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Federal Reserve Governor Stephen Miran on Wednesday described data that showed employment at US companies increased in October as "a welcome surprise," though he reiterated interest rates need to be lower.Private-sector payrolls increased by 42,000 after a revised 29,000 decline a month earlier, according to ADP Research data released Wednesday. The median estimate in a Bloomberg survey of economists called for a gain of 30,000.The ADP report has taken on greater importance as the longest government shutdown in US history delays the releases of official economic data.READ MORE: Even as shutdown halts BLS data, hiring appears to be slowing"You continue to see modest potential overall job creation. You continue to see moderating wages and you continue to see indications that labor demand may not be as strong as we'd like it to be from a cyclical perspective," Miran said Wednesday in an interview on Yahoo Finance. "All of that to me is an indication that rates could be a little bit lower than where they are now."Miran has repeatedly called for looser monetary policy, dissenting against policymakers' decisions to lower the Fed's benchmark rate by a quarter percentage point in September and again in October in favor of half-point reductions.Fed officials cut their benchmark rate last week by a quarter-point, reflecting continued worry over the labor market. Fed Chair Jerome Powell, speaking to reporters Wednesday after the decision, said another cut in December was "not a forgone conclusion."READ MORE: Mortgage rates tick down following Fed's cutA handful of other Fed policymakers have since voiced their concerns that the central bank risked allowing inflation to remain high by moving too far in lowering rates."Policy is too restrictive," Miran said. "Continuing to run policy that restrictive is to also run unnecessary risks."

Treasuries fell after the US government signaled that larger auction sizes are on the horizon, while signs of economic resilience hurt the odds a Federal Reserve interest-rate cut in December.Treasury Department officials, unveiling their plans for financing the US government deficit over the November-to-January period, said they'd begun "to preliminarily consider future increases," even as they continue to anticipate no changes to note and bond auction sizes "for at least the next several quarters." The prospect of cuts to long-maturity auction sizes has been a minority view on Wall Street over the past year.The selloff deepened after a gauge of services activity in October was stronger than economists estimated. Yields across maturities rose as much as six basis points, with the longest-maturity tenors rising the most. Ten- to 30-year yields reached the highest levels since Oct. 9, at 4.14% and 4.73% respectively.READ MORE: Mortgage rates tick down following Fed's cut"The rates market likely reacted to the additional guidance that Treasury is thinking about thinking about future increases to nominal coupons," said Angelo Manolatos, a strategist at Wells Fargo. "This guidance pretty much takes coupon cuts off the table and creates a risk Treasury may even increase sizes as early as November 2026."In addition to weakening outright and relative to shorter-maturities, long-dated Treasuries cheapened relative to interest-rate swaps, an alternative source of fixed-rate payments.The supply announcement followed on the heels of ADP Research data showing employment at US companies increased by more than forecast in October. In the absence of Labor Department employment data — among the releases postponed by the US government shutdown that began Oct. 1 and is the longest on record — investors and Fed policymakers are relying more heavily on other sources such as ADP."This employment report should serve to alleviate the Federal Reserve's apprehensions regarding labor market deterioration," said Florian Ielpo, head of macro, multi asset team at Lombard Odier Asset Management. He sees a trading range between 4.00% and 4.25% "for an extended period."Subsequently, the ISM services gauge increased more than expected to the highest level in eight months.Signs of strength in the US economy have eroded expectations that Fed policymakers will cut interest rates for a third straight time when they meet in December. A quarter-point rate cut on Dec. 10 — which was fully priced into related swap contracts as recently as mid-October — is considered less likely than a pause.After the Fed cut rates in September and October in response to signs of weakness in the labor market, Chair Jerome Powell and several other Fed policymakers have said that a cut in December could allow inflation pressures in the US economy to gain traction.

