8.24.26 DC Movers and Shakers; Tidalwave's Chris McLendon on Agentics; Treasury Intervention

Mortgage servicing can create significant wealth, so concentration risk matters, especially as sharp declines in Fannie Mae and Freddie Mac shares and leadership departures at Fannie raise concerns that political and organizational uncertainty could undermine the stability of the housing finance system. Robbie interviews Tidalwave’s Chris McLendon on why the question lenders should ask isn't "Does it use AI?" It's "Can you prove the answers are right?" And we close with a quick primer on why the government doesn't set mortgage rates.

From lenders and landlords to employers and consumers, Experian helps connect the housing ecosystem with the data and insights needed to make faster, confident decisions. Lead a smarter housing journey with Experian.

The Chrisman Commentary is your go-to daily mortgage news podcast, where industry insights meet expert analysis. Hosted by Robbie Chrisman, this podcast delivers the latest updates on mortgage rates, capital markets, and the forces shaping the housing finance landscape. Whether you're a seasoned professional or just looking to stay informed, you'll get clear, concise breakdowns of market trends and economic shifts that impact the mortgage world.

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Speaker 1 0:02

Welcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include Movers and Shakers in Washington, D.C. Speaking of Washington, DC, why the government doesn't set mortgage rates. In my interview with Tidal waves, Chris McClendon on why the question lenders should ask isn't does he use AI? It's can you prove the answers are right? Here, take a listen, do a little preview.

Speaker 0:30

GenTech AI in general, the cutting edge of AI for the mortgage industry. How do you see it evolving forward?

Speaker 2 0:37

You know, I think this first generation was really, you know, the early, early stuff was about answering questions. It's guideline questions. How do we, you know, how do I do this? How would I do this kind of thing? Next, I think it's, you know, creating trust. And I don't believe it's going to be a lot of a it, it's going to be about execution. You know, the winners, I it won't be the flashiest marketing or flashiest AI. I really think it's going to be about the ones for our industry specifically. I think it's going to be about, you know, producing clean files, a better borrower experience, and you know, confident lending decisions. And if we have a track record of how this technology is working and moving things forward, it's the first time, in my opinion, after, like I said, I've been in the mortgage business now for 25 years, the last 15 plus well, really even longer than that, 18 plus have it's been on the technology LOS and a little bit on the title side. And I would say going back from the shift from green screen to a Windows-based product, this is this is pretty much the the biggest next thing. And I I really do believe like we won't be replacing humans, but it will allow them to do, you know, why should someone have to stare at a bank statement for two hours when it can be done in two minutes? And it's going to surface the same buy now, pay later, is the same Klarnas, the irregularities, the large deposits, the extra incomes. I mean, to me, it it it's it's going to allow us just to take the industry forward, work closer to the borrowers, create better experiences. I mean, buying a home is the biggest financial decision most people ever make, and they only make it five or six times in their life. So it's a very stressful experience. It's the thing that we always hear. I mean, you know, we we had we hear it all the time, but we've had conversations with Stratmore that the number one complaint is getting asked for the same documentation over and over and over. And I feel like AI knowing what to ask for based on the data, knowing when to ask for it, knowing which product and price is best for the borrower, and helping this move faster and faster is only going to create a better experience for everyone. Um, so that's I I think that's where it heads.

