MPATV caught up with AFR to hear about the company’s recent big progress – and how its new processes and recent expansion are helping the company better serve borrowers (including first-time homebuyers and those in lower loan balance markets) and brokers alike.
[00:00:00] Fergal McAlinden: Hello again and thanks for joining us on another edition of MPA TV. So today we're taking a closer look at a company that's been making big moves across the US mortgage space in 2024 and 2025. Expanding into conventional lending, enhancing prices and processes are just some of the ways full-service lender American Financial Resources has been innovating. I'm here to share some more about those developments and what they mean for the industry. I'm very pleased to welcome Michael Brenning who is AFR's Head of Production. Michael, first of all, great to see you today. How are things with you?
[00:00:33] Michael Brenning: Yeah, for real. Thank you. Thanks for taking the time and inviting me in. I'm glad to be here and always appreciate the relationship we have with MPA. So thanks for having me.
[00:00:44] Fergal McAlinden: Look, it's great to have you with us. I mentioned two of the big things off the top there, Michael, that AFR has been up to. First of all, expanding into conventional lending, and second of all, enhancing the pricing and process. So straight off the top, just tell me about those initiatives and how they kind of align with the company's mission to support its partners and its borrowers?
[00:01:06] Michael Brenning: I think. I'll step back. So we were acquired a year ago. So AFR is a 27-year-old independent mortgage bank that was founded by a family 27 years ago. And a year ago, a PE firm, our new parent company, Proprietary Capital came in with a new mandate. And I think their mandate was one that Rob Piccolo, my partner, and I both have a deep religion for, and that is to build a great number two choice for the mortgage broker and non-delegated origination community in the United States. Probably sounds weird to goal yourself around being a great number two choice, right? It's not a natural response. Everyone wants to be number one and they want to win, right? But I think if you step back from that and look at it pragmatically, you've got UWM, right? Who everybody knows, largest lender in the country, largest lender in the, you know, largest wholesale lender in the industry, probably the largest lender in the world as it comes down to like residential lending. It'd be foolish for us to step back and think one year into this, you know, because we just ran across our one year anniversary a week ago. We want to be a great number two, which if you know this and you guys track this stuff, if you work with UWM, you can't work with Rocket. If you work with Rocket, you can't work with UWM. There's this mandate that's about four years old now. And so after those two, Fergal, there's really not an entrenched, solid, well-capitalized, well-run visionary lender. And so the idea of us after we were acquired, we wanted to go mainstream. We want to be a great number two choice for the broker community. To go mainstream, you have to be in the conventional space, which is kind of boring. The conventional space is 35, 40 years old at this point. It's not a new innovative product. But if we want to be a great number two, we have to be aggressively priced and conventional, which we historically were not. We needed to bring new technology to the marketplace, which is not something people would have associated with AFR in years past. The last year has brought a lot of tech innovation for us. And so to answer your question, why go mainstream? Because we want to be a great number two choice for the broker community, which they really don't have today because you can't work with the two large entrenched leaders in the industry for unique reasons. And then the technological aspect of it is, finally, the mortgage business is evolving and investing in technology over the last couple of years. It really took, honestly, I think the pandemic for people to have the time on their hands and the origination volumes and the revenues to finally step back and say, well this market's not going to last forever this 21 2020 2022 market but man we earned a ton of money how do we reinvest that to be prepared for tomorrow and that's kind of what we're doing now we didn't get a chance to participate in 20 and 21 or 22 because we were just acquired in February of 24 but every dollar we earn we plow back in via retainers into our tech stack and into offering new unique things which includes conventional it doesn't mean what we've been known for historically which is one-time construction close uh manual government underwrites and renovations we're still going to continue to do those and do those well and get better at those because AFR's reputation in those spaces was generally better and favorable because they're unique niche products but we're trying to go mainstream and be that great number two choice and so everything we've done over the last year has been get more aggressive and conventional and use our what I’d call our capital markets expertise that's really what Rob's background is we have a huge capital markets team in-house and then at our parent company. We also have a bunch of cap markets pros from some of the larger institutions in the industry that left where they were and joined our parent company and their kind of capital markets board type roles with us. So we're all about being, again, it sounds weird to say, a great number two choice for the broker community, which falls back on pricing. It falls back on going mainstream with conventional and gov-y products and then really investing in our tech stack. Long way of answering the question, but I think it's worthy of the long, well-rounded path we just went down.
[00:06:17] Fergal McAlinden: No, absolutely. And you know, one thing, Michael, that you mentioned, which I want to pick up on was just the in a transition from the pandemic market that we saw, you know, really low interest rates, people surging into the market into the current one, which is a more challenging market. Affordability, obviously, qualification concerns are there and they're top of mind for a lot of brokers and for borrowers. So when it comes to AFR, how is it helping brokers and lenders, first of all, better serve their borrowers? And then particularly when it comes to more underserved segments of the market? I mean, we always hear about first time homebuyers and their struggles, lower loan balance markets things like that what are some of the services that you're providing there?
