Melissa Koupal (00:00):
It's always evolving. I think it always has been since the day I entered this business. The Kool-Aid that we all drank was the fact that every day you're learning something different. Every day there's a different situation. Loan is like the next loan in regards to borrower situation, borrower need, products, the different aspects of our business, just never being bored. There's always something that we're tackling and something that we're trying to finesse or dig into.
Kareeme Tucker (00:25):
You're listening to In The Loop where we empower financial examiners with the insights, support and community to thrive in every part of their role. I'm Kareeme.
Derek Storms (00:37):
And I'm Derek.
Kareeme Tucker (00:38):
Hey, Derek.
Derek Storms (00:39):
Hey, Kareeme. How are you?
Kareeme Tucker (00:41):
I'm well. How are you?
Derek Storms (00:43):
Great. I'm doing awesome. I'm
Kareeme Tucker (00:45):
Ready for
Derek Storms (00:45):
Another episode. How about you?
Kareeme Tucker (00:48):
I'm excited for today's episode of In The Loop. Absolutely. How are you doing this week?
Derek Storms (00:54):
Good, good. Been a crazy week, short week, but it's been kind of a crazy week. How about you?
Kareeme Tucker (00:59):
All is well. But you know what, Derek, since we began this podcast, when we initially started, you were a regulator with the state of Missouri. And so now that the cat's out of the bag that you're no longer with Missouri, why don't you tell our audience a little bit about what you're currently doing?
Derek Storms (01:15):
Yeah, that's correct. When we started this, the idea of In The Loop and all that came up, I was a state regulator. I'd been there for 14 years. I was on the AARMR, board, all of that kind of fun stuff. Since then, I started at CSBS. I'm now over at CSBS as a policy director. I write policy for the systems, NMLS, SES, all of that kind of stuff. So a lot of the things that you guys will be dealing with and handling with on the back end, I'll write the policy to make sure that that's implemented correctly and properly and to secure the system. So system governance, all that fun stuff on the backend that nobody talks about. They still be in the back corner somewhere.
Kareeme Tucker (01:58):
But they'd be in honor.
Derek Storms (02:00):
But no, that's where I'm at right now. Loving it, having a great time. Honestly, I do miss the state regulators from time to time getting to talk to you guys. I miss the industry from time to time, man. I'm still on some of these phone calls and working groups, so I get to see everybody a little bit, but yeah, that's where I'm at.
Kareeme Tucker (02:17):
Oh, good. That's so awesome. So what a wonderful way to now. You'll still have an opportunity to speak to industry and regulators with me remaining as a regulator and our two fabulous guests today being in industry.
Derek Storms (02:29):
Absolutely.
Kareeme Tucker (02:30):
Enough about us. Let's
Derek Storms (02:31):
Get them on here, right? You want to introduce
Kareeme Tucker (02:33):
Them? I sure will. Get them introduced. Come on. Our first guest today is Jeff Midbo. Jeff hails from United Wholesale Mortgage. Jeff is the Senior Vice President and Chief Compliance Officer at United Wholesale Mortgage, where he currently oversees the company's enterprise-wide compliance strategy and provides legal guidance across all areas of the business. With more than 14 years at UWM, Jeff plays a critical role in navigating complex consumer finance laws and helping ensure the organization remains at the forefront of an evolving regulatory landscape impacting mortgage lending and servicing. Prior to joining UWM, Jeff served in a similar compliance leadership role at Flagstar Bank. He earned his undergraduate degree from Michigan State University and his jurors doctorate from the University of Detroit Mercy School of Law. Please welcome Jeff Midbo. Welcome,
Jeff Midbo (03:35):
Jeff. Thanks for having me.
Kareeme Tucker (03:36):
You're welcome. And joining him on today's episode, we have Melissa Koupal and I hope I'm pronouncing her last name correctly. Today we're joined by Melissa. She is the Chief Risk and Compliance Officer at CMG Mortgage, where she leads enterprise risk and compliance across regulatory examinations, agency relations, fear lending, quality control, and credit risk. With more than two decades in the mortgage industry, including a founding executive role at Loan Depot, Melissa has become one of the most recognized voices in mortgage compliance. She's also the founder of Reg List. Ooh, I'm curious about that, how'd that begin? A professional community of over 1,900 compliance leaders and currently serves as the chair of the AARMR Industry Advisory Committee. Please welcome Melissa Koupal. Welcome, Melissa and Jeff. We're happy to have you both here today. How are you today?
Melissa Koupal (04:39):
Oh, good. I'm excited to be here. And it's funny because last time I think I was at the NMLS conference and I was on a stage next to Derek and I think he was still with the state and then all of a sudden CSBS, here he comes. And Karin, we've known each other for quite a few years and so really looking forward to having this discussion today. So thanks for inviting me.
Derek Storms (05:02):
Jeff, that was the first time I think I met you was at last year's AARMR Conference. And so yeah, that was the first time I think I met you there. What'd you think of the conference?
Jeff Midbo (05:14):
I liked conferences. I mean, it's kind of nice to put a face to the name and socialize a little bit with the people that you're going back and forth with on correspondence. And to be honest with you, I like the interpersonal connection and interaction and I wish there were more onsite exams, so we get an opportunity to work across the table from one another, but going to those conferences kind of helps do that a little bit more. So yeah, I really enjoy those.
Derek Storms (05:40):
Oh, we'll talk about onsite exam. Let's talk about it right now. I mean, I think we can get into that first question and really this is I think a perfect segue and where I want to come from is the industry's perspective. So each of your individual companies perspective, how does the state regulatory system fit into today's broader oversight framework? How does that work for you guys and your companies?
Jeff Midbo (06:05):
I mean, I think it works really well. I love how it's been evolving, especially the use of the SES and how more states are leveraging that and just becoming more uniform, especially in a company the size of UWM, the more uniform creates more efficiencies, more consistency. It's just helpful for us for the process because as you can imagine, at any one time we're being examined by 10 to 15 different states. The more uniformity that we have in that, I think it fits really well with what the CSBS and others are trying to do with regards to the regulatory agencies.
Melissa Koupal (06:37):
Yeah. And I agree with Jeff on that one. I think the other thing to keep in mind when I talk with regulators and other parties at NMLS conference or AARMR or even during the exams is also the realization that some of the state regulators that come in and perform examinations on entities like UWM and CMG. We've also got the agencies are in here, especially Jeff, at the size that we're at, Fannie, Freddie are visiting on a routine basis. That's just because just like the states, it's just from a volume perspective from a partnership perspective. Also, you've got our third lining reviews, we've got the counterparty reviews and then now we also have rating agencies as well. Even if you're not publicly traded or you're not even issuing debt or anything like that, just from a Fannie Freddie risk framework, we also have to have, based on the servicing side, you may have a rating agency also coming in one or two, Jeff coming in on an annual basis in addition to everything else.
(07:38):
So I think it's important from a state regulator perspective to know that your reviews in addition to all your state partners, there's also a whole nother group right alongside at the same time that you're in our house, there's others that are also in there and they may overlap, but some of them are also distinct. And so in that whole kind of broader oversight framework, it's really robust and it's continual.
Derek Storms (08:06):
Yo both kind of mentioned it. You talk about uniformity and some of these other challenges, you have all these other regulatory agencies or other agencies that are kind of overseeing and looking at different aspects. Let's talk about just for a little bit some of the biggest challenges and maybe benefits. Let's talk about some of the benefits too of working with some of the individual state exam structures, individual state exams. And then what about multi-state examinations? What are the challenges to maybe the individuals and what are the benefits? And then how about the same challenges and benefits to the multi-state examination structure?
Jeff Midbo (08:43):
I can go first on that. Just on the individual state exams, I like the collaboration. It's a little bit more intimate whereas the multi-state, I think that is a really good benefit from the perspective of efficiency. So they both have kind of values to them. That said, I love the multi-state just because it is a lot more efficient and it gets a lot of the exams out of the way at one time. But the individual stuff is, I mean, it gives you a great opportunity to create a relationship and collaborate. And again, it's a little bit more intimate. So you get a little bit more opportunity to explain some things and go through your business processes and things of that nature, which I think is beneficial too.
Melissa Koupal (09:20):
What's also nice about individual state exams complimenting the multi-state is that with individual state exams, to your point, Jeff, you get to really connect with the examiners, but they also are looking maybe at things a little bit differently due to the individuality. So not looking at it differently from a bad way, but looking at it and maybe looking at different aspects that another state won't look at. So then if you combine all those state exams together, you're getting a pretty fulsome review of your shop. And I truly mean this when a state examiner comes in and yes, it's work. It's work for all of us. I don't even understand how the regulators can stay on top of the exams just going one right after the other, but it also gives us the opportunity to talk, to ask questions, to say, "Hey, we're dealing with this.
(10:05):
Hey, we have that. What do you think on X, Y, Z issue?" Or, "Yeah, you noticed that. Can we talk about that? " Or, "We're looking at the MCR this week on this issue, what's your ideas?" Or whatever that is. And so I think being able to have that kind of one-to-one relationship is helpful. I know from a multi-state, it's kind of like getting in, everyone work together, everyone get done. Yes, to Jeff's point, total benefits to that. But then with the multi-state is when I have done multi-state is also connect with the individual regulators from all the different states as well. So not just build a relationship as a whole like it's all one big regulator, but to say, I think Kareeme, you and I work together on a multi-state and really connecting and saying, "Okay, let's look at the state and your individual laws and how you're looking at it because I want to make sure I still get that from my multi-state." I think as with everything, right, Derek, Krem, Jeff, there's positives, there's negatives, there's room for opportunity, but we're definitely have moved in the right direction and like everything that you guys have all put together.
