Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're inside the Ice House. Our podcast from Intercontinental Exchange on Markets, leadership and vision and global business, the dream drivers that have made the NYSC an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs and harness the engine of capitalism. Right here, right now at the NYSC and at ICE's exchanges and clearinghouses around the world. And now welcome inside the Ice House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
For 24 years, Intercontinental Exchange, that is NYSC took a symbol, I-C-E has focused on bringing transparency, efficiency, and standardization to markets. In this, the company led by founder, chairman and CEO, Jeff Sprecher has been remarkably successful. You've heard me and Jeff recite various versions of the origin story, how he purchased the old Continental Power Exchange for a dollar back in 1997, and assumed its outstanding debt. And today its market cap stands around $73 billion, give or take. It's taken a lot of deals getting done to get to that plateau. The most recent, the $11.9 billion acquisition of Black Knight, a deal which was first announced way back in May of 2022 marks the consummation of a years-long effort to streamline the many disparate elements of the housing finance ecosystem with the same goal, increasing efficiency and transparency by digitizing the analog.
The happy outcome of that goal will be a better experience for the American homebuyer. Reduced costs, fewer errors, less paperwork, faster closing, better servicing of loans, more automation that tells a homeowner like me, it's time to refinance, to save money or to get into a better product to help manage my most important investment, the walls that surround me, the roof over my head and the land on which the foundation of my family rests their head at night. As anyone who's taken out a few mortgages knows full well, if ever a market needed the ICE treatment, it's the US Housing Finance System. Given the somewhat harsh realities of the post-pandemic housing market, it's a pivotal and perhaps precipitous time for digital transformation. So if you'll pardon the pun, housing data opens doors, it sheds light on otherwise hidden opportunity, gives focus to challenges and makes new connections and processes possible. More than anything, it provides insight into the multitude of factors that influence the $14 trillion mortgage market and the American housing economy in general. As the housing market goes, so goes the nation.
When you see a report on housing or mortgages in the Wall Street Journal or a segment on CNBC, how many of you scratch your head trying to decipher the signals it's sending. Our guest today, Andy Walden knows housing data better than just about anybody, has a knack for explaining the complexities of the housing dynamics in a clear down-to-earth and accessible fashion. As vice president of enterprise research strategy for ICE Mortgage Technology, Andy's become one of the most recognizable faces in Mortgage and housing market analysis and a trusted voice across the industry. On today's episode, we're going to go in-depth on Andy's Midwestern roots and his current day Rocky Mountain Life. We'll talk about his career journey from the great financial crisis to the mid 2000s to ICE's recent acquisition of Black Knight in 2023. We'll also discuss the present day housing market and whether home buyers should have a positive or negative outlook. Heading in to 2024. Our conversation with ICE's own Andy Walden is coming up right after this.
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Connecting the opportunity is just part of the hustle.
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Opportunity is using data to create a competitive advantage.
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It's raising capital to help companies change the world.
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It's making complicated financial concepts seem simple.
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Opportunity is making the dream of homeownership a reality.
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Writing new rules and redefining the game.
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And driving the world forward to a greener energy future.
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Opportunity is setting a goal.
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And charting a course to get there.
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Sometimes the only thing standing between you and opportunity is someone who can make the connection.
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At ICE we connect people to opportunity.
Josh King:
Welcome back inside the Ice House. Remember to subscribe wherever you listen and rate and review us on Apple Podcasts so folks know where to find us. Our guest today, Andy Walden is the Vice President of Enterprise Research Strategy for ICE Mortgage Technology. Joined our team here at ICE last September through the company's $11.9 billion acquisition of Black Knight and comes to us with over a decade of experience watching and interpreting the graphs and wavy lines that signal the beating heart of the American mortgage ecosystem, making sense of it all so that we don't have to.
Thank you for that Andy and welcome inside the Ice House.
Andy Walden:
I appreciate it. Thank you for having me.
Josh King:
You've made the trip out east from your current residence in Colorado this week for ICE's fixed income and data services annual sales kickoff. As you're here in Lower Manhattan, what message are you bringing about ICE Mortgage Technology and the housing market to your new colleagues at the New York Stock Exchange?
Andy Walden:
When we look at the market itself, I think this is going to be a transitionary year in a number of ways, all the way from origination through the housing market, but my message really to the team here is we're very well suited as an organization to meet the industry's needs everywhere from front-end technology all the way through the entire ecosystem. And especially as it pertains to my role from a data and analytics perspective and bringing that insight to the market, we're second to none in that industry. And so I think we're very well positioned as we move into 2024 to help our clients navigate those changing waters.
