The mortgage market has been slowing down these past years because of the COVID-19 pandemic. Listen to this episode if you want to know what can you expect from the market rates this coming 2022. Join your host Jen Du Plessis and her guest, Kevin Crichton, on the state of the market and the future of his company. Kevin is President and Chief Operating Officer of EMM Loans LLC. Discover the impact COVID had on the mortgage market. Learn why he prefers to wait out on buying investment properties for next year. Find out what Kevin’s company is aiming to do next year and more.
Looking for some help? Jen is seeking individuals who would like to be featured as a panelist on the show for her Mortgage Lending Mastery Mastermind Series. Email Support@KineticSparkConsulting.com to get scheduled!
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What’s New In The Mortgage Market: What Market Rates Are Going To Look Like In 2022 With Kevin Crichton
I want to say if this is your first time in the show, welcome to our community and thank you so much for taking time out of your day to spend with us so that you can improve and grow your mortgage or real estate practice. If you’ve been reading for a while, thank you so much for your patronage. I appreciate it. Our guest is Kevin Crichton. He is the CEO of EMM Loans LLC. Are you based out of New Jersey?
We’re in Cherry Hill, New Jersey.
I know Cherry Hill very well. I used to be with World Savings.
We see the Philly skyline from our building. It’s a Philly-based company but in Cherry Hill.
They do $3 billion a year in retail and wholesale production, and they’re licensed in 40 states. He is the CEO and has been a leader. He has held numerous positions in his 35 years in the mortgage business. We’re going to be talking about not only learning a little bit about EMM Loans but also what your predictions are. What have you seen? You’ve only been in it for 35 years. You’ve seen some ups and downs. We all have been in it this long, but we want to talk about some of your predictions. There’s a lot of angst in the market because things have slowed down after COVID and now what do people do? What did they do? We’re looking towards 2020.
I want to say thank you so much for joining us and thank you so much for taking time out of your day to share your wisdom with us. Let’s get started with the state of the union. What has it been like for EMM over the last year and a half to two years? Maybe take us back to 2019 when everyone was singing the blues about whether or not they should be in the business or not.
The best word to describe it is different. We came into 2020 and we didn’t know what the next step was. We had winter upon us. March came here with the pandemic or at least the start of one, which no one knew how bad it was going to be. We sent everybody home. Thank goodness for our company being technology-driven. Two years prior, we had set up a company to be able to go home for a disaster. We thought about floods, hurricanes and fire. We didn’t think of a pandemic. We were able to maneuver through it. We had the best year of our careers in the company’s history. It was smooth.
The people stepped up in the company. Our teammates stepped up and everyone did their job. Everyone did it while they were watching children and dealing with the concern over the pandemic. It’s a different environment. We’ve proven that we can do it from anywhere. We had a corporate office up until April 2020. We had much more space and much more costs. We were planning on moving out anyway. We got into a building that is much less space, much less cost, yet we don’t need to have everyone in the office. We have some essential workers coming in and people who feel like coming in from time to time. They feel like interacting with people but that’s still dangerous.
We’re still concerned about COVID, but 2020 was a phenomenal year from the standpoint of production and a standpoint of earnings. That’s probably the better way to describe it. We were doing $2 billion-plus now, yet we were not making the same amount of money back in 2020. The margins were out of control. Every time you turn around, you could add more margin. It was super competitive but at the same time, people were falling over each other. Either they buy a house, refinance or whatever it was. It was a miraculous year from an earnings standpoint.
I was at a Non-QM Conference in Los Angeles. One of the words that were being used throughout that was the softening of the market. I‘m of the opinion that it’s not really the softening of the market as much as it is going back to the original market and more sustainable market. Two questions I have for you. What do you think has prompted the sudden skids on everything in the pandemic? I know everyone hasn’t refinanced, people still want to move, and rates are still great. What do you think has put the skids on it? Where do you think the market is right now as we continue to finish out in 2021?
Anything from 2000 pace is going to look like a softening. It was the best market in the history of mortgage banking. Anything off of that is going to be softening. There are a lot of factors. The COVID-19 situation still has an impact on the political scenario. What we have now is still great rates. You can borrow money at two-point something or below threes. When you take a tax impact of that, that’s cheap money. I do think real estate is a little loftier now. Real estate values have gone through the roof. Customers are starting to get wise. There’s not as much real estate for sale too. That’s slowed down that market.