Speaker 1 2:47

Thanks to Xperian for sponsoring this week's podcasts. From lenders and landlords to employers and consumers, Xperian helps connect the lending ecosystem with data and insights needed to make faster, confident decisions. Lead a smarter housing journey with Xperian, and you can learn more at Xperian.com slash mortgage. I'm glad that all my 401k is in an agency shares. Fannie May's stock is down 42% this year, and Freddie's is down 45%. Although there is a steady stream of informal communication, things have been somewhat quiet formally from the Director of the Federal Housing Finance Agency, Bill Poulte, and the FHFA in recent weeks. Recall that before he left his post at the office of the Director of National Intelligence, he made another round of personnel cuts. Poulty was tapped to lead the office of the Director of National Intelligence following the departure of Director of National Intelligence, Tulsi Gabbard. That ended last week as Fannie Mae parted ways with at least ten high-ranking officials. Pulte's FHFA is mum, but the word of the senior departures spread across the industry Friday, creating worries that Fanny's ability to provide stability to prices and activity could be hampered. And one knows our housing market doesn't need instability. Another day, another consolidation deal between two IMBs. This time it's megabroker Nexa, who has acquired UMortgage, a $2 billion originator led by industry veteran Anthony Casa. Nexa owner Mike Cortes is doing a lot of deals and is getting so big it's hard to refer to Nexa as a broker. In the last six months, he launched EvoLend Retain Servicing, the online real estate platform FSBO.com, and launched an AI-centered point of sale system to support originators. Volume has doubled over $12 billion in the past two years, and that's before the U mortgage deal. Normally, you don't expect a broker, even if a mega broker, to buy a mortgage banker. But Nexa already has been using their warehouse lines extensively in the last year and has many of the elements of the typical mortgage banker. Last year there were 40 consolidation deals in the industry, and it sure does not appear to be slowing down any time soon. The Treasury market is increasingly confronting the limits of policy intervention in the face of deeper fiscal pressures. An initial rally sparked by the Trump administration's expansion of long-end buybacks quickly faded by the end of last week as investors question whether Treasury can meaningfully suppress long-term yields simply by changing the maturity mix of its borrowing. Buybacks can improve liquidity and influence the supply of duration, but they cannot fix a $1.8 trillion annual deficit, a debt load above $40 trillion, or rapidly rising interest costs. This indicates a broader loss of confidence. The dollar is weakened, gold has rallied, and investors increasingly view fiscal deterioration as the dominant force shaping asset prices. Several forces are now keeping long-term yields elevated. Resilient economic activity, the possibility that AI-driven productivity lifts the economy's equilibrium real rate, persistent fiscal deficits, higher global rates, diminished demand for treasuries as a safe haven, and heavy corporate bond issuance competing for duration capital. That leaves the market in an awkward balancing act of an uncertain Federal Reserve reaction function, coupled with the increased risk of chasing yields higher if growth suddenly cracks or financial conditions tighten enough to force intervention. Treasury market may be transitioning from one where policymakers can meaningfully manage long-term rates through technical interventions to one where credibility itself increasingly determines equilibrium yield levels. For today's interview, we wanted to welcome to the show Tidal Wave Chris McClendon to talk about why the question lenders should ask isn't does he use AI? It's can you prove the answers are right? He's partner and chief revenue officer at Tidal Wave, previously spending the 10 years as a sales executive at Ice Mortgage Technology and five years at Black Knight Financial Services. He's also led enterprise sales efforts with lenders, including Chase and MT Bank.

Speaker 7:02

We're at a neat inflection point in the mortgage industry. For a while, the talk was this is what AI can do. I think we're finally at the point of this is what AI is actually doing. Where are we with it? And what's kind of the cutting edge out there?

Speaker 2 7:16

Yeah, it is. I mean, you go to any of these trade shows, mortgage-related trade shows, and you know, probably beyond mortgage, but I mean, everyone slapped AI on everything. And I think you really have to like look at what is out there in the in the players and how are they doing it differently. Really, where I think it's moving from is, you know, AI is moving from, you know, being an assistant chat GPT type, you know, ask a question, get an answer to really like a teammate, more like a the workspace is within within Claude. You know, how we're using it is, I think our differentiator is we we call it our shift-left strategy. So it's being in the point of sale space, interacting with the borrower, giving the LO a place that they can live and work. And in the background of doing their job, we're leveraging agentic AI to look at the assets. Let's try to identify any of these things that blow up files three weeks from now. And typically when they get to the underwriter or things that get missed, we're trying to supercharge the loan officer. You know, there's a lot of things they have to look at. There's a lot of things they have to do. If they're successful, they're very busy. So as these different documents, are the borrower's uploading them or rather they're uploading them, the AI is interacting and reviewing that stuff up front and early to identify problems. So I think what we're doing is it's really coming into practical use. I guess that's a really long answer to say. I think it's coming into practical use.

Speaker 8:31

No, it's it's cool to see it come into practical use. For the general public, when Chat GPT first launched, people kind of blindly trusted it and they realized, hey, maybe it's maybe it's I need to double check what it's saying. For the mortgage industry, I think a lot of companies out there are going, when it comes to counterparty risk, you know, what what's going on with my data? What's the actual back end of this company? Is it just is it just plugging into an open AI type thing, or is it their proprietary software? Is it off the shelf or is it is it going to be actually tailored to me? Can you talk about trust when it comes to the mortgage industry between the origination side and the technology side? Just your thoughts on building it, your thoughts where it could be better, your thoughts in general.

Speaker 2 9:16

That's where I would ask anyone listening to this. And if you're looking at different vendors, that is the exact question that I would be asking. Is this something that's going out to you know open generic LLM models? What sets us apart, and just a little bit about my background. So I've been on the tidal wave journey now for almost 18 months. Prior to that, I was with LE Mae ICE for 10 years, uh, six of that in relationship management, slowly moving over to more um new logo enterprise sales. Uh prior to that, I was with Black Knight and worked on the Empower platform for about five years. So really familiar with the LOS space. And if you're the LOS, you're kind of the center spoke for every other technology that's out there. They all have to run through your platform. So you really get to see the ecosystem. The exciting part about what we're doing, and really the thing that drew me here is the team that we have. And really, with the engineering talent that we have, um, I was lucky enough to meet Diane Yu, who was the CTO at Better at the time during my time at ICE. Um, and after meeting her and kind of carrying on some conversations and hearing about what they're building, that's the what makes us and sets us apart is our mortgage contextualizer. That is that's the proprietary piece of Tidal Wave. We leverage the LLMs that are out there for whatever best use case there is. But it's the data security, it's the compliance, it's the non-hallucinatory piece of this that really has driven our success. I mean, when I joined the team, like I said, about 18 months ago, we were zero customer, zero revenue. Um, by the end of this year, we expect to hit 15,000 closed loans a year. We've had some big wins. Lenar has fully adopted us at this point. Lenar, the home builder. It's public information. DHI did a strategic investment in our Series A, and they're evaluating us for a full point of sale, which is going well. And then most recently, we won Fairway. So Fairway is moving all their folks over to us, along with probably about a dozen plus other customers. But looking at those larger enterprise customers and being able to pass the scrutiny of their compliance teams is really kind of to me proven out what our contextualizer is and what sets us apart. And I do have to give that to the credit of Diane and the other founders and just the engineering team that we have is is like I said, I I I've not worked with a group of people like this before that are so smart and execute. So security is the number one, number one question I would ask. And how how are you doing that with these open AI models? Are you feeding it to the open internet? Those are the things I think you have to look out for and ask.