Agentic AI is moving from hype to real use cases in financial services, and Built is staking its claim in the space. The construction finance tech firm on Tuesday launched Draw Agent, an AI tool designed to speed and simplify construction loan draw reviews, one of the most time-intensive workflows in the lending process.  "AI promises have long outpaced outcomes for the more complex aspects of real estate finance," said Chase Gilbert, cofounder and CEO of Built, in a press release. "With Draw Agent, we've given lenders the ability to move beyond simple task automation or document parsing to true workflow intelligence when managing construction loans — where policies are enforced consistently, risks are surfaced proactively, and funds move faster so projects stay on track."The announcement comes a week after Wells Fargo voiced its commitment to agentic AI, following JPMorganChase and Citi, who have been rolling out agentic AI throughout the year.This is the first in a series of specialized agents Built will launch in the coming year. The company plans to release agents steadily every quarter, looking to streamline onboarding, deal evaluation, portfolio management and other administrative tasks, Gilbert told National Mortgage News.Built started with draw loans because of the critical mass and complex workflow associated. If the company could succeed with one of the most difficult processes in real estate finance, it would win the trust of its customers."When they see it, they can't unsee it. ... It is better, faster and cheaper," Gilbert said. "We're so confident, we just want people to try it, no strings attached. ... If we can build trust with financial institutions on a very complex workflow, then we want to earn the right for them to trust us to solve other problems."Draw Agent promises to speed up the payment process, to improve risk management and to increase efficiency by moving from manual review to AI. The tool has shown up to 95% time-on-task improvement, with reviews completed in as few as three minutes, up to 60% acceleration in draw turn time from borrower request to funding and a 400% increase in risks detected versus human-led reviews, the company said. "Draw Agent has fundamentally changed the rhythm of construction lending for us," said Randy Stewart, executive vice president of Enterprise Mortgage Lending at Zions Bancorporation, in the release. "What once took hours of manual review now happens in minutes with greater consistency, transparency, and control. It is not just faster; it is smarter, freeing our teams to focus on higher value decisions while the agent enforces every policy with precision."Draw Agent is powered by the MightyBot Agentic AI Platform, which allows lenders to choose their ideal level, such as audit mode, which reviews and recommends actions for human approval, assist mode, which handles routine steps but staff still make final decisions, and automate mode, which fully executes when policies are met."People could dip their toe in the water, and as they get comfortable, allow AI to do more for them," Gilbert said.Every decision the tool makes is informed by the complete context of the project, including the loan agreement, construction plans and budget and inspection photos and reports. The agent has a level of understanding and context that no human is capable of, Gilbert said."With Draw Agent, Built has demonstrated that end-to-end autonomy with rigorous controls isn't just possible — it's here, live in production, and already delivering measurable results," the company wrote in the release.

There’s a new credit card in the works that will earn points on any mortgage payment you make each month.The Bilt Card 2.0 is nearly at the finish line and is expected to be launched on February 7th, 2026.That will be accompanied by a special event in early January where Bilt will reveal three new card options for new and existing Bilt users.At the moment, Bilt allows its cardmembers to earn points for paying rent each month, but come 2026, Bilt users will be able to earn points for paying the mortgage too.What’s cool is these points can be transferred to frequent flyer programs, so simply paying your mortgage could power your next trip to Europe or beyond.Bilt Card 2.0 Will Come in Three FlavorsWhile the details are still somewhat a mystery, Bilt has announced the launch date (February 7th, 2026) and the fact that the card will come in three varieties.Those include card options with annual fees ranging from $0 to $95 to $495.Essentially, a no annual fee card, a $95 annual fee card that mirrors Chase Sapphire Preferred, and a premium card with a $495 annual fee.As part of the launch, they’ve also laid out how existing Bilt cardholders can transition to the new card backed by Cardless.They’ll be able to select a new product from among these three new cards with no hard inquiry on their credit report.In other words, they won’t get the typical ding if they want to take advantage of the new benefits tied to Bilt 2.0.However, they can also stay with the old issuer, Wells Fargo, though the card will be retired on February 6th, 2026.If they choose that route, their card will become a Wells Fargo Autograph Visa Card, and they’ll earn Wells Fargo Rewards points instead of Bilt Points.Not sure how many folks will choose that option as it won’t earn points for paying the mortgage. And I don’t even think Wells Fargo Rewards points can be transferred to loyalty programs.How Much Will Bilt Earn on Mortgage Payments?We also now know that the forthcoming Bilt Card 2.0 will “Earn points on any eligible residential mortgage payments.”My understanding is that like its rival Mesa, Bilt Card 2.0 cardholders will earn one point for each dollar of their mortgage.So if your monthly mortgage payment is $2,500, you’ll earn 2,500 Bilt points each month.Over a 12-month period, that equates to 30,000 points, which is a decent haul for doing basically