Derek Storms (11:08):
I don't want to put you on the spot. Maybe I do. I'm going to ask you which one's better. Multi-state. Come on. We got to do a little bit right in a
Jeff Midbo (11:16):
Regulator and him coming out here.
Derek Storms (11:19):
I got to. I got to do it. What's better, multi-state or single state? If you had to pick one, which one would you go with?
Kareeme Tucker (11:26):
Without list and a state.
Derek Storms (11:28):
Yeah, yeah. No. I know you have your favorite state,
Melissa Koupal (11:32):
But- and protecting the innocent. I think that's hard just because of what I've just laid out. There's just positives and there's drawbacks because from a multi-state perspective, those can be long, they can be intense. They take a lot of resources. And if that lines up with all those other kind of other parties that are also in the house looking and then how that all coordinates, it can be a lot if you have a large multi-state exam going on at the same time. But the other side, Jeff, is when we do have 15 plus exams at any specific point and you don't want them to all hit at once. I always say, "I can handle 10 to 15, but don't come at me at one time because we can't handle that. " So I think it's a balancing act. So I know that's not a direct answer.
Derek Storms (12:22):
Just dodging the question. One
Melissa Koupal (12:24):
Or the other. I'll
Jeff Midbo (12:26):
Give you an answer. Hands down, multi-state.
Derek Storms (12:29):
Okay.
Jeff Midbo (12:30):
To Melissa's point, it's a lot of work, but then you get the moratorium for the year, which is like, so you do the work if it's time just right, maybe you get the summer to work on your golf game because you're not dealing with state exams.
Kareeme Tucker (12:43):
And the new process though, the OCOE is different now. So now it's 10 states coming in versus where we did the multi-state, we now call it OCOE one company, one exam. So that process has been streamlined a little bit better than the other version which allowed 10, 15 years.
Jeff Midbo (13:00):
I think to your point like that, also it limited the ... 10 states is a lot, but it's not 16 or 20, which it's a little bit more manageable. And like I said, you do the work all upfront, it's like doing a year's worth of work and then you get a year off basically from that function anyway, which is nice. To be honest with you, it gives people like Melissa and myself that year moratorium gives us the opportunity to really dig in and kick the tires on things because we're not reacting to state requests or whatever. It really lets us do our own testing and our own focuses and really bolster our compliance management system. So I do think there are some ancillary benefits from that perspective. Okay.
Kareeme Tucker (13:40):
Pros and cons on both sides.
Melissa Koupal (13:41):
Well, I was going to say too, because after the exam you have corrective action, right? We have learnings and things we want to put in place. So you're able to do that across, to your point, Jeff, across the board and be able to focus on that as opposed to if one state shows something and then the other state comes in right after, it's kind of like layering on top of each other just to span out. So that's a really great point as well, Jeff, on that aspect.
Derek Storms (14:05):
Awesome. If you had to describe today's mortgage environment in one word or phrase, what would it be and why?
Melissa Koupal (14:13):
What I thought of on this one is it's always evolving. I think it always has been since the day I entered this business and I say that's the cool way that we all drank was the fact that every day you're learning something different. Every day there's a different situation. Loan is like the next loan in regards to borrower situation, borrower need, products, the different aspects of our business, just never being bored. I mean, there's always something that we're tackling and something that we're trying to finesse or dig into or there's a new agency requirement or a new examination protocols or reports that we have to do or even of course the two letters that float around all the time, AI and just being able to manage that and implementation. So that's what I've always loved about this industry is that I'm never bored that there's always something else to tackle.
(15:05):
So always evolving. Derek is my answer to your question on that one.
Jeff Midbo (15:09):
Completely agree with you. I mean, I think about when I got into the industry in 2002 and paperless underwriting was the thing. It really seems to be tech oriented now up to today where to Melissa's point, you've got AI and there's so many things you can do with AI that it's really just the sky's the limit. It's just always something new and different and there's always a technology it seems that people are figuring out to leverage, to make things better, easier, faster, whatever. And ultimately I love all that just because it makes things cheaper for consumers, which ultimately helps our business. It also makes things better for the end user there.
Melissa Koupal (15:46):
Funny thing I thought of, Jeff, when you were talking through that is I think back on, and it was probably a good five, seven years into being in mortgage, but I remember someone came to me and they're like, "Are we allowed to accept a picture of a pay stub?" This person took a picture of their pain stub. They didn't fax it in to our fax number. Are we allowed to take the picture? And it was like this whole debate and discussion of like, "Is that okay?" And to where we are now in everything and that wasn't that long ago, that was a point of discussion of like I didn't see it come through and turn into a PDF, it came directly from their phone or an email and they were like, "Oh my gosh." So it's crazy.
Kareeme Tucker (16:33):
You're making me think back to my underwriting years when we would see all kinds of things. But it's funny because Jeff, you mentioned different technologies and even Melissa, as you're discussing the ways in which technology has evolved, what technologies do you all believe are transforming mortgage compliance the most right now and how do you think that regulators should think about those changes?
Jeff Midbo (16:56):
I mean, Melissa said it with AI is huge. A real simple ... We leverage it a ton for operational uses, making sure controls are functioning, but just the most simplest version of that is using AI to read through a 500-page legislative bill to pick out the five paragraphs that are mortgage related. It would've taken a paralegal or an attorney hours to look through that. Now it takes AI two minutes.
Kareeme Tucker (17:22):
But even with that, you want to be careful because sometimes AI will say something that isn't accurate. So I would caution just kind of be a little careful.
Jeff Midbo (17:30):
And obviously you got to verify. And I mean, to be honest with you, a lot of the technology companies and some of the laws we have seen with the human in the loop, you're forced to verify, not necessarily in this scenario or my example, but exactly right, but it's a heck of a lot easier starting point than just, here's 500 pages, start reading. I think that's a very simple application. Now you think about the operational complexities of propping up control testing or something like that or QC audits where you've got the system that can do tons and tons more than a person ever could have. Obviously to your point, you still want someone intervening and looking and making sure it's functioning properly and testing the tester, but it just gives you that much more capacity to do a lot more to make sure things are working properly.
Kareeme Tucker (18:17):
So there's definitely some pros and cons with that. And Melissa, go ahead. I'll let you chime in.
Melissa Koupal (18:20):
Well, I think the trust web verify, Kareeme, right? To your point, I tell my team, I'm like, I forget what it was a couple days ago. I put something into Claude and it sent me back a response and I was like, one part of it I knew was wrong. And so I said, "Well, that's not correct." And instantaneously it's like, "Oh yeah, you're right. I wasn't correct on that point." I'm like, "You didn't even have to think about it. You already knew." And you still need that trained eye and knowledge to be able to look through something and be like, "No, that's not correct." Or, "You're misinterpreting something you found on the web and then you just put it in here and that's wrong." I will say I find simple things like we have an enterprise version of Claude and so I will use that even just to put a PowerPoint together, a quick PowerPoint because being a risk and compliance person, I don't know about Jeff, but me putting together a pretty PowerPoint with graphics and making it snazzy in the colors and stuff, that's not my wheelhouse, that's not marketing.
(19:23):
And so being able to use something like that to say, "Okay, here's all my notes, this is what I want, transform it into this. " Or, "Here's an email I want to send to the company about a certain subject. This is what I want to cover, this is the tone I want, this is all the different high points," and then it creates something and I can use it to edit. So I always say it's easier to edit than create. So that's what I've used that for. But I will say in regards to technologies, I think a lot of it comes down to data and then also improving our quality. Quality is also a really big focus, not just in compliance, but just credit quality, manufacturing quality. Our borrowers are complex nowadays. It's not a W2, here's my two bank accounts and there you go. I mean, there are still borrowers of course like that, but a lot of them come in, they're self-employed, multiple properties, multiple companies, all the different aspects.
(20:16):
And also like Jeff highlighted on the fraud aspect is really being able to use tools to identify red flags in a file. I know that there's some companies now that you can utilize and throw a pay stub in, for instance, and be like, "Is this real? Is this a good pay stub?" Because with AI comes better broad in regards to creation of a pay stub. So being able to highlight some of those items, I think we're still learning though, right Jen? I think our IT teams are still figuring it out where it's a help, where it's just a compliment to what we do or sometimes I would even go to say that it's necessarily not achieving any efficiencies in some areas because we still got to figure out how it fits.
Derek Storms (20:57):
I mean, absolutely. Kareeme had kind of a two-part to that question and the second part was how should regulators think about some of these changes? I know the other day I used AI just to schedule a meeting. So I had 10 different people, I threw it in there of all their times and it said, "Here's the meeting on this date at this time that everybody can be at." It took like two seconds to just schedule the meeting and it created some efficiencies for me with all the technologies that are transforming this area, how could regulators think about these changes and maybe during examination, during licensing, is there things that regulators that you think could help out both you guys, the industry and regulators with these kind of changes?
