This is Barney Frank's Mortgage Market

In today’s edition of The Mortgage Scoop, we break down Barney Frank’s complicated legacy, Better’s AI ambitions, Rocket’s VantageScore strategy, the latest twist in the UWM-CCM-Two Harbors saga, provide a fresh update on Sprout founder Michael Strauss, & rumors of new LOSs coming to market.

Much of it is for paid subscribers; you can grab a 10% discount here.

Barney Frank, the architect of the post-’07 mortgage market, died Tuesday at 86. His legacy in mortgage is absolutely immense; Frank’s signature piece of legislation shapes how every lender & servicer operates today, for better & for worse. 

The most consequential piece of the Dodd-Frank Act IMO is the Ability-to-Repay (ATR) rule & the Qualified Mortgage (QM) standard, which ended strippers 💃owning 5 houses via pay-option ARMs, NINJA loans & the rest of the pre-crisis greatest hits. The legislation also created the CFPB, which was the industry’s primary regulator & rulemaker until about 18 months ago. (Is Hagens Berman is now the country’s de facto mortgage regulator lol ???). 

Supporters argue Frank’s work ended predatory practices that FUBAR’d 🫠 the housing market. But critics say it also pushed out community banks & smaller non-bank lenders. Dodd-Frank also piled on thousands of dollars in per-loan compliance costs & a dizzying tangle of rules that can't easily be unwound. The LO Comp Rule is dumb IMO & I haven’t even gotten to onerous servicing rules under Reg X. 

Industry pros routinely tell me they don't believe the architects of the post-'07 mortgage policies actually understood – or cared about – how the mortgage business works when they drafted all these blunt-force rules. Frank's disastrous tenure on the board of Signature Bank arguably supports that view: he bafflingly blamed the '23 takeover on crypto panic rather than a series of management failures, many of them tied to real estate & mortgage exposure.

Look, Dodd-Frank accomplished its chief goal: the housing market hasn't melted down again from reckless lending. But that doesn't mean the rules work well for today's lenders, servicers, or borrowers, particularly given the tech innovations over the last decade. I hope we see some significant reforms in the next decade. Maybe there’s a masochist who wants to start w/ RESPA…

Vishal Garg has been remarkably candid about his own management of late, writing on Twitter that he wishes he were a “better manager” & “more professional” CEO at Better. Unfortunately, his time management shortcomings were on full display at MBA Secondary: Garg finally appeared on stage 7 minutes after his panel on tech & the secondary market began. NYC traffic was apparently to blame, even though Garg lives & works in Manhattan 🤷. 

Anyway, Garg shared updates about Better, which recently announced partnerships w/ Coinbase & Credit Karma. He told ICE’s John Hedlund that Better’s cost to manufacture a mortgage is currently over $2,000, but he believes he can get it under $1,000.

Despite all of its advanced tech, Better continues to lose gobs of money. Garg said that while others are overlaying LLMs on top of traditional mortgage software, Better is using the LLMs as the “reason & orchestration layer, effectively the human replacement layer, & the system Tinman still does all the rules & the calculations.” Garg said that the LLMs are “quite bad at math” but good at reasoning. Error rates on DTI calculations were 1% for the best LLMs & 15% for the worst, he said. 

“How do you do adoption across LOs if it’s wrong? That’s why what we’ve done is really to have Tinman as a calculation of rules, one data warehouse, it’s got POS, pricing engine, LOS, underwriting engine, all the calculators, doc system, title, homeowners insurance, documents, disclosures all in one place.”

Garg also shared that he knows of a tech player backed w/ a lot of VC money who’s building an AI ratings agency that could challenge the “heavily walled gardens” at Moody’s, Fitch, etc. If regulators clear him for takeoff, things could get very interesting. We’ll have more on the future of mortgage in Friday’s edition.

As I reported on Monday, the vibes were pretty mixed in Times Square. I can’t blame people for hating Times Square & hustling from hotel to hotel. It objectively sucks. MBA Annual & Secondary will be in Chicago & I highly recommend that people book their tickets to Annual now. The Chicago Marathon takes place on Sunday, Oct. 11. Can you guess the first date of Annual ‘26? 

Off topic but if you’re looking for a good Chicago book, check out Erik Larson’s “Devil in the White City.”

Can I be real w/ you for a sec? I am so annoyed! I thought this Two Harbors-UWM-CCM saga was going to end on Tuesday! Instead, the board postponed the vote. So this is going to drag on to at least May 28.

Last week I shared a pic that caused quite a stir. The pic, shared by a broker source, showed FICO & VantageScore credit pulls for a borrower in the Midwest. The borrower scored 600, 612 and 670 on FICO Classic. But 745, 745 & 772 under VantageScore 4.0. That’s a 133-point difference! I don’t know the tradelines & it’s possible that FICO dinged the borrower for medical debt & VS4 did not. The broker obviously sent the higher score over to the wholesale lender, in this case UWM.

Rocket Pro announced on Tuesday how it is integrating VS4. Would anything have changed had Rocket gotten the loan? Find out in today’s edition of The Scoop.