[00:07:07] Michael Brenning: Love it and hate it right I love it from the perspective of we have invested a lot there hate it that America is and Canada and you know the UK all the big economies around the world housing has unfortunately spiraled out of control in terms of upward appreciation and downward spiral in terms of affordability and so we come into that with uh that also being part of our thesis right if being a great number two is part of our thesis really focusing in on helping the underserved, which most large lenders don't intentionally do. They want to go after the masses. They want to chase large loan amounts. They want to chase jumbo loans and things that bring in higher revenues per loan. We've decided that that space is so hyper-competitive out of the gate and so underserved, that hyper-competitive on the large loan amount side, but also on the lower loan amount side and the first-time homebuyer side, so underserved that they were kind of in our favor. And so if you go back to what I said a few minutes ago, we have a very robust capital markets team, like larger for our origination volumes than you typically have. It's setting us up for a bigger future. And so in the short term, what we've done over the last year is really use those resources and that talent and that experience to trade and securitize differently. So we don't do trades and securitization the way a lot of our bigger competitors do, or they'll do. what I'd call the major TBA securitization on the conventional side. They'll take a couple of weeks worth of origination, they'll pull it up, they'll be selling into the TBA market forward to cover them from a hedge perspective. That's what I'd call one big pool. We'd rather break it down to smaller pools and do what's called a specified pool trade or a spec trade, where we're sourcing out unique bond investors that have distinct buying desires, like an insurance company that wants a long-term asset, so a mortgage to stay on their books longer than perhaps a shorter duration loan. So we go after things like loan amounts less than 300,000. Well, guess what, Fergal? That fits right into helping the underserved and going after first-time homebuyers. Because when I think first-time homebuyer, I don't think $800,000 price points. I think
[00:11:48] Fergal McAlinden: Okay, great. Well, really interesting to hear in terms of how you're setting yourself apart from your competitors. Anything else when it comes to the company's value proposition that you wanted to mention anything that breakers keep in mind?
[00:12:00] Michael Brenning: Yeah, and I'll almost go back like this next one almost fits back into the previous question, but also, you know, in the future. One thing we don't talk about when it comes to affordable housing is manufactured housing. Right. So most initial reactions to that, like if you go back even five years ago, two years ago, but literally even two years ago and ask the average person on the street or the average mortgage originator in the U.S. mortgage industry. What do you think about manufactured housing? Like, you know, you have this picture in your head of like a single wide that's been beat to heck and transported all over these different places and dropped into a trashy looking property with, you know cars parked on blocks and boat, you know, run down boats and garbage in the yard. So we're talking about anymore manufactured housing in today's, especially in the United States. And I don't know exactly how it is in the UK or Australia or other places and or in Canada, but here in the United States, there's big manufacturers like Clayton and Champion that are building homes that if you and I didn't know, and we went out and just did a tour of new neighborhoods or new areas, and we saw all these houses, I don't think we could literally tell that they were manufactured somewhere. in a manufacturing center a couple hundred miles away and then literally delivered on the property and put together they're absolutely beautiful they look like stick built housing they're super high quality and they're incredibly affordable and so we've made a niche in that type of home over the last four or five years here at AFR and certainly the last year since acquisition we think it brings the first time home by our community the low to moderate income community an affordable you know entry point into a beautiful home they're not buying something that's 40 years old that's dilapidated that needs work they're buying a brand new home placing it on a property that they can buy through a land loan that we can give as well we do this thing called one-time construction close where you can buy a manufactured house buy the land associated with it or if you have the land package it together and alone with us that's a great way for somebody to like $250,000 gets an amazing manufactured home what does $250,000 get you other parts of the united states in general not a lot of great things going on unless you're in some underserved markets or some lower loan balance markets, which again, we serve. So that fits into the previous question. Value prop wise, I think it's our hyper focus on being an empathetic lender. Weird thing to say, again, goes kind of back to my number two thing, you kind of scratch your head and say, why is being an empathetic lender a value proposition? Well, I almost look at the two heavyweights in our industry as being somewhat robotic and very corporate. and I’m not picking on them they've both been incredibly successful and I spent eight years at Rocket so I’m very familiar with that great culture that they have and very respectful of UWM and all that that they've built but I think when you get to a certain size you start to disconnect further and further from the consumer you start to disconnect further and further from the originator and the processor and I think one of one part of our secret sauce is we care We care like an innate level where we know. That takes a loan originator on average 12 months to form a relationship with a new referral source. Think about that. They're putting a year worth of work for a goal into building a relationship with you if you are a new real estate agent. Then maybe six weeks go by, maybe six months go by, and that realtor finally trusts you with their first referral. Great. Now that first referral might just be starting the home shopping process. That home shopping process and the hyper-competitive market that we're in could take three to six months. You might be putting offers in