing title and closing partner to be able to, h-hmm, integrate with that tech stack, but probably a subject for a different conversation.
Jay Promisco: Yeah!
[Both laugh]
Max Simkoff: We have just a couple of minutes left and I want to make sure I get at least one question from the audience – I’ve had a number come in – but here’s the one that I think has risen to the top as the one that’s most top-of-mind, I think, for a lot of folks, so maybe we can end on this one. This question comes from the audience, it says: When do you foresee most lenders adopting eNotes?
Jay Promisco: Oh, well it depends on the state because every state – and I’ll try not to get overly political here [Max laughs] – has varying degrees of things they are focused on, in overlap. I mean, we’ve been pushing this for years and some states have been all, “Yeah, sure we should do it.” Some states have been like, if you’ve ever done business in New York, just forget about it, it’s not happening. California, this is now pushed up a little bit further on the legislative agenda – they’ve got a few other things they’re trying to figure out.
I think in two years, 100 percent of it is on some sort of eNote, remote online notary – I think that’s a mandatory thing for people to do, because you look at it again, mortgage, what’s the biggest waste of time? And not to offend any notaries, but, you know, you’ve got to drive out to Tuscaloosa, Alabama, out in the country that you go sit in front of a customer and explain their documents. And that might be the first time they ever see their documents. And then you’re sitting there for three hours and you’re getting a signature on 5,000 pieces of documents, and it just seemed silly.
“I think in two years, 100 percent of it is on some sort of eNote, remote online notary – I think that’s a mandatory thing for people to do, because you look at it again, mortgage, what’s the biggest waste of time?”
For us, I think what is transparency to the consumer – if that’s the ultimate thing – is like, “Guys, here’s your closing disclosure, here’s all your documents. Now spend the next three days revisiting it, and when you’re ready and you think you want to close this transaction, give me a call. We’ll jump on Zoom and we’ll get it done.” So that’s a better customer experience for me. It takes out a lot of the anxiety. Frankly, having a whole bunch of random people show up at your house right now is probably not a good idea with some people. But I think the states are going to move quickly to that. Again, it’s not a question of whether lenders want to do it. It’s a question of whether the states are going to allow it, how that recording process works in each individual county… but I think it will come sooner than later.
Max Simkoff: Yeah, and I agree. I think two years is a perfect timeframe. Obviously, a lot of horrible things have happened because of COVID-19, but one benefit for our industry is it feels like five years of regulatory and process inertia has almost disappeared overnight in a lot of places, as you mentioned, unfortunately not all of them.
Jay Promisco: Never let a crisis go to waste.
Max Simkoff: Yeah, right.
Great. Well, I could keep talking for another half an hour, but I want to be mindful of folks’ time. So, Jay, I really wanted to thank you again for making time for this. What you guys have done at Sierra Pacific is really remarkable. It’s been one of the really exciting parts of my day to get to watch you and your team do what you guys are doing, and so I really wanted to say thanks again and appreciate you joining for today’s conversation.
Jay Promisco: Yeah, I would just tell everybody, it’s totally possible. It’s not totally possible for every loan that you do, but if you can really take some time at your individual companies, sit on a whiteboard for a week or two, and figure out where you want to end up… And if you can get 30 percent of your transactions done this way or 40 percent, I mean, you’re already winning. And don’t try to do it all at once – don’t try to do like 10 integrations at once, your tech team will kill you.
[Both laugh]
Max Simkoff: Awesome. Thanks again, Jay. Really appreciate it. And to everyone else, have a wonderful rest of the afternoon.
Jay Promisco: Thanks again. Alright, bye.