Josh King:
Did you have a sense of a lot of deer and headlights looks as you and Ben Grubowski were sitting up on stage or were people nodding, understanding where you were going?
Andy Walden:
It was a lot of nodding. It's a very well versed group here, as you know, and so a lot of nodding heads. I think folks are very familiar with the territory. Certainly a lot of data and insight sharing amongst the group, both from the legacy ICE team to Black Knight and vice versa as we all become familiar with each other's products and solutions, but I think it's a pretty unified front.
Josh King:
Broadly, what do you think the synergies are between the old Black Knight and the old LMA, which is currently ICE Mortgage Technology, and then the synergies between all of that mortgage data and the ICE Data Services group that you were in front of yesterday?
Andy Walden:
Yeah, I think the synergies are phenomenal. I think they really fit together well. When you look at the Black Knight side of the house, we had a ton of data on mortgage performance. We've got monthly mortgage performance data. We've have incredible housing market analytics everywhere from what is now the ICE home price index into the collateral analytics data, which gives you daily insight into inventories and sales and volumes. What's really nice and synergistic about the combination of those two groups is now we've got more robust origination data that comes from the exhaust from our technologies and solutions. Now we've got a little more front end on the rate lock data and that the index suite is going to give us that nice connectivity between the capital market segment as well. And so it just builds on and makes more robust what we had previously built on the Black Knight side.
Josh King:
So I want to hone in on one of those terms you just used, mortgage performance. I've got my mortgage, I have it on a set for an auto pay on the 15th of every month, and so I think I'm performing pretty well. But when you talk about mortgage performance writ large, what are you referring to?
Andy Walden:
That's exactly it. We're able to analyze the performance of mortgages across the country, how well are borrowers paying, how many borrowers are at risk of going into foreclosure, how many borrowers need assistance in the form of loss mitigation or some of those forbearance programs out there. And so we are not only looking at that data individually and looking at homeowners ability to make those mortgage payments, but we're linking that in with all kinds of different data across the organization. What's going on with their home price? Have they taken out a second lien debt? What's their current equity position? All kinds of different dynamics that are then weaving in there to really understand at a very granular level, and I'm not talking about you Josh King, but I'm talking about individual mortgage holders across the country.
What's the risk in individual mortgages and then what's the risk to the system at large, especially for folks that invest in mortgage-backed securities. And so that's the type of data that we're really looking at, what's going on in terms of mortgage performance, how many borrowers are behind on their mortgage payments, how have some of the programs that have been rolled out recently performing and what's best practice as we move forward? Because we also have that servicing technology solution in-house and we want to make sure that we're giving servicers the best technology and the best programs to be able to assist borrowers as well.
Josh King:
Another term that propped up in what you just said to me, forbearance, it's a term that really was not on top of mind before March of 2020 as COVID descended upon the land and the world. And a couple months passed and suddenly we heard about mortgage forbearance as people began to lose their jobs, didn't have a replacement of that ability to pay their mortgage. How did you adapt to understanding where the industry was in terms of the lenders providing forbearance programs and then how would you handicap where the American mortgage holder is today in terms of their performance?
Andy Walden:
And you're right, that program was absolutely integral to us as an industry and us as a nation making it through and navigating the early stages of the pandemic. We as Black Knight at the time really understood that there was a very quick and very massive shift taking place in the market. We knew we had just rolled out a rapid analytics platform that was able to ingest data very, very quickly. And we had these agreements with contributors through our McDash database to analyze that activity. And so we rolled out a first of its kind daily mortgage performance collection at that point in time, it was called McDash Flash and continues to this day as McDash Flash. And that really allowed us to analyze borrowers ability to pay not monthly like we traditionally have.
But because things were moving 10 times as fast as they were during the great financial crisis, now we could look at delinquencies and forbearance entry and performance on a daily basis, something that nobody's ever been able to do before. And so we were able to spin something up very, very quickly to analyze the market and we had widespread adoption by everyone in the industry at that point in time to really assess the COVID pandemic in a very granular level. And so we were able to track forbearance activity through the pandemic. We went from almost a non-existent program, as you mentioned, 25, 35,000 forbearance cases entering 2020 to over 5 million active forbearance cases within a number of months. And it was a massive undertaking by the industry as a whole and a massive project inside of what was Black Knight at the time to spin that up within a couple of months and begin ingesting data on a monthly basis.