On the refinance side, I think some people are sitting back saying, “Maybe I’ll wait longer. Maybe rates are going to get cheaper,” then you hear about rates going up and down. I have one basic premise. If it’s time to refi, you can save some money to do it. You can always do it again but everyone is different. It makes this world a special place. Every person is different and no one is right and wrong. It’s an opinion. You got to value their opinions. You got to market to your opinions and you’re right. There’s so much refinance that’s still in the market both in cash-out scenarios, rate and terms. There are tons of businesses still out there. They keep coming in the door.
It’s not like it was coming in initially in 2020 because we went from a higher rate. We dropped and people were home. What are you going to do in your home? I’m going to listen to them barking. I’m going to listening to, “I got these bills and I got those. I’m not working. I might as well try and refinance. I can’t refinance if I’m not working.” We’d never experienced that before. It’s all new to us. 2022 is going to be new to us too.
What do you think is going to happen with the values and it’s not even just values. I believe they’re going to continue to go up. I think they’re going to go up at a better pace. It’s such a dramatic pace. I don’t think we’re going to find them going down because it still is pent-up demand. What impact do you think is construction and material costs going to play in the building sector? There are a lot of build to rents.People are recovering on their own. If it's time to refine, you can always save some money and go do it again. Click To Tweet
Properties were going up now. Builders are putting the skids and recalibrating where their supplies are and redirecting them to different places. Even homeowners who have equity are putting the skids on things because they may want to do a bathroom or a kitchen, but it’s so costly. You’d have to wait five months for a dishwasher to come in. How do you think all of those external flow influences are going to impact the purchase market in 2022?
If we have full employment or fuller employment, I don’t think it matters what the costs are. I think people want a home. They want to go from a rental to a home. It’s still a dream. You’ll get less of a house but I still think there’s pent-up demand. I don’t think there will be a housing shortage for probably the next ten years, with the population of the Millennials, Generation X-ers and everything else. It’s a dream to have a home and you’d want to have a home. I do think the Roaring Twenties as we’ll call it is here to stay. The pace will be slower than it has been in the last year or two. I think there will be pockets of despair.
One key factor we have not taken into account and some people have is the whole non-eviction and non-foreclosure process. The foreclosure situation has always some type of level of homes coming into the market from foreclosure. We don’t have that right now. That’s why we have less inventory. That’ll be back in the market probably sometime in 2022 once they get through the legal wranglings and things have to happen. We’re getting back to full employment. We’ve seen the first shoe drop where now it’s no longer subsidized. This foreclosure process will change too. There will be rules around it. It’ll be a little more lenient but there will be more arms-on market for it.
I have been calling the 2020s the Soaring Twenties because I feel like this is the decade that things are going to soar in the mortgage industry. Those that have good solid foundations are going to last for a long time. I know I’m getting technical with you moving on to other things, but I want to ask you a little bit about commercials because you’ve mentioned the housing shortage. Of course, we know that.
You also mentioned that you’ve moved your company into a different dynamic and not being in these commercial facilities. We have the big box malls that are in deep trouble and hopefully, we’ll move into multifamily or something else. What do you see are happening with the commercial buildings that are in your neck of the woods in New Jersey, Philly and New York? What do you see as a transition for those types of properties to be able to solve the issue of pent-up demand and housing shortage?
The market was already softening well before the pandemic as we know in commercial real estate. There’s still a tremendous amount of commercial real estate available, including the malls where you’ve got things that are closing down. There’s some vision and some talk about converting some of the malls to condominiums taking them down and building some homes or rentals where it may be. It made us talk. I haven’t seen anything actually happened yet but it takes a lot of time.
You have zoning laws. You got money issues. You got the banks that have to get involved. You got liens already on the malls. You got REITs that are in the public market. It’s a tangled mess but I think if you took some of the space that’s not being used appropriately or neither any longer like a mall as a good example. It’s a perfect environment because of a lot of infrastructures like water, sewer, electricity and gas. It’s perfect for a condo, apartment complex, something for people that need, whether it be low-income housing.
It’s going to happen in the next decade. I don’t know when you’ll start to see some projects take hold. I still think the retail guys are holding onto a thread. I still can make it and I can still compete against Amazon and the technology, although every one of them is online. That’s where most of the sales come from, online. Is it going to be in my lifetime? Yeah but it’s going to take a little longer.
