The Big Spend

Brighter Innovation

“That’s why I stay, by the way,” adds the executive vice president and head of servicing at San Ramon, Calif.-based CMG Financial. “Because it’s a nasty business.”

Technology developed in the 1960s and 1970s remains the infrastructural core of servicing platforms in widespread use today. Designed around processes for taking and making payments and aggregating information for reporting to investors, borrowers not only took the back seat of these processes — they were left at the curb. The industry has still not solved for human connectivity after a loan closes, stunting industry growth while posing systemic risks. 

Seth Sprague says the industry now is spending a lot of time “focusing its efforts to try to keep borrowers engaged.” As director of mortgage banking consulting services for Richey Mae, the mortgage industry-specific tax audit and advising firm, Sprague has observed how innovation in servicing has lagged innovation in other aspects of the mortgage process. “It’s that disengaged borrower that really leaves a lot of losses for everybody.”

Engagement and empowerment aren’t exactly the same, though. Can servicing transcend making and taking payments, revising a loan balance, and dealing with crises? Should it, even?

“I’m the proverbial guy that flunked his way out of high school and didn’t go to college and started as a loan officer and worked his way up,” says Chris George, founder, CEO, and private owner of CMG, who over the past year has invested in building a de novo, in-house servicing platform that centers rather than marginalizes the borrower experience. He aims to inside-out the commoditization of collecting payments by reinvigorating the borrower-servicer relationship. 

It’s difficult work, pioneering work, and expensive work — very expensive work. George won’t divulge the expense. That’s also beside the point. “We’re pretty close to getting there,” he confirms. “We see this as a pivotal point in our company’s legacy.”

In 2019, CMG originated roughly $6.5 billion in loan volume. Production swelled to nearly $14 billion in 2021, before receding to $9.5 billion in 2022. In 2023, the worst year of existing home sales since George founded CMG in 1993, the company boosted 2022’s production by 45%, closing nearly $14 billion worth of mortgages once again. Through the first half of 2024, CMG is on track to match or surpass last year’s production. 

While CMG has never serviced its own assets, now it can do so profitably due to its growing market share. George’s freedom as a private owner to make investments in servicing innovation “could be a market differentiator really from a servicing perspective,” says Thompson. More so, George has spent big on CMG’s freedom to control its destiny — and its borrowers' destinies.

Pioneers Get Shot, Settlers Get Rich

Innovating in a highly regulated industry is capital intensive, making return on investment (ROI) the usual guiding principle for such investments. CMG is different, however. While ROI is eagerly anticipated, George has loans on his books with notes in the low twos and high ones from COVID-era originations.

“I don’t think those loans are ever paying off,” says George, whose four sons work at the company. “You want to keep that thing until payment 360.” That’s a 30-year relationship. “One of my boys is going to be accepting the last payment for a loan that I made back in 2020, 2021.”

The additional business a satisfied borrower provides through future referrals is typically unquantifiable. It is similarly difficult to quantify how much future business is lost from a dissatisfied borrower. The return on CMG’s investment, which includes rewiring much of the company’s operations, has no specific timeline, as opening a new branch location might. 

Rather, the “intangible returns that the service of servicing brings to us” would be worth an eight-year wait if it takes that long to break even. The investment in a de novo servicing platform will result in winning and retaining more customers, George believes, while preparing the company for future demographic and technological shifts in the industry. 

“Pioneers get shot and settlers get rich,” he quips. “I kind of like to think that we’re pioneering products and we’re not dying along the way. We’re bringing to light ideas that we think are good for the consumer.” Those ideas are similarly beneficial for CMG, which has grown market share in an elevated-rate environment. George attributes that down-market success to the idea that “every single person’s hand on the wheel is to serve the customer.”

Instead of forcing consumers to stoop to the servicing industry’s limited capacity, CMG would rise to the rapidly evolving expectations of consumers, who would prefer to spend more effort understanding the transaction and less effort searching for the components of the transaction.