Melissa Koupal (21:41):
I mean, I'm just thinking, I know that there was discussion of even just looking at a PDF loan file and being able to review it quicker instead of having to scroll through it, talk about back in the day when we used to make copies of all of them and then we'd have the rubber to flipping through the pages, but just even in the PDF and just having to scroll through every one of those and be able to identify certain things. So let's say there's a certain pay stub generation website that we know the red flag for fraud. I could go and scan a group of files and see if any of those pay stubs came from that site with use of AI and just a flag any file that it looks like that pay stub came from there. And then my QC team or my fraud team can then go and choose those files and look at them.
(22:29):
So they're not looking at it just from a DTI, LTV, multiple properties, all those aspects to do discretionary. They can actually do it based off of the type of documentation that's in the file. That's different versus how we did it before where you were doing it more from a data attributes. I'll give it use case and then from a regulator perspective, you can think of it, but using AI and then also in our QC space, because we have to do asset reverification. So post close QC, you have to go and reverify assets. Well, in some of them, like I was talking about, you might have multiple bank accounts, multiple employers, lots of different reverifications you have to do, but if you can scan that file and teach something to say, okay, this is the list of all the verifications you need to do so then you're not dependent on a human to go through it and being able to identify all the different documents in there and figure out all the different verifications.
(23:29):
So is it a carte blanche solution and now I don't have to do reverse? No. Is it a way to ensure that we're doing it thoroughly and we have a list and it saves time? Yes. So I think it's that time savings. I don't know about you, Jeff, but that's where I'm seeing it is really time savings, but not a replacement of a human necessarily is building an efficiency, at least from my standpoint and for what my team does.
Jeff Midbo (23:53):
Yeah, no, I don't think it replaces people that don't use it is kind of what we've leaned into. From a regulatory perspective, I would love to see just clear expectations around it. I mean, this stuff is going to continue to evolve. I spoke on a panel recently at the CSBS conference about AI and I mean, this stuff's coming like a freight train. It is coming and it's evolving every second. So just making sure that how it's going to be regulated is clearly communicated and expectations are put out there. I mean, I'd love to see almost like a uniform commercial code and states could adopt or not adopt or best practice or whatever their administrative law procedure process would be. But just to know what I have to do, what's expected of me because this stuff is going to evolve and it's going to evolve fast and it's going to be much faster than legislatures, I'm sure.
(24:46):
So that would be one of the things that would, I think, help the industry and just help everyone is just what are the expectations on us with this because it is common.
Kareeme Tucker (24:53):
Does UWM use these sort of tools as well?
Jeff Midbo (24:56):
Oh yeah, 2,000 IT people and more than half of them are working on AI.
Melissa Koupal (25:02):
I want to highlight too, I thought it would be helpful for all my regulator partners out there to know too, like Fannie and Freddie issued bulletins letters. One, Freddie issues bulletins, Fannie is the lender letters, but issued in April and it lays out AI governance framework, PMPs and other various aspects. So just to inform the regulator community that also the agencies have a focus on AI and their expectations and what they want to see from us. So those are all, at least the Fannie Mae one has an effective date of August 6th. So those are also things that we're working on, whether UWM or CMG or any of the other proved seller servicers or Fannie or Freddy. So I think AI governance though, I wouldn't say it's a challenge, but it's something that we've added to our list of things that we also have to see on top of.
Jeff Midbo (25:57):
Well, and to that point, I don't know what governance means from that perspective. I know what I've built and what we think is the right thing, but that's where I don't want someone to come and say, "Well, you didn't do X, Y, and Z, but we did all these other things." So to the degree they can communicate what the expectation is, I think that's helpful for everybody.
Derek Storms (26:15):
What makes an examination process effective from the industry standpoint? So when exams get kicked off and the regulators are coming in, what is it you guys would like to see more for a better effective process?
Jeff Midbo (26:32):
I think one of the things, and we see it a lot, but I think what I've seen that's been effective is just true collaboration. So letting us explain why we do the things we do, how our controls function, because I think one of the challenges that regulators likely have is you think about regulating a five person mortgage broker versus regulating UWM, those are just going to be two completely different business models and the way things work are going to be completely different. So taking the time to understand what they're looking at, understand why things happen the way they happen. I mean, I think I speak for Melissa and frankly the whole industry or at least a vast majority of the industry is like, we're trying to do things the right way. A lot of it is just understanding what the expectations are and trying to pigeonhole what the requirement it is into a business process to operationalize it.
(27:23):
So I think good collaboration communication is key and I've seen where it's been very effective where we can explain something and say, "This is why we do the thing we do because X, Y, and Z and oh, that makes sense." And taking the time to understand and learn who your licensee you're examining I think is helpful.
Kareeme Tucker (27:41):
It's really important because we also, when we come in as a regulator, when we come in, we are asking or looking for industry to tell us about your business. We can do all the research, but this is your opportunity to tell us what you're doing to show us that you're doing what you say that you're doing. And so Melissa, I'll let you continue on with that. So it works twofold, but you're correct. Walking in, regulators should know the organization with which they are examining at that point. And we do recognize that there is a difference between your smaller companies versus your larger or your brokers and your lenders. And there is a pathway for examining both entities and that's important to know on both sides that there is a way and a manner in which we should be and can examine of that side of the industry.
(28:27):
Go ahead, Melissa. I'm sorry. I didn't mean to intervene.
Melissa Koupal (28:30):
Oh, no, you didn't. I'm just walking. I'm just over here, but I think I'm just talking. So that open dialogue during the exam, I think to build off of both of your points is when we were in the office and the exam teams would come in, they'd sit right in the office next to me and they could come over and ask me a question. I could drop in. We would talk in the morning over morning coffee. We would have a mini exit every day to say, "Okay, where are we? Where are you going tomorrow? Are there any questions you have so far? Is there anything you've seen that you'd want to know more about? " And I think when we move to the remote exams, it's easy to lose that. And so what I try to push the team is to pretend that we're all in the office, even just in my, let's put exams to the side, even my own team, I'm like, "I want you all to pretend that we're in cubicles." And so if you're like, "Wait, you know what, Kareeme, I wanted to tell you, well, just call Kareeme or just Teams message her and just let her know.
(29:34):
Don't say, Oh, I got to put a meeting on calendar to talk to them about this and coordinate da, da, da, da, da. Because then that just slows it down. So I think for the exams, that's important as well because it's so easy to be out of sight, out of mind, but to keep that constant kind of communication between the company and the exam team with those open dialogue but the update check-ins. And so then by the time we get to the exit, there's no surprises. There's no, oh, I did and no, or oh, I could have given you more, or I could have explained what that channel is like or how we log that or how that's evidenced in the file. So I think just that transparency.
Jeff Midbo (30:12):
I would advocate strongly. I mean, as you could see, we are an office and we would love to see more in office exams that some of that has been lost in the lack of onsite examinations and I'd love to see more of that. Just again, better collaboration, better explanation or opportunity to explain things, just better understanding of the business. I can walk an examiner over and say, "Here's the team that does this. You don't want to sit with one of them or whatever they want to see or do. It's just easier to get your head around some of it, I think.
Kareeme Tucker (30:42):
You'd be surprised at how many companies actually think opposite. They don't want us to come in. " And we're like, "Well, we'd like to come in because sometimes that human connection, that human interaction can help to resolve so many issues, but there's still opportunity to do it over Teams and have conversations. Yes, you can't walk in and you can't sit and see and view, but there's still some opportunity. Go ahead, Derek.
Derek Storms (31:03):
Yeah, no, I mean, so we've been talking about technology and the different platforms and everything. The industry has changed so much over the last 10, 15 years. And so I guess where I want to go is how important is our systems that we have, NMLS, SES, the consistency in NMLS usage across all of the states for companies operating nationwide. How important is it for you guys for us or regulators to have that consistency within the system and then also using SES during the examinations and communication and being able to be consistent across that line? How important is that for you guys?
Melissa Koupal (31:44):
It's huge. I mean, I think I like the NMLS and when that came out, I'll never forget. I would think I was in Utah for the AARMR Conference and we were talking about what this platform looks like and how it's going to roll out. And for that, it was paper and typing in the PDF Adobe and sending it in and checks. And even once the NMLS launched, remember renewals? I remember one state and I had to print off a piece of paper per LO and attach a physical check and send it in, but that was streamlined compared to what it was before. And so I think as we've evolved, the NMLS, I mean, for both Jeff and I is key to us being able to effectuate what we do on a day-to-day basis with all the LOs, different entities, the branches, whatever it is. I mean, it's bi.
(32:32):
But I think you hit the nail on the head, Derek, too, is making sure we're aligned on the definitions. We're aligned on the interpretation. I'll use the MCR and my team will be like, we go through the MCR definitions and we will revisit them on a regular basis all the way down to what's a loan application, what is this? How do we define that? And just to revisit, okay, this is how we define it. Has it changed? Has our business changed? Do we need to look at my wholesale channel versus this channel? All of that. But that's one thing on our end. But then if the states don't align, then it's a mess. And so it becomes really complicated and you lose the benefits of that streamlined aspect. So I think it's really important. Derek, you were saying you're off in the corner at CSBS, but what you're focused on is really important because we rely on that to have a common definition at a point of truth so then we can all make sure that, to Jeff's point, we all want to do the right thing and that ensures that we are doing the right thing because we're all aligned.