Josh King:
Data being the new oil, speed to tap that oil being the opportunity for shrewd investors. You think about people who looked at that McDash data early on and said, "Boy, what Black Knight now ICE Mortgage Technology is providing is like a new oil gusher for me as an investor."
Andy Walden:
It really is, and it is transitioned over time because at that point in time it was really built with an acute goal of understanding mortgage performance and risk in the market. As we shift here today, the beautiful thing about that data and all of our data is it transforms with the market. And so when you look at where we stand here in 2023 and some of the acute prepayment risk out there in the market, now we've got that daily prepayment activity out there that serves the market in today's environment. So what was built for a separate purpose back then is now serving a separate but equally valuable purpose for investors today.
Josh King:
I'm curious, after you've finished your conversation on stage with Ben Grabowski, what kind of feedback you got and conversations that you had? Because basically the folks in that room are the folks thinking about, boy, there was part of ICE and ICE Mortgage Technology that had, as you talked about origination data. We got used to that with Ellie May and the rate lock indexes that have developed over the last couple of years. But now we can put this whole thing together and think about new ways in which our fixed income data services customers can benefit.
Andy Walden:
And I think the response broadly speaking is eyes lighting up, opportunities flashing in front of everybody. The more and more we talk about the different data sets that are available and the opportunities in front of us, the more everybody's eyes light up and wheels start turning. And I don't even know if we have a full grasp of all of the opportunities that lie in front of us right now because they're so various, but a lot of excitement in the room for sure.
Josh King:
So Andy, you are based in Colorado. There are few places better in the country to go this time of year for skiing enthusiasts like myself. In December, we were at Ice Mortgage Technologies reported that the Denver area home values are up just over 1% from this time last year and down from their 2022 peak and that home sales have slowed 12% from November 22 to 2023. What does the housing market look like in your own hometown?
Andy Walden:
You're seeing the same fundamentals impact the market across the country, they're just in different positions. And when you look at Denver specifically, a little bit softer than what you're seeing at the national level. When you look at inventory deficits, every major market in the US is dealing with the deficit to some degree. Denver's is a little bit smaller. Their home affordability challenges, everybody's dealing with those. Denver's is a little bit sharper than most. And so when you start to look at the inflections that you're seeing in the market, they're a little bit more acute in Denver than what you're seeing elsewhere. It's a little bit softer. And that's true for much of the Rocky Mountain region. We saw this pandemic boom into a lot lot of those resort towns and a lot of the Rocky Mountain region overall, which created a big influx in prices at that point in time.
And now you're coming off of that high a little bit and Denver's not immune to that. So a little bit softer market there in Denver. One of the beautiful things that my wife is in real estate, and so I get to spend all day analyzing what's going on in the data and analytics and then I get to hear the stories coming from the other room and what's going on. And it's interesting in Denver because everything's tying out timing wise and momentum wise exactly as you would expect, as I see the needle move on affordability or inventory or supply and demand, I'll hear a conversation from the other room that just perfectly ties out with exactly what we're seeing in the data. And so it's a really environment to live in right now.
Josh King:
I'll be headed out to the Centennial state next month for a couple days of skiing. I remember 1980 or so, my friend bought a little condo in Aspen, which he's now sitting on the gold mine based on that little piece of property that he had out there. You look at the Wall Street Journal, every week there's another record home sale somewhere out in the Rockies. What brought you out there originally?
Andy Walden:
It was for a job. So I grew up in Nebraska originally. First job out of college was traveling around the US as part of the mortgage market and mortgage underwriting. And after a couple years of traveling in that first job, I decided I wanted to settle down a little bit. We had a headquarters in Denver, and so I did what Midwesterners do. We either move until we hit a coast or we move until we hit the mountains. And we're Plains folks, so we don't know how to navigate that. And we just settled down. And so I met my wife there, built a family there. She's a fourth generation Coloradan, which is not something we talk about in Nebraska. Everybody's fourth generation Nebraska, but it's a point of pride in Colorado. And we've learned or I've learned to love the state. Phenomenal scenery as you talked about, the mountains are beautiful this time of year and couldn't be happier.
Josh King:
You're growing up in Nebraska. You spend time in the fields before you started moving west?
Andy Walden:
I did. So my dad, I was born in a town of a 194. You know exactly how many it is because you can see it on the sign when you drive into town and-
Josh King:
Occasionally it changes by two.
Andy Walden:
It does. You can see when people move by just looking at the sign as you drive in. He still lives there. But yeah, our summers growing up, he wanted to teach us the value of hard work and the value of a dollar. And so we were out in the fields early, either roving beans or detassling corn or cross pollinating, whatever the job was of the day to keep me and my brothers busy and out of trouble, but certainly spent our fair share of time in a field growing up.