nothing other than paying your billsAnd there will be additional point-earning categories (based on member feedback), especially on the higher-end version of the Bilt 2.0 card to earn even more.Hopefully these are in useful categories like gas, groceries, insurance, etc. I assume they’ll be everyday home oriented.So there’s going to be a lot of potential to earn a lot of Bilt points each year.On top of that, there could also be a sign-up bonus, as there is with most other rewards cards.For a brief period, the Mesa Homeowners Card offered 50,000 points if you spent $12,000 within three months.That was steep so hopefully Bilt will offer a sign-up bonus that’s a little more approachable.Will You Need to Make a Minimum Non-Mortgage Spend Each Month?The other question we still don’t know is if there will be a minimum monthly spend to earn points on mortgage payments.Mesa requires you to spend $1,000 each month in non-mortgage spend to earn the mortgage rewards.So if you don’t use the card for other expenses, you don’t get the points on the mortgage.I could certainly see Bilt do the same thing (they currently require five transactions a month to earn points on rent).The other question is how Bilt will arrange the mortgage payment process.Mesa doesn’t actually let you pay the mortgage with a credit card. Instead, you enter your mortgage amount in your account and they credit you the points.You still have to use a bank account or other acceptable payment, as lenders and mortgage loan servicers don’t accept credit cards.Chances are Bilt will operate the same way. Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.Latest posts by Colin Robertson (see all)

The US Treasury indicated it's not looking to boost sales of notes and bonds until well into next year, in a decision that will see the government increasingly rely on bills to fund the budget deficit.In its so-called quarterly refunding statement Wednesday, the department said it anticipated keeping auction sizes unchanged for nominal notes, bonds and floating-rate notes, "for at least the next several quarters." That language, which it's been using since early last year, reflects the higher cost of issuing longer-dated securities compared with bills, which mature in up to a year.Next week's auctions of 3-, 10- and 30-year maturities will total $125 billion, the same amount going back to May last year.READ MORE: Fed's Cook strikes hawkish tone in rare appearanceDealers had widely expected the move. Most don't see an increase in issuance of notes and bonds until mid-2026 or later to help finance federal deficits, which have declined slightly in part because of tariff revenue. Federal Reserve interest-rate cuts have pulled down yields on the shortest-dated US debt, making it more attractive for the Treasury to sell those maturities. While 10-year yields are currently a bit above 4%, bills due in 12 months are around 3.5%."Looking ahead, Treasury has begun to preliminarily consider future increases to nominal coupon and FRN auction sizes, with a focus on evaluating trends in structural demand and assessing potential costs and risks of various issuance profiles," the Treasury said in a press release.As for next week's refunding auctions, they will be made up of:$58 billion of 3-year notes on Nov. 10$42 billion of 10-year notes on Nov. 12$25 billion of 30-year bonds on Nov. 13"The idea that Treasury will need to increase auction sizes in the future isn't a surprise, given the outlook for deficits," said John Canavan, lead analyst at Oxford Economics. The decision to highlight that "seems like prudent early management, rather than a sign that increases are necessarily coming down the pike sooner than anticipated, though."Laying GroundworkDealers have long expected the Treasury to at some point lay the groundwork for an increase in sales of longer-dated obligations, given that the government continues to run historically large fiscal deficits – boosting the overall debt load. As securities sold during the record deficits of the pandemic era, in 2020 and 2021, come due in coming years, Treasury note sales would only suffice to repay what's maturing.READ MORE: Agencies issue shutdown-related guidance for lendersThe Fed has recently emerged as a fresh source of future demand for Treasury securities. Last week, it said it would stop shrinking its holdings of federal debt as of Dec. 1, but it also plans to recycle maturing mortgage securities into Treasury bills.The Treasury said it expects to keep the sizes of benchmark bills steady into late November, and then modestly reduce short-dated bill auction sizes in December. By the middle of January, it said it anticipates increasing bill auction sizes based on expected fiscal outflows.The share of bills compared with overall outstanding debt is set to rise unless the Treasury boosts longer-dated issuance. The ratio is on course to climb past 26% by the end of 2027, Citigroup Inc. estimated ahead of Wednesday's announcement.Last year, the Treasury Borrowing Advisory Committee — a panel of dealers, investors and other market participants — recommended it average around 20% over time. As of September, the ratio was over 21%.TIPS, BuybacksFor November through January, the department said it plans to maintain this month's 10-year Treasury Inflation- Protected Securities reopening auction at $19 billion, while increasing the December 5-year TIPS reopening sale by $1 billion, to $24 billion. It will keep the January 10-year TIPS new issue auction at $21 billion.The department also released a tentative schedule for buybacks of older Treasuries across the 10- to 20-year and 20- to 30-year sectors. The plan is for four operations over the refunding quarter, each for as much as $2 billion, it said. Treasury also said it "anticipates that over the course of the upcoming quarter it will purchase up to $38 billion in off-the-run securities" across maturities for liquidity support.