Let’s switch directions and talk a little bit about the financing that you’re seeing happening as you go forward. I came from non-QM. Everybody agrees that we’re changing the terminology of that now too. It won’t be non-QM anymore. It will be non-agency. It’s coming that way because everyone is saying, “If it’s not non-QM, then it must be subprime for those who remember that.” It’s isn’t because the credit scores and the performance are equal to the agency. The LTVs are lower than the agency. There’s actually less risk in those loans.
It’s all documentation. Everything else is the same thing. It’s more stringent collateral issues. Everything is good except for the documentation.
Tell us a little bit about how you feel or what your perspective is or your crystal ball moving forward in 2022 for what your team and your company is going to be looking at as far as expansion into the non-QM world to help with the loan officers being able to find more deals.
2021 compared to 2020 means deals are a little tougher. They’re not as fluid. A lot of borrowers have different stories and different ways that they make money but they can’t document the right way. That becomes what we used to call all day. Now it’s called non-QM and the future non-agency. I think the second home market and the investment market are being pushed to that market as non-agency. It’s the only one to buy 7% or 3% right now for many. Some are zero. That was done all incorrectly.
I had a meeting with the independent mortgage bankers. The conversation is such with the MBA, that they think they are close to getting some relief on that from the agency. When I say relief, they mean maybe a 3 to 7 or 7 to 10. There’s going to be a cap on it. The agencies secretly had a cap all along but they never pushed it down on people. They watched the other one individually. That product, which is a lot of loans out there, a second home market, and the investment market boom. That was one of the biggest goals out there. People had money and they wanted to have low rates.
I’m a Baby Boomer. All this Baby Boomer stuff is happening. We’re looking at investment opportunities and second homes at the moment. We’re approaching 60 and we’re saying, “We need these extra homes.”
You go out there and say, “I can buy an investment property and make X dollars a year.” You do the math. That’s a 10% return. You’re not getting 10% now unless you take a big risk. As a society, we believe that real estate is risk-free for the most part. One time in our time, it’s been bad. Everyone still has short memories and they say, “I’m going to go buy the house. Let me buy that one,” then they go up in value. Also, the agency comes like, “No more. We’re going to slow it down.” That market has slowed down significantly both with available properties, the price of the properties and lack of financing. That has a major impact on the slowing of investment properties in second homes. If I was personally buying investment properties or second homes, I’ll wait it out. I hate to say it.Every person is different. No one's right and no one's wrong. It's all an opinion and you've got to value it. Click To Tweet
I would too and I’m an investor. I would wait it out right now because I’m waiting for forbearance. As soon as it comes back, we’re going to have some big surprises. I think that’s going to open up to be ready in that marketplace. I want to shift gears as we continue this conversation and talk about what’s 2022 looks like for your company and your sales staff? Is it business as usual? Is there anything new that you’re thinking about? As people are reading and saying, “What is there that’s out there that’s fresh and new? Does it even need to be fresh and new for 2022?” That’s a good thing.
For our company, we’ve evolved since 2020 way before we have decided to hold on to servicing. The company now has a $2 billion portfolio and growing. We used to sell it all off. It opens up opportunities for people in the portfolio that need cash and want to buy a second home or buy investment properties. We want to refinance. That’s one element of our business, which we didn’t have going into 2020. We accumulated it all in the last few years. It’s a phenomenal portfolio. The other thing we truly believe in while we have very strategic branches around the country and these are great men and women that have been doing it for many years. They are a broker. They service that local market well. They don’t have multiple states. They only have one little area. We want to give them support. The people who are coming in from the portfolio that may have worked in before, we’re flushing them back to the branches.
Number two, we are setting up a CD unit or a Consumer-Direct unit in the markets where we don’t have a physical presence. We are going direct-to-consumer instead of the brick and mortar. We believe that the market over the next years is less brick and mortar. We just got done talking about commercial real estate and more centralized technology-driven, fast and quick, get the borrowing and get them out and move on. We’ve got a consumer-direct team now that does mostly refis. The second unit we’re putting together is probably about half. It’s going to purchase and then the market’s going to change. That’s the growth for us is in the CD unit and strategic branches. Where we can’t complete the strategic branch, we’ll do it on the CD side.
How much M&A do you think is going to be happening over the next couple of years with brokerages, wholesale and correspondent lenders? Do you think that there’s going to be a contraction or expansion?
We’ve had a lot of mergers and acquisitions, and contractions are ready. It’s still going on but I think it’s been for different reasons now in the past than it will be in the future. The future will be more have to, have to merge and have to consolidate. The market is going to get slower. REITs can go somewhat lower but the direction of the economy if everything goes well may beat this pandemic. We’re already too low from the standpoint of where the market is growing, employment and everything. We’ve been keeping our foot on the pedal here with REITs.