and losing, putting offers in and losing. So my point is you could be 18 months into a relationship with a real estate agent and their consumer before you finally land a purchase agreement in your hands to go lend on. Now, they're 18 months as an originator into that loan. We're one day into that loan. If we don't do our job from day one through day 20 to get that loan cleared to close, do it with a very empathetic touch, a fast process, easy to use technology. then we're not going to keep that relationship intact for them and 18 months of their work gets flushed down the toilet. So we're an empathetic lender. We've made technology the core of who we want to be. When you look at our two aspirational competitors, they've built incredible technology that allows the non-dell and broker community processor and originator to work 24/7. Like they don't rely on engagement with a company's personnel throughout the day to be able to do lending. It's all point and click. They can do everything they want at their fingertips, whatever and wherever they're working. and that's the direction we've been working for the last year and we'll continue to work that direction so you know clearly going back to the affordable piece All those niches that we've got are those price points that we've delivering for less than $300,000 loan amounts on manufactured housing, modular housing, our DPA Advantage product, the focus on Home Possible and Home Ready, and the VLIP products, in addition to the technological build, all with empathy. And when I talk about empathy, we don't just talk about it. We bring originators onto our all-company calls. We did this last week, actually. We brought Ravi Patel. top originator, top 1% originator in the United States and top originator at one of the top two at UMortgage, large broker, non-dell lender in the country. Brought him on to have our team of 225 teammates hear about the journey that Ravi goes on when he goes down the path of forming a new realtor relationship. So those quotes I gave you about the length and time that it takes to build a referral source relationship and then get a loan, that's straight from his mouth, straight from others that we brought on. So we're trying to live and breathe empathy because we by connecting those live feedback points from the origination community to the ears and brains and hearts of our teammates it creates empathy you can't just talk about it can't be a core value on a wall you literally have to talk about it celebrate examples of great behaviors another thing that we do is we have these six core values that we think help create the empathetic approach we've got with the broker community and when we see a teammate do something amazing that fulfills that core value and that empathetic approach We celebrate them in front of their teammates. We give bonuses around it. We give swag around it. You know, we really make it a point to call it out. So I know it sounds like a weird thing to lean into as a competitive advantage. In addition to tech and pricing and all that, we think empathy is a very strong value proposition for us.
[00:17:32] Fergal McAlinden: Is that something, Michael, that you think brokers should be keeping in mind whenever they're choosing financing for their lender? I mean, I'm always for their for their client rather, I'm always really interested to hear about some of the main points that brokers should be keeping in mind whenever it comes to finding that financing option?
[00:17:48] Michael Brenning: You go down this checklist mentally, and I've originated before. When I've selected lenders, I've gone down the same, I think, checklist, but I'm going to add a few things to the checklist. The first three things that should be on everybody's checklist and are pricing. Check, do they have good pricing? Product, do they have the products that I need? Check. Tech, check that box. Is there the tech that I need? Fourth, though, is kind of this concept of empathy or do I trust the lender that I'm going to choose to work with? What is their reputation online? What is their reputation with other brokers that I can find through online Facebook forums and different things like that? You know, reputation matters for all the reasons I just discussed a minute ago about how long it takes to form a referral source. I think I would plant in the heads of a broker when you're thinking about what lender you're going to choose to work with. be thinking about the tried and trues, but also be thinking about their reputation, both online and through the mouths of other brokers. Be thinking about your job as a broker is as a fiduciary to your consumer, to your borrower, right? And so I think because there are these two huge entrenched choices, I think the industry has ended over the last four or five years to just wake up in the morning and go up, I'm going to take my loan here, I'm going to take my loan there, right? Because they're the go-to superpowers, but the job of a broker and an originator is as a fiduciary, right? And that means you are truly seeking out the best option for your borrower and your client. And I think part of that is being willing to listen to the discussion. I don't want to say pitch because I hate the word pitch, but the pitch or the conversation with a new lender that you haven't worked with before. At least have the conversation because you don't know what you don't know. So if you've never talked to AFR, you've never talked to XYZ or... new entrant, wholesale one, two, three, talk to them because they're probably entering the market or going through a restartup process like we are. We're calling ourselves a restartup. We were 26 years old. Now we're one year old. We're turning over teammates. We're turning over technology. We're turning over processes. And I think brokers should do the same thing. They should turn over their lender list or at least have the discussions with other lenders to make sure they're not missing something that could be valuable and important for their consumer. Because again, our job as originators is to act as a fiduciary. And if you're not constantly seeking out new potential entrances in the market or restart ups like us, you might be missing something incredible like our focus on lower loan balances or manufactured housing or the VLIP concepts. And you'll be not serving your client to the extent that you could had you played fiduciary, had some of those conversations. So that'd be the advice that I'd give to a broker that was willing to listen. Right?