A new examination of which metropolitan statistical areas benefit the most and the least from government-sponsored enterprises shows that the largest concentrations of GSE-backed mortgages are typically found in regions within Northern states and the smallest in the lower half country, including the Southwest.Boulder, Colorado, commands the highest share at 67%, according to the Center for Mortgage Access, a recently-formed think tank that analyzed the latest-available Home Mortgage Disclosure Act data. Laredo, Texas, is near the other end of the spectrum at 22%, the data from last year shows. Puerto Rico and other areas have smaller shares than Laredo, but they tend to be less indicative of the broader mainland market due to the presence of military bases or other factors.The geographic distinctions point to a potential policy consideration in terms of the GSEs' national and local roles, according to Scott Susin, founder of the center and author of the research brief entitled "Who Benefits from Government Mortgage Guarantees?""I think it's important that the GSEs serve the whole country," said Susin, who previously served as a senior economist for the Federal Housing Finance Agency that oversees the enterprises. Susin also previously served as an economist for the Department of Housing and Urban Development.The averages show the share of GSE-backed lending is high nationally at 45%, but some local leaders might be interested to learn about how their area compares."One thing I'm hopeful about is that areas that have low GSE shares will be interested to learn that," Susin said. "They know a lot more about their local problems and issues than me, but they may not know that they're really not being supported by Fannie and Freddie. I hope that this will be news to them and will inspire them to dig further."Differentiators between the two ends of the rangeTo get a sense of what factors differentiate the two ends of the range, the study also examines six predictors and how the GSE share compares to four other types of loans in the study, in which Susin validated the HMDA data with information from the FHFA's National Mortgage Database.National averages for the latter break down as follows: 22% for Federal Housing Administration-insured loans and 18% for portfolio loans. Department of Veterans Affairs-guaranteed mortgages account for another 12% on average and loans made possible by the Rural Housing Service account for the remaining 1%. Since the report focuses on metros, the rural loan share is not statistically significant in some areas such as Laredo or Boulder. Both areas also have a largely negligible or roughly 1% share of loans funded through the private-label securities market.Previously, the FHFA showed interest in making GSE loans more competitive with FHA. Lower-income borrowers can potentially avoid paying insurance on the latter by getting a loan from Fannie and Freddie. The FHA responded by dropping its upfront premium by 30 basis points, adding to the competition. Currently, the FHFA is more interested in separating the two entities' roles. The study also looked at predictors that included loan amount, income, volume and the percentage of Black and Hispanic households in a region.Boulder, for example, had a higher average loan amount of $598,000 compared to $364,000 nationally, while Laredo's is lower at $256,000. In a nation where 24% of households are considered low-income, the Black/Hispanic percentage is 30% and the average annual salary is $143,000, comparable figures in Boulder are $221,000, 21% and 15%, respectively. Households in Laredo make $109,000 on average, 11% are considered low income and the Black/Hispanic percentage is 96%.