REITs going up will slow things down to a normal pace. It’s not going to be crazy bad. It’s not going to be like 2013 or 2014 when it slowed down. It’s been that long. 2019 slow down were not that bad. I think we need to rattle out the caging and have some of the people who were in the business get out or consolidate. I think that’ll be a 2022 year. God forbid, there’s always a chance that we don’t come out of this where the pandemic gets worse, things get worse, we slow down and REITs go lower. I think there’s a better chance that REIT’s going to up a little bit higher and slow the market down with them.
We have some aging realtors and loan officers. I think the average age is 57 now. It’s gone up from 55. We have emerging Millennials and younger people who are more tech-savvy. I think a lot of people are tired.
I think consumer-direct is the answer. There was a time period when it went away, then we’ll come back to branches. With everything that you’re describing as far as the aging population, as far as consumers being younger, technology is one of our plays. We’ve got some phenomenal technology that will allow the consumer to get approved online. It’s not every consumer but it’s a good portion of it and moves the ball very quickly. Whereas the branches are typically local handholding and take your application. It’s the traditional way we did business.
Some of them are deploying the technology on their own. Many are not, but on the consumer-direct side, we can manage a group together as opposed to all these brands that want to do it their way. They have a talent, a way to sell, and make their clients feel comfortable, whereas that doesn’t work in a CD environment. You have to be technology-driven. You got to be fast on your feet. You have to be available for the people and you got to move the ball very quickly. That’s the difference.
How do you think that competition is going to look like if you’re going into that virtual environment? We have Rocket Pro TPO. We have Quicken. We have a lot of different places. What’s going to set you aside? There’s faster but then when they said, “Six-minute ads,” he’s like, “I’ve got five-minute ads.” At what point will there be a need to be a differentiator that will elevate and shine a light on your company as opposed to someone else?
We’ve always differentiated ourselves because we can’t compete with the big guys. I’ve been part of big companies. I’ve been part of smaller companies, but the way we do business now is family and we’re close. To the consumer, you can get ahold of us. Loans come to my desk. You don’t find that in a big company. A loan is not going to Dan Gilbert. I know Dan and Bob Walters. All these guys are kicking and rocking. Some of the other guys build that. They don’t see loans every day but I do. We try and make exceptions and do things quickly. We try to understand the consumer’s needs and then we all get involved. We give better service and better listening than some of the big companies.
I know that you’re very community-oriented as well. Tell us a little bit about that. We know statistically with the five generations that are all working together for the first time ever that that’s happened. Statistically, the younger generations will leave a good-paying job where they don’t feel that they are serving the consumer the way that they want to. They will leave a good-paying job and take a lesser paying job and go to a company that has a community or charitable orientation. Tell us a little bit about some of that because I know that’s near and dear to your heart.
We can always do more. We have participated and been involved with the local Habitat for Humanity. I did a lot of work in California when I was at Bank of America and Countrywide, so I believe in it. I have personally done open doors foundation with the MBA. We were given some economic relief, volunteering my time. Even the local college, my alma mater, we helped build the business school at Rowan University in New Jersey. We go there to recruit young people who want a different company who spend time in their environment. I have an open door. I say, “If you have a good terrible idea, come bring it to me.”
I can’t say yes to everybody but you listen, learn, and get to know what the charity is, and you try and spread the wealth. The key to us is that we listen. We’re not going to be perfect and these people donate more and have more involvement, but we listen to people and their ideas. We try and stay local. It’s the natural thing of giving off that I’ve been brought up that way. Some people are, some people aren’t. They can’t force people to do it. You got to make them feel good about doing it.You need a good work ethic. If you don't have one, you're not going to be successful. Click To Tweet
The word that you used throughout this entire interview is listen. I would say that’s probably going to be your mantra, it’s listening. That is a differentiator, especially when you can put your money where your mouth is when you do listen. There are people who say they listen and then they don’t.
They hear you but they’re not listening. It’s different.
I know I find that with my husband. He’s not listening.
I don’t know. Many husbands get accused of that selective hearing thing. If you’re married for a long time and there’s something savvy, you got to be listening.