“The consumer today is actively concerned about how their loan is serviced and how well they are treated in that process,” George explains, “and want the kind of connectivity and the kind of access that they had when they were being taken care of during the origination process.” 

Where the closing and selling of a loan would typically end the relationship between borrowers and loan officers, CMG’s new platform makes a borrower’s loan officer their primary point of contact through the servicing of the loan. “The idea is that we want you to be able to communicate with the person that you built trust with, and we want you to be able to do these things without having to talk to a completely different stranger,” he reasons. 

Ultimately, allowing borrowers to be more nimble in the market enables CMG to be more nimble, too. By reorienting servicing operations around the customer journey, not just a payment schedule, CMG hopes to make the back office of servicing the new front office for originating. Industry-wide loan production in 2024 has mirrored 2023, which serves the interests of CMG, helping them capture market share.

“We’ve been waiting for this market,” George says. “I’ve been waiting for rates to go up.” The difficulty of their current endeavor makes it worthwhile. He continues, “The challenge of doing hard work is what we’re all about with this process because we think that’s an interesting barrier of entry for all the rest of the competition. It gives us a definitive, distinctive advantage.”

Pioneers Get Shot, Settlers Get Rich

When a mortgage bank wants to bring servicing in-house, three-ish options exist. Option one is acquiring another lender that self-services and retrofitting the system. Option two is buying a suite of products offered by one of the two dominant providers in the marketplace, Black Knight and Sagent, then filling in the gaps with other providers. 

Costs for these options are increasingly inflated as the founding technologies grow outdated.

A mortgage bank’s third option for bringing servicing in-house is building something novel. George hired Thompson and her team to build a bespoke servicing platform for a customer of one. Addressing “the infrastructure problem” meant re-orienting the relationship between CMG and its customers. Solving for “human connectivity” meant embedding, not affixing, borrowers.

Imagine another human hand. For the palm, Thompson’s team has developed a data warehouse — a data layer that translates into a single integrated location from the beginning of the servicing operation. Instead of 40 touchpoints, CMG’s platform integrates five or six primary technologies through the data layer, which acts like a switchboard for the end-to-end system.

“We’re rejecting the use of the financial core as the cornerstone of our ecosystem, having data be our cornerstone because it’s 2024,” Thompson says. Not tying CMG’s entire servicing operation to the financial core makes the platform more pliable, seamless. It’s database-driven, and being so, ouroborates the head and tail of origination and servicing, the mortgage life cycle.

What Thompson’s team is building may be for a client of one, but not an industry of one. “We’re not even trying to customize things with the providers we’re working with,” she explains. “We’re sincerely hopeful that those providers we’re working with can re-commoditize what we’re building with them so that somebody else can use it, too. That’s the only way to orchestrate change in these types of industries.”

Say a worried borrower with $30,000 of revolving debt, a 720 FICO score, and a gigantic, looming tax payment, calls in to discuss an escrow assessment. That revolving debt typically would be invisible to the borrower’s point of contact. The option of a HELOC to reconcile the revolving debt and escrow shortfall becomes readily apparent, instead of a lump sum payment that the borrower can’t afford or an increase in principal and interest for the next 12 months.

In this scenario, CMG can solve a problem for the borrower before it becomes a problem, monetize a transaction that can fund the technology, and create a better customer experience, without a net gain on cost — and even with potential net reductions on cost. From a business standpoint, that ought to fund a white glove, concierge servicing experience.

Thompson is unaware of any other large financial services companies that have a “modern gooey center that is completely driven off of data.” Some are getting close, thugh. “The reason we’re doing that is because we want to give ourselves the best chance to survive,” she says. When better technology comes along, they can “flip out” that data core of the ecosystem.

“You’re going to get smacked in the face with branches,” added Akinmade, likening their task to navigating through a jungle. “You got a dull machete. You got to walk for miles. It’s not forgiving. It’s not for the faint of heart and you’re going to get sick along the way. But, if you get to the end, you will have charted a new path.”