Josh King:
So we also know Nebraska is home to a couple of our NYSC listed companies like Union Pacific, which is ticker symbol UNP. Also of course Omaha-based Berkshire Hathaway, BRK. Warren Buffett's company with Berkshire Hathaway Home Services, one of America's largest real estate brokers. Did you ever have a chance to meet the Oracle of Omaha growing up?
Andy Walden:
I did not. We were both University of Nebraska alumni, so go Big Red, but haven't gotten a chance to meet Warren himself. Would love to do that someday, but certainly follow all of his teachings and all of his principles about business and certainly the real estate world specifically. But would be an honor to meet him someday.
Josh King:
You graduated in 2003 with the bachelor's degree in business marketing advertising. 10 years later, July, 2013, you start at Black Night. We all know life has unpredictable tangents to it, but tell me how just does a kid whose first job was working in the fields end up in what we just talked about as a mortgage industry one?
Andy Walden:
I think it's exactly the way everybody gets into the mortgage industry, which is by sheer accident. I've got a seven and a 9-year-old, and I'm pretty sure neither one of their life goals is to grow up and be in the mortgage industry. But my journey was somewhat serendipitous. Post graduating from college I had a friend that had been traveling around the country doing mortgage due diligence, underwriting of loans being sold into mortgage backed securities at the time. I had no idea what that was or what that meant, but he asked me if I wanted to come learn and they'd train me on the job. And I thought, that's a great way post-College to go see different parts of the country, learn a new industry. And so I jumped in and spent about two years doing that. And it was in that you mentioned 2000 3, 4, 5 timeframe, and that was a pivotal point in the mortgage market.
We all know the types of securitizations that were taking place at that point in time. It was really interesting to be able to sit down with paper files that we had at the time. Luckily we've digitized the process from that point forward, but sitting down and looking through mortgage applications and credit scores of literally seeing this stated income stated documentation type of activity that was taking place at that time and really getting an understanding of what types of loans were being sold into mortgage-backed securities. And it was really eye-opening as an entry point to the market. And then from that point forward moved into, as I mentioned, moved out to Denver, started doing credit risk oversight of mortgage backed securities, got into default mortgage servicing in the post Lehman collapse era and got to see the post foreclosure and disposition of bank owned properties at that point in time.
And then as you mentioned, have spent the last 10 years at Black Knight. And so it's been a really interesting journey through the market. I've gotten to see the great financial crisis from a number of different angles through the origination and capital market segment and default servicing segment as well. And so it really informs a lot of the research that we're doing right now and was an unplanned event at the time. But I think it's given me a lot of context around the mortgage industry and it has allowed me to see it from a number of different angles, which serves me well today.
Josh King:
Did you see the meltdown coming? you saw the securitization happening, you saw the productization of mortgages for 10 years at the beginning of 2000 into 2008, 2009. Bring us back to that moment about you're sitting at your desk, you're watching these numbers. And I don't know if you could perceive what was happening with the big short, but what did you see?
Andy Walden:
Yeah, it was really interesting. I remember very vividly sitting down and underwriting some of these loans. And I remember one loan in particular for some reason that was a landscaper out in California and it was a stated income stated documentation loan just like we've all heard about. And he was stating his income of $250,000. He had refinanced three times over the last year and a half. He was pulling equity out of his home to pay off a recent Mercedes Benz purchase on his credit. It was the prototypical loan that you hear about during that time. And I remember going home after that week and talking to my friend, and I remember saying, "I think there's going to be a string of bankruptcies in California. This behavior is just unsustainable." And man, did I underestimate exactly how widespread it was going to be.
But from an outsider's perspective, having no background on housing finance at the time and stepping into that environment, it became clear very early that there was some unsustainable activity that was taking place. And we know how that all played out at this point.
Josh King:
For a while, you're right in the middle of it, but as you come to the tail end of it, 2011, 1213, when you're joining Black Knight, what lessons did you take away? What better focus or lens on the marketplace do you have now and think about as a result of what you saw 8, 9, 10?
Andy Walden:
Well, and I think we've all learned this lesson as an industry and I think we've implemented solutions and procedures to solve that problem because we've limited ourselves from going back into that. But I think it goes back to Warren Buffett. "Risk comes from not knowing what you're doing," is one of his famous sayings out there in the market. And that couldn't be more true about what the mortgage and housing markets were doing at that point in time. There was incredible risk and it came from just simply not understanding the behavior and the downstream consequences of that behavior. And I think as a housing finance industry, we've learned a great deal from that period. We've learned a great deal about the type of lending quality, what happens when you lend in spaces where borrowers don't have a realistic ability to repay that mortgage.