Reverse mortgage company Finance of America's continuing operations took a net loss on a one-time adjustment in the third quarter, but it was profitable on that basis for the year-to-date, unaudited interim results show.The company reported a $29 million in net loss from continuing operations during the third quarter due to home price model adjustments, and earnings of $131 million for the first nine months of this year. On an adjusted basis, FOA reported $60 million in earnings for the quarter. In comparison, FOA reported $80 million in income on a continuing operations basis in the previous fiscal period, when it repurchased Blackstone's equity stake, and $203.7 million a year earlier. The company's nine-month results reflect "the benefit of lower interest rates and tighter spreads, partially offset by softer home price appreciation projections in the third quarter," CEO Graham Fleming said during a company earnings call. Shifts in how the company models home price appreciation were the main driver of the company's third quarter loss, according to its press release.Rising funded volumes and a record-breaking securitizationFinance of America also reported that its funded volume edged up higher to the quarter to $603 million from $602 million the previous fiscal period and $513 million a year earlier. "By the end of October for the year 2025, we funded $1.97 billion in reverse mortgages, surpassing our entire 2024 production of $1.92 billion," President Kristen Sieffert said during the earnings call.Submissions for October totaled $336 million, marking "the highest month in three years," Sieffert said.Chief Financial Officer Matt Engel said during the call that the Finance of America also closed its "largest proprietary securitization in company history in September." Other highlights and challenges during the quarterSeveral developments in both the private and home equity conversion mortgage markets contributed to revenue during the quarter, including "increased margins for HomeSafe and HECM products, stronger origination fee income and higher capital markets revenue," he said.Executives also touted the company's new home equity partnership with Better and technology innovations."These traditional home equity products enable us to serve approximately 30% more of the potential borrowers already engaging with our brand who need higher loan-to-value solutions than our current reverse suite provides at FOA," Sieffert said.Engel said he is anticipating benefits from the adoption of artificial intelligence automation."While still very early in the adoption of AI technology, we fully expect these investments to improve the customer experience," he said, noting that the company also anticipates it will enhance return on investment in markets, and increase productivity.

The Mortgage Bankers Association largely supports the Federal Housing Finance Agency reduction of certain low-income single-family finance goals for the government-sponsored enterprises.But the one goal that was not changed in the proposal from the agency called U.S. Housing Finance by its director, the single-family low-income refinance goal, might not be attainable due to market forces, a comment letter on the proposal released last month said.Also, the removal of measurement buffers impacts not just attainment of this particular goal, but the broader picture as well, the MBA said.The letter was addressed to Director Bill Pulte and signed by the MBA's Pete Mills, senior vice president, residential policy and strategy industry engagement, and Jamie Woodwell, who holds a similar title for commercial/multifamily policy.Why MBA thinks the refi goal needs revision"The current administration has stressed its desire to lower interest rates, which would spur refinance activity, driving up the denominator for the low-income refinance goal calculation and driving the achieved percentage lower," the MBA letter said."Additionally, we have heard concerns that a potential increase in the volume of higher balance loans in Q1 2026 could also impact the denominator for this goal, as a result of how goals are applied to lenders."The management buffers were removed across the board because benchmarks were set at the low end of expected model forecasts, the MBA letter said. The issues with the FHFA underlying dataset"We continue to receive feedback regarding the lag of data inputs used to calculate the housing goals," the letter stated. "While FHFA considers various factors when setting benchmark levels for 2026-2028, their forecast models produce values using historical HMDA data through 2023, and the current method for benchmark calculation may not reflect key market data."This is because lenders are constantly adjusting to changes in the housing market and striving to meet a static goal created by year-old data can be challenging when faced with interest rate shifts, changes in origination and refinance volume, macroeconomic conditions and inventory of homes for sale, the MBA said.In July, FHFA proposed a repeal of its fair lending, fair housing and equitable housing finance rule. Among the reasons given by the agency was that it was not in compliance with Pres. Trump's executive orders and it was duplicative with rules enforced by other agencies.Specific to the low-income refi goal, the letter points out no data series currently exists which can be used in a forecast model for this loan purpose. Plus, the percentage of low-income refi originations is "inversely proportional" to refinance loans produced in the overall market."Preserving measurement buffers will mitigate market distortions whenever goal levels and market production are misaligned due to unforeseen economic conditions," the letter stated. MBA's comments about the multifamily benchmarksWhile MBA said the proposed multifamily benchmarks "strike an appropriate balance," it is concerned about the decline in market-rate lending volume by Fannie Mae and Freddie Mac in recent years."A healthy multifamily ecosystem depends on both affordable and market-rate production — since turnover in market-rate units often opens up opportunities for lower-income renters," the letter said."MBA therefore urges FHFA to ensure the Enterprises maintain a balanced approach — meeting affordability targets while continuing to provide vital liquidity for market-rate multifamily housing."Make more mortgages eligible for inclusionIn the letter, the group adds its members want more focus on increasing the population of mortgages eligible for meeting these goals."Affordable lending has been a significant challenge, particularly in the current interest rate environment," MBA said. "The fact remains that even during high volumes, a limited number of these loans can be produced each year."It suggests FHFA explore including loans with cash-flow underwriting and rental payment history."To expand the population of affordable lending, the industry must first have an aligned understanding of what the total addressable market is for affordable lending, and we recommend that FHFA explore options for creating transparency on the total population of goals-eligible loans," this section of the letter concludes.