Derek Storms (33:38):
Yeah. If we all have the same definitions, we're all in the same playing field, then we can all do it the same way and it'll just be a much better system. Jeff, I'll give you just a couple of minutes and then I think we have one question for you and then we can kind of get into some fun stuff before we close things out today, but how important is it for that consistency in the systems and using those systems for the exam and licensing portions of it? How important is that for you guys? I
Jeff Midbo (34:01):
Think Melissa said it all very well. I mean, it's incredible. Any states that aren't using it, we strongly encourage you to use the SES. And I mean, it's much, much simpler. I mean, yeah, there are nuances where some states will interpret things differently and you file MCR and they cite you for it and it's because their definition of application is different than what you're reading in the system. And that stuff's going to happen, but on balance it's so much more efficient. It has, I think, a very good breadth of the things you need to be asking. And frankly, I think it's also prompted a lot of people to ask about things they had. And until the SES was really being used in mass, I never got any BSA questions. Came from a bank, had a beautiful BSA program. It was a bank program. It was awesome.
(34:51):
No one ever asked me about it. Now I get asked about it all the time because the questions are in the SES system. I think if states are not using it, they should be because it's just more efficient and it also has a lot of information and it may not be a focus of theirs that maybe should be.
Derek Storms (35:05):
I do want to ask you one, just maybe a little bit lighthearted question here, your chance to kind of say thank you back to the regulators, but what's something state regulators do that you think the industry doesn't say thank you enough that the regulators do?
Jeff Midbo (35:20):
I'm going to advocate for them to do more of it, but we've seen a recent uptake of just reaching out and asking questions. I mean, obviously we're in a unique situation where we are business partners with a lot of people that the state regulators are regulating. So we've had a few states recently and we've been basically imploring them that reach out to us. If there's something we can do to help you do your job, I mean, they're going to listen to us because ultimately we're the lender on their loans so we can put safeguards and controls and things in place. But we've had people reach out, states reach out and just ask about, "What's going on with this? Can you help us train on that? We see this. Can you bolster your controls there?" I mean, in situations where they were lack of control, I had no idea that the controls we had weren't working as far as we knew they were.
(36:07):
So bringing it to our attention was great and it allowed us to enhance things.
Kareeme Tucker (36:10):
Melissa, I want to give you a different spin on that question actually. So what do you see as the biggest opportunity for state regulators and the mortgage industry to evolve together over the next five years?
Melissa Koupal (36:22):
Kareeme, I think being on the Industry Advisory Council for AARMR, we just had a meeting and it was great. I mean, we had a fulsome hour of just conversation and it wasn't, "Oh, you're a regulator and oh, you're industry." It was more or less a collaborative, open discussion of what we're seeing. This is our questions we have. These are concerns, the wins. And I think it's a common theme throughout our whole conversation today is just is continuing to evolve that collaboration of where we can partner. I think even Kareeme and I have talked about education. Jeff and I need to educate our people just as much as the states need to educate their up and coming, people are even just continuing it and being able to say, right, well, my team needs to know TRID and needs to be able to audit a file or answer questions to it just as much as a state examiner needs to understand how to look at a loan file and understand it and review it.
(37:18):
So bringing us together to say, okay, we can all be in the same room and we should all be learning it pretty similarly. And then one is executing it and operationally and the other one is reviewing and testing for it, but to get that common base. And then from that, I tell people you go to AARMR, you go to NMLS conferences. Yes, you go there for the sessions, but you go there for the connections. And I mean, I have just benefited so much from just all the different conversations I've had, whether if sharing a laugh or talking about a real issue or saying that this is something that we want more information on and collaborating. So I think that I know it's kind of cheesy, Kareeme, but I really think we can continue to evolve together on that partnership aspect and how we continue to help each other build as opposed to separately trying to figure out how to tackle this mortgage industry together.
Derek Storms (38:14):
And I think you make a great point that honestly, it's the only way that we are going to navigate the state licensing system and the examination and all of that over the next couple of years. Technology is changing so fast, everything's changing so quick that if we aren't working together, states, industry, CSBS, if we're not all working together, the system as a whole is going to suffer. And in order to navigate the technology changes and everything that's coming up, we have to collaborate. We have to be communicating and having these conversations.
Kareeme Tucker (38:48):
Because if the system suffers, the consumers suffer and none of us want that. So collaboration is how we evolve going forward. Since you both are in compliance, what's one compliance pro tip that no one tells you, but everyone should know?
Melissa Koupal (39:04):
Kareeme, I am going to come across as like, does she have any other talking point? But I put on here build relationships. That's the biggest compliance pro tip I have is whether that's with regulators or with other industry. When I go to a conference or something outside of my extra room here in my house, I tell my team, yes, it's the sessions, but it's after the sessions is where you're going to get your benefit. You don't just go up to your room and answer emails. Then you're missing unlike the biggest, I think, benefit
Kareeme Tucker (39:38):
Is- Opportunities.
Melissa Koupal (39:39):
Yes. And branching out and learning and sharing an appetizer, sharing a drink, whatever that is, going out, just having that ad hoc conversation always comes back to benefit me. It may not be right away, it may not be in a couple years, but it could be in six years, seven years, whatever it is. And you're like, oh my gosh, remember we worked on that one exam together or remember we were in that room and we sat next to each other? So that's my biggest pro tip that I get of my whole team is that they need to network internally, but they also need to network externally and not just in our private industry, but in the regulator industry as well.
Kareeme Tucker (40:20):
Absolutely. There is opportunity to glean from one another. So not just within your own organization, other organizations reach across the aisle to the regulators. Perfect opportunity to build relationships as you so eloquently stated previously. All right, Jeff.
Jeff Midbo (40:35):
I agree with what Melissa said, but I'm going to go a different direction a little bit more time.
Kareeme Tucker (40:39):
Okay. Always
Jeff Midbo (40:40):
Read the preamble always.
Kareeme Tucker (40:42):
That's Gloria in you. Yes. Yes, absolutely. That's the lawyer. You're
Jeff Midbo (40:47):
Not reading the preamble, you're not reading anything. I made that mistake early in my career and it didn't end up being a big deal, but it's like that is ... And really the larger message is make sure you understand and read the details, get into the details of what's going on. Understanding the intent of things is really key. Because ultimately, yes, a lot of the legislation, a lot of this stuff, it doesn't operationalize easily. So to the degree you understand what they're trying to accomplish with it, it helps you operationalize it a little bit better.
Kareeme Tucker (41:21):
All right. Well, listen, we've got about a minute left, so let's have a fun question. As with all of our episodes, we like to ask our guests our pizza question. And so Jeff, I'm going to kick it off with you. What is your favorite pizza place? Tell us the name of the pizza place, the city and the state. What's your favorite pizza place?
Jeff Midbo (41:41):
Well, so I don't eat pizza because my LDL is too high, but what I did eat pizza or previously used to eat pizza. So if I were answering this question as a pizza eater, it would have to be Buddy's in Detroit.
Kareeme Tucker (41:52):
Buddies in Detroit. It's
Jeff Midbo (41:54):
The original Detroit style pizza.
Melissa Koupal (41:56):
Jeff, I'm going out to Troy to our office and this is hilarious.
Jeff Midbo (42:02):
They have franchises.
Melissa Koupal (42:03):
We
Jeff Midbo (42:03):
Don't have to go to Detroit to do it. Yeah.
Melissa Koupal (42:05):
Wow. We're going to Buddy's pizza. I love it.
Jeff Midbo (42:07):
It's kind of a Chicago style, but the crust is very crispy and the sauces, which I think it's a variation of Chicago style, I think. The crust is much different though. The crust is very crispy. You get to Troy sell a pizza, you want a corn piece.
Kareeme Tucker (42:25):
Okay. Melissa, favorite pizza plate.
Melissa Koupal (42:28):
All
Kareeme Tucker (42:28):
Right.
Melissa Koupal (42:28):
So I'm going to present two options. So if you were my sons who are 20 and 11 years old, they would vote DiGiorno pepperoni. And which is my big favorite. I think I've had DiGiorno since post college when I couldn't even afford Taco Bell and I could buy it for a few bucks at the grocery store. So my husband and I still enjoy a good DiGiorno while watching some hockey. I think around here in Southern California, I would have to say any place that has wood-fired pizza on fresh dough. So I love that style, just that fresh taste, but we're not as big into the pizza. It's getting bigger, but I am eating at Buddies next week, Jeff, like I said, and I'm looking forward to it. So I agree with you. Corner piece, Detroit.
Derek Storms (43:22):
She'll let you know. She'll let you know opportunity.
Kareeme Tucker (43:24):
Yes, I'll let you know.
Derek Storms (43:25):
All right. Thank you guys. Thanks for joining In The Loop. We appreciate it. Have a good day. Thanks for having us.
Melissa Koupal (43:32):
Thanks for having me.
Derek Storms (43:35):
Thanks for listening to In The Loop, brought to you by CSBS.
Kareeme Tucker (43:39):
If you want to connect with other examiners and learn more tips for the role and job, don't forget to follow us so you never miss an episode.
Derek Storms (43:47):
We'd love it if you'd spread the word by sharing our podcast with another examiner. See you next
Kareeme Tucker (43:51):
Time. See you next time.