And then throughout the years following, we learned a lot about loss mitigation, and we've implemented new loss mitigation solutions into our process. We've learned a lot about foreclosure and risk and dynamics there and lending in that space as well, housing market cycles and the impacts of supply and demand in the housing market. And so there've been an incredible amount of lessons learned, but they were very hard lessons learned as an industry.
Josh King:
So as I mentioned in the intro, ICE announced this acquisition of Black Knight in May of 2022. Obviously it was in Jeff Sprecher's view, the ability to put together origination and servicing of the mortgage industry and try to automate and digitize the whole thing as he has across other asset classes. But before we get into your tenure, this organization enterprise that ICE has acquired, what was Black Knight built to do?
Andy Walden:
And what's interesting there is we had a very similar vision on our side. It was more acute to housing finance specifically, but it was the digitization of the housing finance process. We had origination technology solutions, we had servicing capabilities, we had real estate technologies and solutions, and it was interweaving all of those solutions together. And so I think that's the beauty of this merger or this acquisition, is we had two very similar visions for those two companies and bringing them together just allows us to even further bring that vision into life.
Josh King:
What has been your thought process and actually your experience in September as these companies have come together?
Andy Walden:
I think leading up to it, we were very acutely focused. I think the entire period there leading up to the merger, we were just laser focused on the task at hand in serving our clients and serving the industry. From the time that the acquisition has closed, it's been ramping up our knowledge of ICE and the integrations that can take place and ingesting those new data sources and merging data together. And I think that's going to continue to be the process for the next year or so is really getting up to speed and getting that data linked and really getting our hands around all of the opportunities that sit in front of us and then starting to prioritize how do we check these boxes and how do we tick these off and where's the most value for our clients in this space? And so that's really been the goal so far. A lot to digest and a lot of moving parts, but navigating those waters as well as we can.
Josh King:
When you think about what ICE Mortgage Technology the former LMA has, what Black Knight has, and you do your own calculus of putting these two things together in terms of what you'll be able to share with people who want the full picture of where the mortgage ecosystem is, what excites you most?
Andy Walden:
I think the merging of disparate data sources that you mentioned, that's the new oil of the industry at large, and we're at the forefront of that. We have more data at our fingertips. We have the ability to merge different data sets together at the greatest degree of any company in the US in my opinion right now. And that's exciting for a guy that sits around and digs through data and uncovers trends and merges to create value. And so there's excitement on a number of different fronts there. The ability to pull in all that origination data exhaust, there's incredible value there because it gives us in-depth insight. The ability to tie that into what's going on on the performance side and show risk among those is extremely valuable as well. And then be able to tie that into the broader housing market to look at who's borrowing and where they're borrowing and what impacts that could have on us real estate is very exciting.
Josh King:
After the break, Andy Walden and I are going to continue to discuss ICE's acquisition of Black Knight as well as the housing market and mortgage at the mortgage industry today. That all and more coming up right after this,
Speaker 9:
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Josh King:
Welcome back. If you're enjoying a conversation and want to hear more from guests like Andy Walden, our vice president of enterprise research and strategy for ICE Mortgage Technology. Remember to subscribe to the inside the Ice House podcast, wherever you listen to podcasts. Please give us a five star rating and a review on Apple Podcasts, that really helps folks know where to find us. So before the break, Andy and I were discussing his Midwestern Roots and ICE's acquisition of Black Knight. A little bit about where the mortgage industry is today. Let's continue that conversation. Andy, every month the ICE Mortgage Monitor is released. For those unfamiliar with it share with our listeners what the Mortgage Monitor is and how the data is gathered and presented.
Andy Walden:
Absolutely. And we've been talking over the last 30 minutes or so about just all of this data that at our fingertips, and what the Mortgage Monitor report is each month is us weeing through all of those analytics. We have hundreds of analytics across the industry that we touch and pulling a highlight reel out and sharing that with the market on a monthly basis. And so we have an hour long call once a month where we talk about everything going on from interest rates to origination activity to mortgage performance to the housing market at large. And then we publish a report once a month as well. It's a highlight reel or of what's going on across the ecosystem as well.
Josh King:
When that button is pushed and the Mortgage Monitor is released, who are the consumers of it? What sensations do you get that this data is? Oh, the Mortgage Monitor is out. Can't wait to get my hands on that. What are people mostly writing when they see what you and your team have put together?