Newrez subsidiary Shellpoint Servicing finds itself at the center of another class action lawsuit surrounding the attempted collection of a second "zombie" mortgage originated prior to the Great Financial Crisis. In documents filed in a Virginia federal court in late October, attorneys for former homeowner and plaintiff Mariel Castellon claimed the company made attempts this decade to collect on interest for a piggyback zombie-second lien that had been discharged years earlier by a different servicer. The operation ensued even after Castellon twice declared bankruptcy, with the home eventually foreclosed upon last year.   Administration of the loan was previously handled by Specialized Loan Servicing, which was acquired by Newrez parent, Rithm Capital, in a deal that closed in early 2024. Shellpoint illegally kept up collection efforts post acquisition, the legal filing claimed, while the current owner of the loan in question, Gulf Harbour Investment Corp., was also named as a defendant.  "The members of the enterprise and Gulf Harbour enterprise knew that the objective of the enterprise was unlawful, as they knew from their own internal business records that the subject loans had been onboarded by SLS with a 0% interest rate," according to the complaint filed by the plaintiff's attorney. "SLS's scheme to collect retroactive assessment of interest was conveniently timed with the rise in home prices following the Covid-19 pandemic, which caused the available equity in homes to skyrocket and thus rendered collectable through foreclosure the thousands in additional equity that SLS now claimed was owed," the lawsuit also said. Gulf Harbour claims Castellon currently owes it at least over $280,000 from the lien, which includes nearly $173,000 in retroactive interest accrued between 2008 and 2024. History of the zombie loan in questionCastellon took out an 80/20 piggyback mortgage in 2005, a borrowing strategy used by some buyers prior to the Great Financial Crisis to help lower down payments or eliminate certain requirements associated with a single loan for the full balance. Called piggyback mortgages, borrowers would take out a second lien for 20% of the value, secured by the property, on top of the primary loan. In Castellon's case, the piggyback second origination totaled $122,000. She later fell behind on the junior lien, which eventually led to Ocwen Financial Corp., the servicer at that time, to accelerate and charge off the loan. Ocwen and the lien's prior owner subsequently set the interest rate of the second mortgage at 0%.The homeowner later declared bankruptcy in 2021, and during proceedings SLS laid out a claim that she owed $11,000 in interest on the remaining zombie second principal of $116,000 at that time. Following a second bankruptcy in 2023, SLS again filed a proof of claim, where interest owed had ballooned to $143,000, and the total balance due surpassed $258,000. Castellon eventually lost her home to foreclosure on the primary mortgage last year, where defendants moved to collect on the amount they claimed she owed on the junior lien. However, Gulf Harbour failed to produce the original note to the foreclosure trustee, the document stated.   According to the lawsuit, the alleged infractions encompass mail and wire fraud and run afoul of the Racketeering Influenced and Corrupt Organizations Act. Lawyers are also suing Newrez and Gulf Harbour for violations of the Real Estate Settlement Procedures Act after failing to respond to the plaintiff's write request for information and Virginia state regulations. The plaintiff aims to represent a class of consumers numbering in the hundreds, if not thousands, of Virginia homeowners, "each of whom is entitled to damages for the amount of retractive interest assessed by defendants under their deceptive scheme." Castellon is seeking both injunctive relief and actual damages and costs tied to the violations for the class. Other Shellpoint zombie litigationA Newrez spokesperson said the company was unable to comment on active litigation, but the Virginia lawsuit is the latest of at least four class actions in the last year lodged by homeowners for attempted collections made by SLS on discharged zombie loans.In other cases, plaintiffs accused the servicer of violating the Truth in Lending Act laws in not providing regular statements on accruing interest, among other claims. The new lawsuit also arrives just months after new California rules went into effect prohibiting collections on subordinate liens under certain circumstances when the holder or servicer of the loans become noncompliant in borrower communications. A coalition of home finance industry parties, including the California Mortgage Association, is currently suing the state to halt enforcement. Heightened attention and resumption of attempted collections on zombie second mortgages emerged earlier this decade as home prices quickly soared and sent the value of the formerly secured properties surging. State officials from around the country have responded in the past 12 months both with enforcement action and the passage of new consumer-protection laws. 