Derek Storms (43:57):
Today's innovations are helping state agencies prepare for tomorrow. SES is a comprehensive technology platform that gives state agencies everything they need to start and finish exams all in one place. With powerful collaboration tools, SES enables agencies to share information and conduct multi-state exams more efficiently, helping make network supervision a reality. Built by state agencies for state agencies, SES is transforming how exams get done. Ready to streamline your workflow? Visit csbs.org to learn more.
It's always evolving. I think it always has been since the day I entered this business. The Kool-Aid that we all drank was the fact that every day you're learning something different. Every day there's a different situation. Loan is like the next loan in regards to borrower situation, borrower need, products, the different aspects of our business, just never being bored. There's always something that we're tackling and something that we're trying to finesse or dig into.
Kareeme Tucker (00:25):
You're listening to In The Loop where we empower financial examiners with the insights, support and community to thrive in every part of their role. I'm Kareeme.
Derek Storms (00:37):
And I'm Derek.
Kareeme Tucker (00:38):
Hey, Derek.
Derek Storms (00:39):
Hey, Kareeme. How are you?
Kareeme Tucker (00:41):
I'm well. How are you?
Derek Storms (00:43):
Great. I'm doing awesome. I'm
Kareeme Tucker (00:45):
Ready for
Derek Storms (00:45):
Another episode. How about you?
Kareeme Tucker (00:48):
I'm excited for today's episode of In The Loop. Absolutely. How are you doing this week?
Derek Storms (00:54):
Good, good. Been a crazy week, short week, but it's been kind of a crazy week. How about you?
Kareeme Tucker (00:59):
All is well. But you know what, Derek, since we began this podcast, when we initially started, you were a regulator with the state of Missouri. And so now that the cat's out of the bag that you're no longer with Missouri, why don't you tell our audience a little bit about what you're currently doing?
Derek Storms (01:15):
Yeah, that's correct. When we started this, the idea of In The Loop and all that came up, I was a state regulator. I'd been there for 14 years. I was on the AARMR, board, all of that kind of fun stuff. Since then, I started at CSBS. I'm now over at CSBS as a policy director. I write policy for the systems, NMLS, SES, all of that kind of stuff. So a lot of the things that you guys will be dealing with and handling with on the back end, I'll write the policy to make sure that that's implemented correctly and properly and to secure the system. So system governance, all that fun stuff on the backend that nobody talks about. They still be in the back corner somewhere.
Kareeme Tucker (01:58):
But they'd be in honor.
Derek Storms (02:00):
But no, that's where I'm at right now. Loving it, having a great time. Honestly, I do miss the state regulators from time to time getting to talk to you guys. I miss the industry from time to time, man. I'm still on some of these phone calls and working groups, so I get to see everybody a little bit, but yeah, that's where I'm at.
Kareeme Tucker (02:17):
Oh, good. That's so awesome. So what a wonderful way to now. You'll still have an opportunity to speak to industry and regulators with me remaining as a regulator and our two fabulous guests today being in industry.
Derek Storms (02:29):
Absolutely.
Kareeme Tucker (02:30):
Enough about us. Let's
Derek Storms (02:31):
Get them on here, right? You want to introduce
Kareeme Tucker (02:33):
Them? I sure will. Get them introduced. Come on. Our first guest today is Jeff Midbo. Jeff hails from United Wholesale Mortgage. Jeff is the Senior Vice President and Chief Compliance Officer at United Wholesale Mortgage, where he currently oversees the company's enterprise-wide compliance strategy and provides legal guidance across all areas of the business. With more than 14 years at UWM, Jeff plays a critical role in navigating complex consumer finance laws and helping ensure the organization remains at the forefront of an evolving regulatory landscape impacting mortgage lending and servicing. Prior to joining UWM, Jeff served in a similar compliance leadership role at Flagstar Bank. He earned his undergraduate degree from Michigan State University and his jurors doctorate from the University of Detroit Mercy School of Law. Please welcome Jeff Midbo. Welcome,
Jeff Midbo (03:35):
Jeff. Thanks for having me.
Kareeme Tucker (03:36):
You're welcome. And joining him on today's episode, we have Melissa Koupal and I hope I'm pronouncing her last name correctly. Today we're joined by Melissa. She is the Chief Risk and Compliance Officer at CMG Mortgage, where she leads enterprise risk and compliance across regulatory examinations, agency relations, fear lending, quality control, and credit risk. With more than two decades in the mortgage industry, including a founding executive role at Loan Depot, Melissa has become one of the most recognized voices in mortgage compliance. She's also the founder of Reg List. Ooh, I'm curious about that, how'd that begin? A professional community of over 1,900 compliance leaders and currently serves as the chair of the AARMR Industry Advisory Committee. Please welcome Melissa Koupal. Welcome, Melissa and Jeff. We're happy to have you both here today. How are you today?
Melissa Koupal (04:39):
Oh, good. I'm excited to be here. And it's funny because last time I think I was at the NMLS conference and I was on a stage next to Derek and I think he was still with the state and then all of a sudden CSBS, here he comes. And Karin, we've known each other for quite a few years and so really looking forward to having this discussion today. So thanks for inviting me.
Derek Storms (05:02):
Jeff, that was the first time I think I met you was at last year's AARMR Conference. And so yeah, that was the first time I think I met you there. What'd you think of the conference?
Jeff Midbo (05:14):
I liked conferences. I mean, it's kind of nice to put a face to the name and socialize a little bit with the people that you're going back and forth with on correspondence. And to be honest with you, I like the interpersonal connection and interaction and I wish there were more onsite exams, so we get an opportunity to work across the table from one another, but going to those conferences kind of helps do that a little bit more. So yeah, I really enjoy those.
Derek Storms (05:40):
Oh, we'll talk about onsite exam. Let's talk about it right now. I mean, I think we can get into that first question and really this is I think a perfect segue and where I want to come from is the industry's perspective. So each of your individual companies perspective, how does the state regulatory system fit into today's broader oversight framework? How does that work for you guys and your companies?
Jeff Midbo (06:05):
I mean, I think it works really well. I love how it's been evolving, especially the use of the SES and how more states are leveraging that and just becoming more uniform, especially in a company the size of UWM, the more uniform creates more efficiencies, more consistency. It's just helpful for us for the process because as you can imagine, at any one time we're being examined by 10 to 15 different states. The more uniformity that we have in that, I think it fits really well with what the CSBS and others are trying to do with regards to the regulatory agencies.
Melissa Koupal (06:37):
Yeah. And I agree with Jeff on that one. I think the other thing to keep in mind when I talk with regulators and other parties at NMLS conference or AARMR or even during the exams is also the realization that some of the state regulators that come in and perform examinations on entities like UWM and CMG. We've also got the agencies are in here, especially Jeff, at the size that we're at, Fannie, Freddie are visiting on a routine basis. That's just because just like the states, it's just from a volume perspective from a partnership perspective. Also, you've got our third lining reviews, we've got the counterparty reviews and then now we also have rating agencies as well. Even if you're not publicly traded or you're not even issuing debt or anything like that, just from a Fannie Freddie risk framework, we also have to have, based on the servicing side, you may have a rating agency also coming in one or two, Jeff coming in on an annual basis in addition to everything else.
(07:38):
So I think it's important from a state regulator perspective to know that your reviews in addition to all your state partners, there's also a whole nother group right alongside at the same time that you're in our house, there's others that are also in there and they may overlap, but some of them are also distinct. And so in that whole kind of broader oversight framework, it's really robust and it's continual.
Derek Storms (08:06):
Yo both kind of mentioned it. You talk about uniformity and some of these other challenges, you have all these other regulatory agencies or other agencies that are kind of overseeing and looking at different aspects. Let's talk about just for a little bit some of the biggest challenges and maybe benefits. Let's talk about some of the benefits too of working with some of the individual state exam structures, individual state exams. And then what about multi-state examinations? What are the challenges to maybe the individuals and what are the benefits? And then how about the same challenges and benefits to the multi-state examination structure?
Jeff Midbo (08:43):
I can go first on that. Just on the individual state exams, I like the collaboration. It's a little bit more intimate whereas the multi-state, I think that is a really good benefit from the perspective of efficiency. So they both have kind of values to them. That said, I love the multi-state just because it is a lot more efficient and it gets a lot of the exams out of the way at one time. But the individual stuff is, I mean, it gives you a great opportunity to create a relationship and collaborate. And again, it's a little bit more intimate. So you get a little bit more opportunity to explain some things and go through your business processes and things of that nature, which I think is beneficial too.
Melissa Koupal (09:20):
What's also nice about individual state exams complimenting the multi-state is that with individual state exams, to your point, Jeff, you get to really connect with the examiners, but they also are looking maybe at things a little bit differently due to the individuality. So not looking at it differently from a bad way, but looking at it and maybe looking at different aspects that another state won't look at. So then if you combine all those state exams together, you're getting a pretty fulsome review of your shop. And I truly mean this when a state examiner comes in and yes, it's work. It's work for all of us. I don't even understand how the regulators can stay on top of the exams just going one right after the other, but it also gives us the opportunity to talk, to ask questions, to say, "Hey, we're dealing with this.