Andy Walden:
Well, that is the case. I just received an email yesterday that asked when the next one is coming out. So people, they do look for it on a monthly basis. And the way in which it's utilized really varies depending on the individual organization. So we've got folks everywhere, again, from mortgage originators to servicers to real estate professionals to the capital markets and government folks that are sitting on these calls once a month listening to that data and analyzing that report. And the way in which it's utilized really varies depending on who the end user is. Originators are looking at what's going on in terms of interest rate incentive, where have rates moved, who's actually transacting in today's market? And so we can look at the before and after of refinances, what's triggering a refinance from a rate perspective, how much equity are borrowers looking? And they can use all that information to one gauge future populations of inflow through their organization. But they can also look at target market audience and how do we adjust the way that we're marketing to consumers to hit the folks that are actually transacting in today's environment?
From a servicer perspective, it's a lot of benchmarking and market understanding. How are we performing from a forbearance perspective? What's our delinquency rate inside of certain populations compared to the market at large to make sure that our servicing operations are as effective as they can be and we're performing the way that we should be. From a capital markets perspective, it's rates and duration risk and prepayment activity and really understand the market in a granular perspective. That way from real estate professionals, it's understanding what's going on on the ground in the real estate world, how does my market compare to other markets and what are the supply and demand dynamics and what's the latest and greatest there so I can plan my future. And then from the government sector, it's oversight of the market at large and where are the hot spots that we should be working on and looking at from a policy perspective.
And so it serves a wide-ranging audience throughout the industry and everybody uses that data a little bit differently. But the beauty of the report is it's all tied together in one place. And so not only are you getting the insights you need for your business operations, but you've got a nice purview of what's going on in the rest of housing finance as well.
Josh King:
Let's try to give a spotlight of what's happening in the market. If you were to merge your analysis of the last several months of the Mortgage Monitor last couple of years, particularly strange to say the least, can you give our listeners an easy to grasp but holistic view of what exactly has been going on in this mortgage market?
Andy Walden:
Yeah, and it depends how far back we've got. There have been books written about what's happened in the mortgages industry over the last three years, but if we carry it forward to-
Josh King:
23 maybe.
Andy Walden:
... the later stages of 2023. The dynamics are really interest rates and the impact that that's having on supply and demand out there in the market. We all know that the boom that happened early on in the pandemic as we got into 2022 and 2023, we know that the Fed has really tightened the reins on the broader US economy as a whole. And mortgage and housing finance has really been at the forefront and maybe has been pinched more than anywhere else. And so we've been in this very interesting environment where origination volume has hit low points. The mortgage market has driven more by purchase lending now than it has been in multiple decades. Home affordability back in October hit a 38 year low. And so everywhere you look, you're seeing record levels in one direction or another of activity going on. And that's been true throughout the pandemic.
But as we stand here in the early stages of 2023, interest rates have settled a little bit. The broader economic outlook has started to settle. I think the Fed's getting a little bit more comfortable where they're at. And so we're at more of a neutral ground right now. And I think the outlook for 2024 as we move through it, is a little bit more normalization, a gradual move towards normalization as an industry as a whole.
Josh King:
And what will be the leading indicators from the February Mortgage Monitor that any of this might take hold? You were showing some graphs yesterday in the boardroom that indicated perhaps some early signs of change.
Andy Walden:
Absolutely. And I think the first place to look is just the makeup of the active mortgage universe itself and really understanding where mortgage holders sit today, what their interest rate dynamics are, who's taken out a mortgage, when and what interest rates they have. And then when you look and overlay future interest rate forecasts on top of that, you can get a pretty good idea of how those bars are going to behave, who's going to move here, what incentives they're going to have at that point in time. So we start with just an overall holistic view of the market and where the landscape sits, and then you can start to overlay interest rate forecasts and who would have interest rate incentive to refinance under certain environments. Where would home affordability go if interest rates play out in this perspective? And it can give you an idea of how the landscape will shift as we move throughout 2024.
One of the key focal points for this year is going to be borrowers that took out their mortgage in 2023. There was this narrative of marry the house and date the rate and buy now and refinance later. And so I think folks that took out mortgages in 2023 already had that mindset entering. And when you look at the distribution of those loans, you've got roughly 30% of borrowers that took out their mortgage last year that are sitting in above a 7% rate. Over half of those mortgages that were taken out last year have an interest rate above six point a half percent. And so that's really going to be the first ball to drop here as we move throughout 2024. If interest rates begin to fall, that starts to impact performance of mortgage backed securities where those loans are held, and it starts to impact those borrowers behavior as it takes place on the ground. And so that's one of the first areas that we're looking for the market, one of the first needles to move this year.