Innovative technology could be a key determinant of whether servicers have competitive expense controls that are crucial in the current market, according to executives at mortgage fintech Livegage."Mortgage servicing is hard. There's a lot of focus on the cost and the margins. It's not an easy business to be in," said CEO Anupam Sarwaikar.Because of this, "the people that will actually survive in the mortgage servicing business will utilize technology as much as they can," Chief Operating Officer Michael Blair added.These may be timely messages for servicers given the trend toward industry consolidation. They could also resonate for originators given a recent lapse in productivity that's sent them searching for sources of greater efficiency in all areas, including any servicing they do either in-house or with a business partner.In the conversation that follows, Blair and Sarwaikar share some of the ways servicing technology can be used to manage costs.Their remarks have been edited for length and clarity.Where artificial intelligence can play a role in mortgage servicingSarwaikar: I realized that someone needed to do something to reduce the cost of servicing and bring in efficiency. That was the genesis of the founding of Livegage. The name Livegage came up because we wanted to bring some life to the mortgage industry. We started by building our own artificial intelligence engine before ChatGPT became a household name and started using natural language processing. We started creating our own word vectors with mortgage lingo so a model could interpret guidelines and create servicing rules. These rules can run on a portfolio and predict potential breaches. You can also add operational rules.We also started by working with investor accounting and did three-way reconciliation between banks, servicing systems and cash movement. We calculated servicing fees so that servicers were not leaving money on the table. We designed technology for asset managers and investment companies.Mike joined us because we had a need for a senior executive who has built a servicing organization before and has helped it grow. Automating 'where the tube hits the side of the river'Blair: About 75% of what we do in servicing can be automated, but people don't have time to do it. If you want to change the tires on the car, but you're going at 90 miles an hour, it's a challenge. As Anupam said, it's a tough business. You're counting pennies, especially if you're a subservicer and you don't originate loans. I do think the people that will actually survive in the mortgage servicing business will utilize technology as much as they can. If you can envision a tube on a river flowing through as very inexpensive, where we want technology to help us is where the tube hits the side of the river. We want to make sure we learn from that, so that it doesn't happen again. We're not fixing the loan. We're fixing the exception, so that that exception doesn't occur again, and that's how we help people to be more efficient. That gives the servicer a leg up in regards to a lot of processes. There are probably 30 areas within servicing operations. In each of those areas, servicers have procedures related to every type of investor.Training bots to handle certain exceptionsSarwaikar: There are many letters which need to be sent during the life of the loan. Freddie Mac's guidelines differ a little from Fannie Mae's, Ginnie Mae's or the Federal Housing Administration's. The FHA insurance claim you are filing may depend on whether you did certain things in accordance with a timeline. Private investors may have their own guidelines.So automation has to handle different guidelines and different product types, creating a very, very complex system for a process for servicers to follow. When they miss things, there are losses and penalties. A system should tell you about those things ahead of time, so that you have time to execute and don't miss the deadlines.We also have developed a suite of AI bots, or AI agents, which actually can start picking the low hanging fruit to the extent the servicer is comfortable. Once they have enough data to understand the workflow, a repetitive human task can be automated. AI bots can actually start picking those tasks to be executed from the queue and start executing them, reducing the cost of servicing.Blair: If your system is stopping a letter from going out, you can train a bot to look at the exceptions, fix them, and then move on again. If it's taking you 10 minutes per loan to clear exceptions, and you can get, let's say, 90-95% of them