(10:05):
Hey, we have that. What do you think on X, Y, Z issue?" Or, "Yeah, you noticed that. Can we talk about that? " Or, "We're looking at the MCR this week on this issue, what's your ideas?" Or whatever that is. And so I think being able to have that kind of one-to-one relationship is helpful. I know from a multi-state, it's kind of like getting in, everyone work together, everyone get done. Yes, to Jeff's point, total benefits to that. But then with the multi-state is when I have done multi-state is also connect with the individual regulators from all the different states as well. So not just build a relationship as a whole like it's all one big regulator, but to say, I think Kareeme, you and I work together on a multi-state and really connecting and saying, "Okay, let's look at the state and your individual laws and how you're looking at it because I want to make sure I still get that from my multi-state." I think as with everything, right, Derek, Krem, Jeff, there's positives, there's negatives, there's room for opportunity, but we're definitely have moved in the right direction and like everything that you guys have all put together.
Derek Storms (11:08):
I don't want to put you on the spot. Maybe I do. I'm going to ask you which one's better. Multi-state. Come on. We got to do a little bit right in a
Jeff Midbo (11:16):
Regulator and him coming out here.
Derek Storms (11:19):
I got to. I got to do it. What's better, multi-state or single state? If you had to pick one, which one would you go with?
Kareeme Tucker (11:26):
Without list and a state.
Derek Storms (11:28):
Yeah, yeah. No. I know you have your favorite state,
Melissa Koupal (11:32):
But- and protecting the innocent. I think that's hard just because of what I've just laid out. There's just positives and there's drawbacks because from a multi-state perspective, those can be long, they can be intense. They take a lot of resources. And if that lines up with all those other kind of other parties that are also in the house looking and then how that all coordinates, it can be a lot if you have a large multi-state exam going on at the same time. But the other side, Jeff, is when we do have 15 plus exams at any specific point and you don't want them to all hit at once. I always say, "I can handle 10 to 15, but don't come at me at one time because we can't handle that. " So I think it's a balancing act. So I know that's not a direct answer.
Derek Storms (12:22):
Just dodging the question. One
Melissa Koupal (12:24):
Or the other. I'll
Jeff Midbo (12:26):
Give you an answer. Hands down, multi-state.
Derek Storms (12:29):
Okay.
Jeff Midbo (12:30):
To Melissa's point, it's a lot of work, but then you get the moratorium for the year, which is like, so you do the work if it's time just right, maybe you get the summer to work on your golf game because you're not dealing with state exams.
Kareeme Tucker (12:43):
And the new process though, the OCOE is different now. So now it's 10 states coming in versus where we did the multi-state, we now call it OCOE one company, one exam. So that process has been streamlined a little bit better than the other version which allowed 10, 15 years.
Jeff Midbo (13:00):
I think to your point like that, also it limited the ... 10 states is a lot, but it's not 16 or 20, which it's a little bit more manageable. And like I said, you do the work all upfront, it's like doing a year's worth of work and then you get a year off basically from that function anyway, which is nice. To be honest with you, it gives people like Melissa and myself that year moratorium gives us the opportunity to really dig in and kick the tires on things because we're not reacting to state requests or whatever. It really lets us do our own testing and our own focuses and really bolster our compliance management system. So I do think there are some ancillary benefits from that perspective. Okay.
Kareeme Tucker (13:40):
Pros and cons on both sides.
Melissa Koupal (13:41):
Well, I was going to say too, because after the exam you have corrective action, right? We have learnings and things we want to put in place. So you're able to do that across, to your point, Jeff, across the board and be able to focus on that as opposed to if one state shows something and then the other state comes in right after, it's kind of like layering on top of each other just to span out. So that's a really great point as well, Jeff, on that aspect.
Derek Storms (14:05):
Awesome. If you had to describe today's mortgage environment in one word or phrase, what would it be and why?
Melissa Koupal (14:13):
What I thought of on this one is it's always evolving. I think it always has been since the day I entered this business and I say that's the cool way that we all drank was the fact that every day you're learning something different. Every day there's a different situation. Loan is like the next loan in regards to borrower situation, borrower need, products, the different aspects of our business, just never being bored. I mean, there's always something that we're tackling and something that we're trying to finesse or dig into or there's a new agency requirement or a new examination protocols or reports that we have to do or even of course the two letters that float around all the time, AI and just being able to manage that and implementation. So that's what I've always loved about this industry is that I'm never bored that there's always something else to tackle.
(15:05):
So always evolving. Derek is my answer to your question on that one.
Jeff Midbo (15:09):
Completely agree with you. I mean, I think about when I got into the industry in 2002 and paperless underwriting was the thing. It really seems to be tech oriented now up to today where to Melissa's point, you've got AI and there's so many things you can do with AI that it's really just the sky's the limit. It's just always something new and different and there's always a technology it seems that people are figuring out to leverage, to make things better, easier, faster, whatever. And ultimately I love all that just because it makes things cheaper for consumers, which ultimately helps our business. It also makes things better for the end user there.
Melissa Koupal (15:46):
Funny thing I thought of, Jeff, when you were talking through that is I think back on, and it was probably a good five, seven years into being in mortgage, but I remember someone came to me and they're like, "Are we allowed to accept a picture of a pay stub?" This person took a picture of their pain stub. They didn't fax it in to our fax number. Are we allowed to take the picture? And it was like this whole debate and discussion of like, "Is that okay?" And to where we are now in everything and that wasn't that long ago, that was a point of discussion of like I didn't see it come through and turn into a PDF, it came directly from their phone or an email and they were like, "Oh my gosh." So it's crazy.
Kareeme Tucker (16:33):
You're making me think back to my underwriting years when we would see all kinds of things. But it's funny because Jeff, you mentioned different technologies and even Melissa, as you're discussing the ways in which technology has evolved, what technologies do you all believe are transforming mortgage compliance the most right now and how do you think that regulators should think about those changes?
Jeff Midbo (16:56):
I mean, Melissa said it with AI is huge. A real simple ... We leverage it a ton for operational uses, making sure controls are functioning, but just the most simplest version of that is using AI to read through a 500-page legislative bill to pick out the five paragraphs that are mortgage related. It would've taken a paralegal or an attorney hours to look through that. Now it takes AI two minutes.
Kareeme Tucker (17:22):
But even with that, you want to be careful because sometimes AI will say something that isn't accurate. So I would caution just kind of be a little careful.
Jeff Midbo (17:30):
And obviously you got to verify. And I mean, to be honest with you, a lot of the technology companies and some of the laws we have seen with the human in the loop, you're forced to verify, not necessarily in this scenario or my example, but exactly right, but it's a heck of a lot easier starting point than just, here's 500 pages, start reading. I think that's a very simple application. Now you think about the operational complexities of propping up control testing or something like that or QC audits where you've got the system that can do tons and tons more than a person ever could have. Obviously to your point, you still want someone intervening and looking and making sure it's functioning properly and testing the tester, but it just gives you that much more capacity to do a lot more to make sure things are working properly.
Kareeme Tucker (18:17):
So there's definitely some pros and cons with that. And Melissa, go ahead. I'll let you chime in.
Melissa Koupal (18:20):
Well, I think the trust web verify, Kareeme, right? To your point, I tell my team, I'm like, I forget what it was a couple days ago. I put something into Claude and it sent me back a response and I was like, one part of it I knew was wrong. And so I said, "Well, that's not correct." And instantaneously it's like, "Oh yeah, you're right. I wasn't correct on that point." I'm like, "You didn't even have to think about it. You already knew." And you still need that trained eye and knowledge to be able to look through something and be like, "No, that's not correct." Or, "You're misinterpreting something you found on the web and then you just put it in here and that's wrong." I will say I find simple things like we have an enterprise version of Claude and so I will use that even just to put a PowerPoint together, a quick PowerPoint because being a risk and compliance person, I don't know about Jeff, but me putting together a pretty PowerPoint with graphics and making it snazzy in the colors and stuff, that's not my wheelhouse, that's not marketing.
(19:23):
And so being able to use something like that to say, "Okay, here's all my notes, this is what I want, transform it into this. " Or, "Here's an email I want to send to the company about a certain subject. This is what I want to cover, this is the tone I want, this is all the different high points," and then it creates something and I can use it to edit. So I always say it's easier to edit than create. So that's what I've used that for. But I will say in regards to technologies, I think a lot of it comes down to data and then also improving our quality. Quality is also a really big focus, not just in compliance, but just credit quality, manufacturing quality. Our borrowers are complex nowadays. It's not a W2, here's my two bank accounts and there you go. I mean, there are still borrowers of course like that, but a lot of them come in, they're self-employed, multiple properties, multiple companies, all the different aspects.
(20:16):
And also like Jeff highlighted on the fraud aspect is really being able to use tools to identify red flags in a file. I know that there's some companies now that you can utilize and throw a pay stub in, for instance, and be like, "Is this real? Is this a good pay stub?" Because with AI comes better broad in regards to creation of a pay stub. So being able to highlight some of those items, I think we're still learning though, right Jen? I think our IT teams are still figuring it out where it's a help, where it's just a compliment to what we do or sometimes I would even go to say that it's necessarily not achieving any efficiencies in some areas because we still got to figure out how it fits.
Derek Storms (20:57):
I mean, absolutely. Kareeme had kind of a two-part to that question and the second part was how should regulators think about some of these changes? I know the other day I used AI just to schedule a meeting. So I had 10 different people, I threw it in there of all their times and it said, "Here's the meeting on this date at this time that everybody can be at." It took like two seconds to just schedule the meeting and it created some efficiencies for me with all the technologies that are transforming this area, how could regulators think about these changes and maybe during examination, during licensing, is there things that regulators that you think could help out both you guys, the industry and regulators with these kind of changes?