Josh King:
One of the things I was asked to do during that period leading up to ICE's closing of the Black Knight deal was watch a lot of your appearances on CNBC. It was a pretty educational experience for me. Basically, when you think about what is going to be a six-minute exchange with Morgan Brennan or one of the other talent on CNBC, what's your preparation process? What do you think you're going to try to deliver when you've just got a couple minutes to give what you and I have been talking about for 40 minutes already?
Andy Walden:
Well, what they're really looking for is knowledge that they don't already have, insight into the data and what it's truly telling us about the market and are the headlines and is the storyline out there in the market correct and is there any additional background behind that? And so that's really what we look to do, and we've been blessed enough to be asked to talk about a number of different topics on those programs. And so it'll really depend on where we're going with that conversation, whether it's where are mortgage origination is going, how are borrowers behaving, what's home affordability out there in the market, where's the housing market going? But we're blessed enough to have a very robust suite of analytics. And so once we know the broad topic that we're talking about, we just immerse ourselves into our own data, we dig into that specific area into the analytics that we have built. If we don't have something already made there, we'll spin up analytics on the fly to gain insight because again, all of this data that we've been talking about is at the property and at the loan level.
And so if there's something that somebody's looking at that maybe we haven't looked at before, we can spin up those analytics relatively quickly and get a gauge using our own internal data on whether that's truth to that story or whether there's more to be told there.
Josh King:
Thinking about where you are in 2024, what areas of initiatives are you and your team primarily looking at? You've developed a rhythm with those that rely on Andy Walden and the Mortgage Monitor team for information. How do you want to expand that and change it as we move forward?
Andy Walden:
And we're always building and expanding our analytics, and so we're obviously going through the 2024 road mapping process right now. A lot of it's going to have to do with the ingestion of those ICE data resources that we've been talking about, the origination data, the rate lock data, the indices that tie that into the capital market segment. So I think there's a lot of opportunity there on the horizon to build out a more robust suite of analytics there. One of the key topics that we're hearing about all the time and being asked about is hazard insurance and the cost of climate change on the mortgage and housing market. We're in the process of rolling out a data set there as part of our mortgage performance data that will give us insight into the cost to homeowners via their property insurance and how that's changed over time and the coverage rates that they have.
And so I think that's going to be some very interesting research that we roll out this year to look at not only what's that cost on a monthly basis, but as it pertains to the housing finance ecosystem, what kind of pressure does that put on homeowners? Is there a risk of folks not being able to make their payments like they have in the past because of the shifting climate change and because folks are dropping out of insuring in California or insuring in Florida. And so I think it's a lot of those types of analytics that we're going to bring to the market. And again, mixing and matching data in ways that just simply hasn't been done before. We're data nerds so that's where we live and breathe, that's the things that we love to do, and looking at data that nobody else has looked at.
Josh King:
On insurance data, how granular do you get geographically, whether it's county by county, Florida, moving up the east coast, moving west along the Gulf coast? We just saw the damage of a spate of tornadoes from the storms over the last couple of days.
Andy Walden:
Yeah, it'll be down to the loan level. So it'll be looking at mortgage by mortgage across the US. It's all anonymized data, so we're not looking at borrower specific information, but we want to know the location of that specific property. We want to be able to slice and dice that data however it makes the most sense. So almost everything we're doing is either at the property level or at the loan level out there in the market.
Josh King:
You mentioned something a couple minutes ago about in October home affordability hit an all time record low. I want to ask about that a little bit. It's on the mind of everyone who buys a home, even someone just beginning their home buyer journey like Lance, our producer here. What's the affordability situation like today in the context of recent history? What are homeowners facing this guy who says, "We've now have saved up enough money for a down payment. It looks like our cash flow is going to allow us to perform well in a mortgage." But what do people across the country face when they think about getting into home buying now?
Andy Walden:
Yeah, it's an incredible challenge out there in the market, to say the least. So I do not envy producer Lance's position, it's as challenging as it's been in a generation or more out there in the market. And you mentioned that it culminated in October. Things have improved a little bit here over the last couple of months. Home affordability as we entered 2024 is best level since May. Now that's not saying a whole lot, but we've seen some modest improvement over the last couple of months. And the expectation is that as we move throughout 2024 and interest rates settle a little bit and income is allowed to grow a little bit, that home affordability picture will look a little bit brighter as we move throughout this year and it will gradually improve.