Something is right. It’s the not listening that works for both of us. Kevin, if you wanted to leave us with one thing to be thinking about. The people that are reading this are loan officers, managers, owners, real estate agents and investors. It’s everybody. When I say investors, it is real estate investors. Not so much the investors that we talked about, but the people that are here. What would you like to say to them to give them something that when they finish reading this, they will say, “I’ve learned a lot about the market. I learned a lot about what EMM Loans is doing. That charity may be something that I want to entertain.” What else would you like to leave with everyone as they are moving forward into 2022?
I think to be humble. We tend to get fool ourselves sometimes. We get worked up at the moment and there’s a lot of money running around a mortgage company and a lot of loan officers and people who can make a lot of money. It’s the people who make good money that are humble, polite and nice. I believe that you can get up there. Those are people that will be with you and will give you cause and purpose over the long term in your career. The second piece, which is as important, is work ethic. Whatever styles you want to learn, you can be technically sound but if you don’t have the work ethic, if you don’t plan on putting in the hours, you’re not can be successful. Being humble and work ethic. That’s the two things. Everything else we can talk about technical aspects of this secondary market, or what do you do in business and how do you do it, that’s great but it changes by the day. Two basic things, be humble and work ethic.
I love that and notice I didn’t ask you any of those questions because a lot of times, it is that. I don’t want people to be chasing shiny objects. It’s not about chasing shiny objects. It’s about centering and trying to figure out. I did a recording for my coaching clients and one of the things that I said is there are seven skills or seven things you can do that don’t require talent to be successful. That was one of them, work ethic. It doesn’t require talent. It requires time, desire and drive.
Loving what you do makes work ethic a lot easier. It brings you what you want to work. I’ve been through it all. I was an athlete as a kid through college. I worked as a twelve-year-old in New York City. I was forced to go to Newark as a young kid with my father. I liked the work there. I like working out for baseball and football. I’ve been blessed that I like the things I was doing. I had the ability to choose from them. I fell into the mortgage bank at age six and then I fell in love with it. I had a passion for it that I worked hard at it. I was brought up not to do anything else but work hard. When I pick weeds in a garden, I work hard.
That’s pride and integrity. It’s like, “How will you do one thing is how you do everything.” That transcends right into the work environment and the personal life as well. I think that’s beautiful. Be humble and get rid of the arrogance and get the chip off your shoulder. Be a servant, listen to people, and work hard to get where you want to go.
You can do both very well. I think people respect that and appreciate both of them.
Kevin, thank you so much for joining us.
You’re welcome. Thank you so much.
Everyone, thank you so much for reading. Don’t forget, scroll down on your phone, give us a great five-star rating and please leave us a review. We want the reviews to constantly come in and be sure to ask your questions there. I periodically go in and look at those reviews. If you have a question or a suggestion for a topic that you’d like to have discussed, put it in there or email me at Jen@JenDuPlessis.com and I will be happy to do the research, find the person, find the topic and bring them here so that we can continue to help you grow your origination business. Until next time, thank you so much.
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About Kevin Crichton
Kevin Crichton is President and Chief Operating Officer of EMM Loans LLC, a $3 billion per annum retail/wholesale lender licensed in more than 40 states. Crichton joined EMM in 2012 and has grown the company to its present position as a well-respected, nationwide lender. Crichton has held leadership positions throughout his 35 years in the mortgage business in top companies including Travelers, GE Capital, H & R Block, Countrywide and Bank of America and in small to medium-sized mortgage banks he has owned and operated.
He is recognized for building and expanding companies, improving manufacturing quality and revenue, managing risk and providing strategic vision and thought leadership. His commitment to achievement is shown in the role he plays in guiding each and every loan officer who chooses to work with EMM in its three primary business channels: Retail, Consumer Direct and Wholesale. This spirit of team-building has helped EMM prosper and grow during a very turbulent time in the mortgage industry.
A Certified Cash Manager from the Treasury Management Association Crichton is a graduate of Rowan University with a Bachelor of Science degree in Accounting and Finance, he played varsity football and varsity baseball. He was a member of the Alpha Phi Delta Fraternity, providing service to the community and humanity. The fraternity’s motto is “faciamus,” a Latin word meaning “we do”, a motto that follows his professional life.
Crichton is a strong believer in “giving back” to the community. He personally contributes to numerous philanthropic causes including; Rowan University, where he is also on the Executive Advisory Council for the Rohrer School of Business, Open Doors Foundation through the Mortgage Bankers Association- a program by which designated health care partners to identify and provide program information to families that may benefit from financial support.
Crichton also has a commitment to family, having been married for 36 years with three adult children, and 2 Identical Twin granddaughters.