Melissa Koupal (21:41):
I mean, I'm just thinking, I know that there was discussion of even just looking at a PDF loan file and being able to review it quicker instead of having to scroll through it, talk about back in the day when we used to make copies of all of them and then we'd have the rubber to flipping through the pages, but just even in the PDF and just having to scroll through every one of those and be able to identify certain things. So let's say there's a certain pay stub generation website that we know the red flag for fraud. I could go and scan a group of files and see if any of those pay stubs came from that site with use of AI and just a flag any file that it looks like that pay stub came from there. And then my QC team or my fraud team can then go and choose those files and look at them.
(22:29):
So they're not looking at it just from a DTI, LTV, multiple properties, all those aspects to do discretionary. They can actually do it based off of the type of documentation that's in the file. That's different versus how we did it before where you were doing it more from a data attributes. I'll give it use case and then from a regulator perspective, you can think of it, but using AI and then also in our QC space, because we have to do asset reverification. So post close QC, you have to go and reverify assets. Well, in some of them, like I was talking about, you might have multiple bank accounts, multiple employers, lots of different reverifications you have to do, but if you can scan that file and teach something to say, okay, this is the list of all the verifications you need to do so then you're not dependent on a human to go through it and being able to identify all the different documents in there and figure out all the different verifications.
(23:29):
So is it a carte blanche solution and now I don't have to do reverse? No. Is it a way to ensure that we're doing it thoroughly and we have a list and it saves time? Yes. So I think it's that time savings. I don't know about you, Jeff, but that's where I'm seeing it is really time savings, but not a replacement of a human necessarily is building an efficiency, at least from my standpoint and for what my team does.
Jeff Midbo (23:53):
Yeah, no, I don't think it replaces people that don't use it is kind of what we've leaned into. From a regulatory perspective, I would love to see just clear expectations around it. I mean, this stuff is going to continue to evolve. I spoke on a panel recently at the CSBS conference about AI and I mean, this stuff's coming like a freight train. It is coming and it's evolving every second. So just making sure that how it's going to be regulated is clearly communicated and expectations are put out there. I mean, I'd love to see almost like a uniform commercial code and states could adopt or not adopt or best practice or whatever their administrative law procedure process would be. But just to know what I have to do, what's expected of me because this stuff is going to evolve and it's going to evolve fast and it's going to be much faster than legislatures, I'm sure.
(24:46):
So that would be one of the things that would, I think, help the industry and just help everyone is just what are the expectations on us with this because it is common.
Kareeme Tucker (24:53):
Does UWM use these sort of tools as well?
Jeff Midbo (24:56):
Oh yeah, 2,000 IT people and more than half of them are working on AI.
Melissa Koupal (25:02):
I want to highlight too, I thought it would be helpful for all my regulator partners out there to know too, like Fannie and Freddie issued bulletins letters. One, Freddie issues bulletins, Fannie is the lender letters, but issued in April and it lays out AI governance framework, PMPs and other various aspects. So just to inform the regulator community that also the agencies have a focus on AI and their expectations and what they want to see from us. So those are all, at least the Fannie Mae one has an effective date of August 6th. So those are also things that we're working on, whether UWM or CMG or any of the other proved seller servicers or Fannie or Freddy. So I think AI governance though, I wouldn't say it's a challenge, but it's something that we've added to our list of things that we also have to see on top of.
Jeff Midbo (25:57):
Well, and to that point, I don't know what governance means from that perspective. I know what I've built and what we think is the right thing, but that's where I don't want someone to come and say, "Well, you didn't do X, Y, and Z, but we did all these other things." So to the degree they can communicate what the expectation is, I think that's helpful for everybody.
Derek Storms (26:15):
What makes an examination process effective from the industry standpoint? So when exams get kicked off and the regulators are coming in, what is it you guys would like to see more for a better effective process?
Jeff Midbo (26:32):
I think one of the things, and we see it a lot, but I think what I've seen that's been effective is just true collaboration. So letting us explain why we do the things we do, how our controls function, because I think one of the challenges that regulators likely have is you think about regulating a five person mortgage broker versus regulating UWM, those are just going to be two completely different business models and the way things work are going to be completely different. So taking the time to understand what they're looking at, understand why things happen the way they happen. I mean, I think I speak for Melissa and frankly the whole industry or at least a vast majority of the industry is like, we're trying to do things the right way. A lot of it is just understanding what the expectations are and trying to pigeonhole what the requirement it is into a business process to operationalize it.
(27:23):
So I think good collaboration communication is key and I've seen where it's been very effective where we can explain something and say, "This is why we do the thing we do because X, Y, and Z and oh, that makes sense." And taking the time to understand and learn who your licensee you're examining I think is helpful.
Kareeme Tucker (27:41):
It's really important because we also, when we come in as a regulator, when we come in, we are asking or looking for industry to tell us about your business. We can do all the research, but this is your opportunity to tell us what you're doing to show us that you're doing what you say that you're doing. And so Melissa, I'll let you continue on with that. So it works twofold, but you're correct. Walking in, regulators should know the organization with which they are examining at that point. And we do recognize that there is a difference between your smaller companies versus your larger or your brokers and your lenders. And there is a pathway for examining both entities and that's important to know on both sides that there is a way and a manner in which we should be and can examine of that side of the industry.
(28:27):
Go ahead, Melissa. I'm sorry. I didn't mean to intervene.
Melissa Koupal (28:30):
Oh, no, you didn't. I'm just walking. I'm just over here, but I think I'm just talking. So that open dialogue during the exam, I think to build off of both of your points is when we were in the office and the exam teams would come in, they'd sit right in the office next to me and they could come over and ask me a question. I could drop in. We would talk in the morning over morning coffee. We would have a mini exit every day to say, "Okay, where are we? Where are you going tomorrow? Are there any questions you have so far? Is there anything you've seen that you'd want to know more about? " And I think when we move to the remote exams, it's easy to lose that. And so what I try to push the team is to pretend that we're all in the office, even just in my, let's put exams to the side, even my own team, I'm like, "I want you all to pretend that we're in cubicles." And so if you're like, "Wait, you know what, Kareeme, I wanted to tell you, well, just call Kareeme or just Teams message her and just let her know.
(29:34):
Don't say, Oh, I got to put a meeting on calendar to talk to them about this and coordinate da, da, da, da, da. Because then that just slows it down. So I think for the exams, that's important as well because it's so easy to be out of sight, out of mind, but to keep that constant kind of communication between the company and the exam team with those open dialogue but the update check-ins. And so then by the time we get to the exit, there's no surprises. There's no, oh, I did and no, or oh, I could have given you more, or I could have explained what that channel is like or how we log that or how that's evidenced in the file. So I think just that transparency.
Jeff Midbo (30:12):
I would advocate strongly. I mean, as you could see, we are an office and we would love to see more in office exams that some of that has been lost in the lack of onsite examinations and I'd love to see more of that. Just again, better collaboration, better explanation or opportunity to explain things, just better understanding of the business. I can walk an examiner over and say, "Here's the team that does this. You don't want to sit with one of them or whatever they want to see or do. It's just easier to get your head around some of it, I think.
Kareeme Tucker (30:42):
You'd be surprised at how many companies actually think opposite. They don't want us to come in. " And we're like, "Well, we'd like to come in because sometimes that human connection, that human interaction can help to resolve so many issues, but there's still opportunity to do it over Teams and have conversations. Yes, you can't walk in and you can't sit and see and view, but there's still some opportunity. Go ahead, Derek.
Derek Storms (31:03):
Yeah, no, I mean, so we've been talking about technology and the different platforms and everything. The industry has changed so much over the last 10, 15 years. And so I guess where I want to go is how important is our systems that we have, NMLS, SES, the consistency in NMLS usage across all of the states for companies operating nationwide. How important is it for you guys for us or regulators to have that consistency within the system and then also using SES during the examinations and communication and being able to be consistent across that line? How important is that for you guys?
Melissa Koupal (31:44):
It's huge. I mean, I think I like the NMLS and when that came out, I'll never forget. I would think I was in Utah for the AARMR Conference and we were talking about what this platform looks like and how it's going to roll out. And for that, it was paper and typing in the PDF Adobe and sending it in and checks. And even once the NMLS launched, remember renewals? I remember one state and I had to print off a piece of paper per LO and attach a physical check and send it in, but that was streamlined compared to what it was before. And so I think as we've evolved, the NMLS, I mean, for both Jeff and I is key to us being able to effectuate what we do on a day-to-day basis with all the LOs, different entities, the branches, whatever it is. I mean, it's bi.
(32:32):
But I think you hit the nail on the head, Derek, too, is making sure we're aligned on the definitions. We're aligned on the interpretation. I'll use the MCR and my team will be like, we go through the MCR definitions and we will revisit them on a regular basis all the way down to what's a loan application, what is this? How do we define that? And just to revisit, okay, this is how we define it. Has it changed? Has our business changed? Do we need to look at my wholesale channel versus this channel? All of that. But that's one thing on our end. But then if the states don't align, then it's a mess. And so it becomes really complicated and you lose the benefits of that streamlined aspect. So I think it's really important. Derek, you were saying you're off in the corner at CSBS, but what you're focused on is really important because we rely on that to have a common definition at a point of truth so then we can all make sure that, to Jeff's point, we all want to do the right thing and that ensures that we are doing the right thing because we're all aligned.