Now that being said, as we stand here today, housing is still less affordable than it was at the peak of the market in 2006. So I'm not here to sell Lance a bill of goods and tell them that it's a phenomenal time to buy a house. And it's easy right now just because it's the most affordable since May because it's not, and it's going to take multiple years for us to get back to what looks and feels more like a normal affordability environment. But as we stand here today, the outlook looks like it's going to gradually get better from this point forward after hitting multi-decade lows over the last few months.
Josh King:
As we begin to wrap up Andy, it's still a challenging environment for those looking to enter the market like Lance, but at the same time, all of this has to serve to give existing homeowners, a person like me, pretty much of an equity bump given the value in our property. Can you give us a sense of what the surge in home prices has done for those bottom-line?
Andy Walden:
Absolutely. And that's the interesting thing about the market today. There's this clear bifurcation between folks that are existing homeowners and the benefits that they've received in recent years and the challenges that's created for folks that are trying to enter into the housing market. But if you look at all the home price growth that's taken place, we've seen massive growth in mortgage holder equity, and there's a lot of strength in equity out there in the market right now. We look at a metric called tappable equity. It's how much equity that folks have that they could withdraw while still keeping a conservative equity cushion. To your point about lessons learned from the great financial crisis, that's don't tap yourself dry in terms of overall equity utilization out there in the market. And we've seen over 70% growth in that tappable equity and equity that folks have in their mortgages over the last few years.
Average mortgage holder has $300,000 in equity in their home. They have $200,000 in tappable equity, nearly that level. They're not tapping it to the degree that they have in the past because of elevated costs to utilize that equity, but we're in a very strong standpoint. Existing homeowners have benefited not only from the ability to refinance into lower mortgage payments, which have put us in a good position from a performance standpoint, but they've seen a lot of equity growth in their homes as well.
Josh King:
The equity divide seems to be rather stark between people who have homes, people who don't. Not to mention those who've bought in the top of the market in a higher rate environment. Should we be collectively worried about the folks who have got into this in the last couple of years? Have they bitten off more than they can chew financially speaking?
Andy Walden:
Yeah. And when we look at performance overall in the market, it remains very strong, especially when we look at traditional GSE lending and portfolio held lending out there in the market. The number of borrowers that are three or more payments past due on their mortgages at the lowest level that it's been since 2006, strong equity positions, a lot of programs in place to help borrowers forbearance and loss mitigation and otherwise for folks that are struggling. But to your point, the areas that we're very acutely focused on this year are borrowers that have taken out their mortgages recently and lower credit quality of individuals that tend to be more impacted earlier on in economic shifts. And you are starting to see some transition in performance there.
When you look at lower credit score lending, you're seeing delinquency rates start to edge up overall. When you look at early delinquency activity among more recent originations, you're starting to see those trend a little bit higher as well. And I think that's going to be the storyline throughout 2024. Now, we've been in a environment over the last six, seven years outside of the initial aftermath of the COVID pandemic where delinquencies have been historically very, very low. So we're starting from a low base point out there in the market, but certainly some transitions that are worth watching and certainly a lot more pressure from a debt to income perspective, from an equity perspective on some of these more recently originated loans that are worth keeping close eye on.
Josh King:
When I get back to my office, I'm going to send you an email and say, "Hey, Andy, when is the next Mortgage Monitor going to come out?" Just like all those people who are thirsting for more data. If people want to get a sample of what you produce on a monthly basis, where do they go and what do they find?
Andy Walden:
Absolutely. You can perform a simple Google search for Black Knight Mortgage Monitor, Ice mortgage monitoring, it'll give you a link to that specific document that's published the first Monday of every month, barring a holiday that moves that date. So the next one that'll come out will be the first week of February and hope everybody goes out there and checks it out.
Josh King:
All right, folks, set your calendar next February. First Monday in February we'll be looking for the Mortgage Monitor. Thanks so much Andy for joining us inside the Ice House.
Andy Walden:
Appreciate it. Thank you for having me.
Josh King:
And that's our conversation for this week. Our guest was Andy Walden, the Vice President of Enterprise Research Strategy for ICE Mortgage Technology. If you like what you heard, please rate us on Apple Podcast so other folks know where to find us. And if you've got a comment or question you'd like one of our experts to tackle on a future show, make sure to leave a review. Email us at icehouseatice.com or tweet at us @icehousepodcast. Our show is produced by Lance Glenn with production assistance editing engineering from Ken Abel. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for joining us. We'll talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the or completeness of the information and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.