cleared through a bot, that's a tremendous uplift.The process and boundaries around adding AI botsSarwaikar: We start putting all the rules in place. That will decide the predictive queue of what operations need to be executed. Once you have those queues in place, then the process is about automating those queues using AI bots.It's always a phased approach. The reason it has to be a phased approach is because AI is a new technology. A servicer has to be comfortable with it. There's always a one to two month testing period where you have the AI bot do it, but you still have a manual review, which is called human reinforced learning. We are very careful that these bots do not operate independently unless they're working in areas which do not have a borrower impact. If you're making a foreclosure decision, you don't want to go down that path. You want a human involved. We all have seen 2008. We never want to go down that path again. It has to be used in an area that doesn't impact the borrowers adversely. It's focused more on the operational nature of business, which is more repetitive and affects the cost center. Blair: The package for a foreclosure can be assembled through automation but a person is the one making the decision with everything in front of them. Then you're getting efficiency when it comes to the information gathered, but you're never losing human interaction. If a servicer has a business meeting with an investor, automation can help the investor look at their portfolio and see what is in or out of compliance.Sarwaikar: Modules for areas like direct servicing (loan administration and escrow and payment processing), default, corporate (compliance and regulatory), and financial control (investor accounting) can be bolted on to existing legacy systems. Technology built to anticipate borrower needsSarwaikar: Areas where borrowers can self-serve significantly reduce call center costs. Automation can answer questions related to basic mortgage knowledge. What is escrow? How do I calculate my payment? How does my payment get processed? Once they log in, it tells them whether their payment has been processed, how much of it was principal or interest and what their next due date is.The website can predict what the borrower is looking for based on behavior and loan activity for the last 45 days. That reduces the number of clicks a borrower needs to get an answer. That reduces cost and increases the recapture for a mortgage servicing rights portfolio. How much of the MSR pool can be recaptured plays a role into the target yield.So what we have done is we have covered the entire servicing spectrum with modules that execute the functionality which an AI bot will pick from, queue and use for execution. These modules, once they execute a task, interact with the legacy system as a system of record and keeps it up to date. Building a bridge between investors and servicersSarwaikar: Asset managers and investors, people who are investing and buying loans in bulk or flow, people who are buying these MSR pools where they were keeping the first loss pieces, also have technology needs. They were retaining that in their portfolio, while they were securitizing the rest. Some of them have MSR portfolios and they may have either a captive servicer or have multiple entities managing their loans. They bought and priced their assets for a certain target yield. The actual yield depends on how well the servicer does. How do they manage default and recapture? It's tough for an asset manager or an investor to manage multiple servicers. Servicers are not allowed to see what price the buyers purchase the loan at, so the question becomes how do you get the maximum yield out of a servicer who shouldn't be knowing the trade economics?Automation can be mapped to multiple servicers, and portfolio data flows daily to a given asset manager or investor. The asset manager or investor looks at their servicing performance, and compares servicer A with servicer B on recapture and default metrics like claim penalties which represent money lost.Blair: Parameters can be automated to not allow for modifications to be done that aren't allowed by a particular loan type's guidelines, so that you won't have a buyback, etc. Use in the government shutdownBlair: We have the ability to then address that or a natural disaster with a proactive approach, and not just a preventive one.What I mean by that is that we're able to identify through the ZIP codes what areas are affected, and when that call comes in, direct a message to the borrower that will give them the information so they feel comfortable. It could also be routed to a team that can go further with assisting them. If you work for the government, you don't know when it's going to open again and you don't know if you get paid, you need guidance. We're saying, 'Here are your options."