[00:20:29] Fergal McAlinden: Okay, perfect. Well, look, it's very interesting, actually, that you mentioned manufactured housing. All my conversations at the start of the year, you know, speaking about the biggest trends that were on the way, manufactured housing featured so prominently among those discussions and people talking about how their reputation has transformed, as you said. So it'll be really interesting to see how that one goes. But I wanted to ask you about any other big trends, Michael, that you see coming down the line this year and just how you're viewing the market for the rest of 25, because you have plenty of people ahead, I'm sure.
[00:20:56] Michael Brenning: Well, I mean, some of this stuff won't be like big trends or things, but the continuation of M&A, absolutely mergers and acquisitions will continue. I read something, I want to say it was two weeks ago, a very kind of catchy subject line to the article. I'll do a terrible job paraphrasing, but it's essentially like the mortgage market still is 25% over capacity, meaning we still have 25% more people than we need to handle the origination volume forecast for 2025 from either GSE or FHFA or whatever for MBA, whatever forecast you listen to. And so when you hear something like that, it makes you step back and go, okay, there's going to be continued M&A and 24 and 23 were massive M&A years. You saw some big brand names and some little brand names get folded into names you've never heard of before and form new companies. We saw a lot of M&A activity with sizable companies coming together and moving from a top 17 and a top 20 to a top 10 by combining. We saw a lot of names exit, smaller companies and mid-sized IMBs exit, we saw a couple large IMBs exit, so we see M&A continuing we see layoffs unfortunately in our broader ecosystem and industry unfortunately continue can't ignore the facts the facts are that the mortgage employment world is still overstaffed right and people have been hanging on and hanging on and I say those two things Fergal because I don't really believe 25 is going to be that fundamentally different than 24 in terms of economic activity. volumes for the industry you know we have a new uh you know political regime as you know in place and with a stated goal of bringing rates down but we're going to be fighting inflation for an extended period of time that goes counter to the idea of you know rates coming down inflation continuing to stay high or go higher is not helpful to interest rates so I would say this in the back of every originator's mind the back of every IMBs mind every you know brokers mind should be this idea of Stay 100% pot committed to the purchase market. You cannot stop servicing your real estate agents. You cannot stop looking for new ones. You cannot stop thinking every day and every morning, how do I get better at purchase? How do I get more purchase? But plan for a refinance marketplace at some point. Don't bet on it. And I think that's the mistake people have made. Saw a lot of originators and a lot of brokers and IMBs plan at the end of 23 for a refi boom of some variety in 2024 and it never really presented itself maybe for like seven or eight days in August and early September it did, but that was six or seven days. That was it. You can't build a business off of that. And if your business plan is planning on a refinance boom or betting on one, that's a problem. If it's planning for one and being prepared for it, that's another thing. So I'd say be prepared. That should be a big trend. Be prepared for a refinance boom, but don't plan on it. And then clearly AI is all around us and AI gets misused, miscoined, overhyped. people are scared of it people are fans of it people are excited about it people are nervous about it I think I’m somewhere in between but I definitely see a trend developing in the origination community with loan officers in particular whether or not their parent company that they work for supports it or not or is driving it I am seeing originators use conversational ai and generative ai and marketing platforms that focus on generating content relative to ai using the heck out of it and almost like cloning themselves Fergal like, if Michael Brenning can do 22 conversations in a day and 15 prequels and 10 of this and 10 of that, what can Michael Brenning do if he uses AI to help with some of those tasks that really aren't my highest value use during the day? And I'm seeing loan originators do that now. And I think those that get comfortable with how to use the current instances of AI as it relates to generative AI and some of the marketing platforms that are out there in conversational AI, they're going to be able to do more in a day. They'll be able to have more realtor conversations, referral source conversations, more borrower conversations, the more high value things that you don't want to put through AI. So that's definitely a burgeoning trend that we all need to pay attention to and honestly embrace because I don't think it's going away.
[00:25:21] Fergal McAlinden: Okay, interesting. Well, we'll be keeping an eye on all those trends throughout the year. But for now, Michael, we're going to leave it there for today. So thank you again for joining us. Great to hear about everything that's been happening with AFR. Some of your thoughts on the trends in the market. best of luck with everything this year. I'm sure we're going to catch up throughout the year. But yeah, for now, thanks for coming out.
[00:25:45] Michael Brenning: I look forward to it. Thanks a lot, Fergal. I look forward to engaging later in the year. We'll look back on the conversation today and see if we were in the right ballpark or not.
[00:25:55] Fergal McAlinden: Sounds good. Okay, well, look, that's just about all we have time for in today's edition of MPA TV. My thanks once again to AFR and Michael Brenning for joining us. Thanks to you for watching, and we will see you next time.