Derek Storms (33:38):
Yeah. If we all have the same definitions, we're all in the same playing field, then we can all do it the same way and it'll just be a much better system. Jeff, I'll give you just a couple of minutes and then I think we have one question for you and then we can kind of get into some fun stuff before we close things out today, but how important is it for that consistency in the systems and using those systems for the exam and licensing portions of it? How important is that for you guys? I
Jeff Midbo (34:01):
Think Melissa said it all very well. I mean, it's incredible. Any states that aren't using it, we strongly encourage you to use the SES. And I mean, it's much, much simpler. I mean, yeah, there are nuances where some states will interpret things differently and you file MCR and they cite you for it and it's because their definition of application is different than what you're reading in the system. And that stuff's going to happen, but on balance it's so much more efficient. It has, I think, a very good breadth of the things you need to be asking. And frankly, I think it's also prompted a lot of people to ask about things they had. And until the SES was really being used in mass, I never got any BSA questions. Came from a bank, had a beautiful BSA program. It was a bank program. It was awesome.
(34:51):
No one ever asked me about it. Now I get asked about it all the time because the questions are in the SES system. I think if states are not using it, they should be because it's just more efficient and it also has a lot of information and it may not be a focus of theirs that maybe should be.
Derek Storms (35:05):
I do want to ask you one, just maybe a little bit lighthearted question here, your chance to kind of say thank you back to the regulators, but what's something state regulators do that you think the industry doesn't say thank you enough that the regulators do?
Jeff Midbo (35:20):
I'm going to advocate for them to do more of it, but we've seen a recent uptake of just reaching out and asking questions. I mean, obviously we're in a unique situation where we are business partners with a lot of people that the state regulators are regulating. So we've had a few states recently and we've been basically imploring them that reach out to us. If there's something we can do to help you do your job, I mean, they're going to listen to us because ultimately we're the lender on their loans so we can put safeguards and controls and things in place. But we've had people reach out, states reach out and just ask about, "What's going on with this? Can you help us train on that? We see this. Can you bolster your controls there?" I mean, in situations where they were lack of control, I had no idea that the controls we had weren't working as far as we knew they were.
(36:07):
So bringing it to our attention was great and it allowed us to enhance things.
Kareeme Tucker (36:10):
Melissa, I want to give you a different spin on that question actually. So what do you see as the biggest opportunity for state regulators and the mortgage industry to evolve together over the next five years?
Melissa Koupal (36:22):
Kareeme, I think being on the Industry Advisory Council for AARMR, we just had a meeting and it was great. I mean, we had a fulsome hour of just conversation and it wasn't, "Oh, you're a regulator and oh, you're industry." It was more or less a collaborative, open discussion of what we're seeing. This is our questions we have. These are concerns, the wins. And I think it's a common theme throughout our whole conversation today is just is continuing to evolve that collaboration of where we can partner. I think even Kareeme and I have talked about education. Jeff and I need to educate our people just as much as the states need to educate their up and coming, people are even just continuing it and being able to say, right, well, my team needs to know TRID and needs to be able to audit a file or answer questions to it just as much as a state examiner needs to understand how to look at a loan file and understand it and review it.
(37:18):
So bringing us together to say, okay, we can all be in the same room and we should all be learning it pretty similarly. And then one is executing it and operationally and the other one is reviewing and testing for it, but to get that common base. And then from that, I tell people you go to AARMR, you go to NMLS conferences. Yes, you go there for the sessions, but you go there for the connections. And I mean, I have just benefited so much from just all the different conversations I've had, whether if sharing a laugh or talking about a real issue or saying that this is something that we want more information on and collaborating. So I think that I know it's kind of cheesy, Kareeme, but I really think we can continue to evolve together on that partnership aspect and how we continue to help each other build as opposed to separately trying to figure out how to tackle this mortgage industry together.
Derek Storms (38:14):
And I think you make a great point that honestly, it's the only way that we are going to navigate the state licensing system and the examination and all of that over the next couple of years. Technology is changing so fast, everything's changing so quick that if we aren't working together, states, industry, CSBS, if we're not all working together, the system as a whole is going to suffer. And in order to navigate the technology changes and everything that's coming up, we have to collaborate. We have to be communicating and having these conversations.
Kareeme Tucker (38:48):
Because if the system suffers, the consumers suffer and none of us want that. So collaboration is how we evolve going forward. Since you both are in compliance, what's one compliance pro tip that no one tells you, but everyone should know?
Melissa Koupal (39:04):
Kareeme, I am going to come across as like, does she have any other talking point? But I put on here build relationships. That's the biggest compliance pro tip I have is whether that's with regulators or with other industry. When I go to a conference or something outside of my extra room here in my house, I tell my team, yes, it's the sessions, but it's after the sessions is where you're going to get your benefit. You don't just go up to your room and answer emails. Then you're missing unlike the biggest, I think, benefit
Kareeme Tucker (39:38):
Is- Opportunities.
Melissa Koupal (39:39):
Yes. And branching out and learning and sharing an appetizer, sharing a drink, whatever that is, going out, just having that ad hoc conversation always comes back to benefit me. It may not be right away, it may not be in a couple years, but it could be in six years, seven years, whatever it is. And you're like, oh my gosh, remember we worked on that one exam together or remember we were in that room and we sat next to each other? So that's my biggest pro tip that I get of my whole team is that they need to network internally, but they also need to network externally and not just in our private industry, but in the regulator industry as well.
Kareeme Tucker (40:20):
Absolutely. There is opportunity to glean from one another. So not just within your own organization, other organizations reach across the aisle to the regulators. Perfect opportunity to build relationships as you so eloquently stated previously. All right, Jeff.
Jeff Midbo (40:35):
I agree with what Melissa said, but I'm going to go a different direction a little bit more time.
Kareeme Tucker (40:39):
Okay. Always
Jeff Midbo (40:40):
Read the preamble always.
Kareeme Tucker (40:42):
That's Gloria in you. Yes. Yes, absolutely. That's the lawyer. You're
Jeff Midbo (40:47):
Not reading the preamble, you're not reading anything. I made that mistake early in my career and it didn't end up being a big deal, but it's like that is ... And really the larger message is make sure you understand and read the details, get into the details of what's going on. Understanding the intent of things is really key. Because ultimately, yes, a lot of the legislation, a lot of this stuff, it doesn't operationalize easily. So to the degree you understand what they're trying to accomplish with it, it helps you operationalize it a little bit better.
Kareeme Tucker (41:21):
All right. Well, listen, we've got about a minute left, so let's have a fun question. As with all of our episodes, we like to ask our guests our pizza question. And so Jeff, I'm going to kick it off with you. What is your favorite pizza place? Tell us the name of the pizza place, the city and the state. What's your favorite pizza place?
Jeff Midbo (41:41):
Well, so I don't eat pizza because my LDL is too high, but what I did eat pizza or previously used to eat pizza. So if I were answering this question as a pizza eater, it would have to be Buddy's in Detroit.
Kareeme Tucker (41:52):
Buddies in Detroit. It's
Jeff Midbo (41:54):
The original Detroit style pizza.
Melissa Koupal (41:56):
Jeff, I'm going out to Troy to our office and this is hilarious.
Jeff Midbo (42:02):
They have franchises.
Melissa Koupal (42:03):
We
Jeff Midbo (42:03):
Don't have to go to Detroit to do it. Yeah.
Melissa Koupal (42:05):
Wow. We're going to Buddy's pizza. I love it.
Jeff Midbo (42:07):
It's kind of a Chicago style, but the crust is very crispy and the sauces, which I think it's a variation of Chicago style, I think. The crust is much different though. The crust is very crispy. You get to Troy sell a pizza, you want a corn piece.
Kareeme Tucker (42:25):
Okay. Melissa, favorite pizza plate.
Melissa Koupal (42:28):
All
Kareeme Tucker (42:28):
Right.
Melissa Koupal (42:28):
So I'm going to present two options. So if you were my sons who are 20 and 11 years old, they would vote DiGiorno pepperoni. And which is my big favorite. I think I've had DiGiorno since post college when I couldn't even afford Taco Bell and I could buy it for a few bucks at the grocery store. So my husband and I still enjoy a good DiGiorno while watching some hockey. I think around here in Southern California, I would have to say any place that has wood-fired pizza on fresh dough. So I love that style, just that fresh taste, but we're not as big into the pizza. It's getting bigger, but I am eating at Buddies next week, Jeff, like I said, and I'm looking forward to it. So I agree with you. Corner piece, Detroit.
Derek Storms (43:22):
She'll let you know. She'll let you know opportunity.
Kareeme Tucker (43:24):
Yes, I'll let you know.
Derek Storms (43:25):
All right. Thank you guys. Thanks for joining In The Loop. We appreciate it. Have a good day. Thanks for having us.
Melissa Koupal (43:32):
Thanks for having me.
Derek Storms (43:35):
Thanks for listening to In The Loop, brought to you by CSBS.
Kareeme Tucker (43:39):
If you want to connect with other examiners and learn more tips for the role and job, don't forget to follow us so you never miss an episode.
Derek Storms (43:47):
We'd love it if you'd spread the word by sharing our podcast with another examiner. See you next
Kareeme Tucker (43:51):
Time. See you next time.
Derek Storms (43:57):
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