Speaker 11:41

Let's go one step further. That's like on picking the tires properly beyond just asking questions and hearing what they say.

Speaker 2 11:47

I think, you know, being on the sales side of things, you you try to try to put them in, you know, the layman's terms. I mean, I really think it's about checking the homework. How are these AI models working? Like having proof, showing your homework, showing your work. That's something that we're able to do. Um, whether that is with how we calculate income or how we're looking at a bank statement, we we lay that out for the for the user of Tidal Wave. They can see how those calculations are being made, how the AI is looking at it. Because it really is, it's about the consistency. So um, you know, even if if if our AI is confused and doesn't know, it's at least consistent in how it comes back to the user and asks. But I think it it comes down to being able to trace and show your work and and prove that it is compliant and and within regulatory uh requirements.

Speaker 12:34

Obviously, you've you've done some pretty cool studies. There's a lot of concern out there. Companies putting faith in AI products, and a lot more of it, I think, is on kind of the the chat bot side of things. Ah gosh, maybe they'll say something to a customer that isn't right. But also on the I mean, repurchases are a big deal. And so at what point do you release the handbrake and let AI go? How do you view the human in the loop? Where should they be to use that phrase that's used so often here in the industry? Just kind of once you once you are putting something into practice, how much autonomy to let it have versus how how humans oversee it? And thoughts there?

Speaker 2 13:12

You know, human in the loop, it does get thrown around a lot and and we use it too. It's really configurable to the lender how much automation that they want there and how much human in the loop they want to see. We do believe that, again, it kind of goes back to that supercharge thing, whether you're supercharging the LO, you're supercharging the underwriter, the processor. We surface things quickly and fastly that the the so that the LO or processor underwriter can go back and review those documents and surface them to the human.

Speaker 13:38

Good stuff. Chris, you know, I wish you the best of luck. Pleasure chatting with you and hopefully. Yeah, thank you, sir.

Speaker 1 13:44

Turning to the capital markets, it would seem to me that capital markets technology is increasingly ripe for stack-wide automation because fragmented systems cannot manage increasingly complex pricing, execution, locking, selling, and hedging decisions is one integrated process. As margin economics become commoditized, competitive advantage should shift toward reducing the cost, lag time, and human effort across the mortgage value chain. There's definitely a shift toward AI as a mechanism for continuously automating decisions and execution, particularly in hedging, because better automation directly improves risk management. Ultimately, secondary marketing desks are moving from software that reports and recommends to software that decides and executes, with humans handling the exceptions. Without any releases of note on today's economic calendar, tomorrow brings the FHFA housing price index and SPK Schiller Home Price Index, followed by new home sales and consumer confidence with a two-year treasury auction later in the day. Wednesday is the busiest session of the week, featuring the weekly MBA Mortgage Index, the second estimate of second quarter GDP and its deflator, personal income and spending, expected to share resilient consumer demand, PCE and core PCE inflation, which should point to easing underlying price pressures, dribble orders, crude and oil inventories, and a five-year treasury auction. Thursday centers on jobless claims, advanced trade and inventory data, and a seven-year treasury auction. Friday closes the week with Chicago PMI and the final University of Michigan consumer sentiment rating. Jackson Hole will also be in focus with Chair Warsh likely to emphasize the Fed's longer-term policy framework and task force priorities. We'll be in the week with agency MBS prices better than Friday's close by about an eighth, depending on maturity and coupon. The two-year yielding 4.23, and the ten-year yielding 4.71 after closing last week at 4.74%, up four basis points over the course of last week. Let's wrap up with a joke and some housekeeping. The sound from a musician on stage bounces off the auditorium walls to surround the audience. The sound from a pigeon on stage does not do this. The reason is a coup sticks. From lenders and landlords to employers and consumers, Xperian helps connect the lending ecosystem with data and insights needed to make faster, confident decisions. Lead a smarter housing journey with Xperian, and you can learn more at Xperian.com/slash mortgage.