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Vendor Exec Foresees Changes in Loan Products, Secondary

DEC 31, 2012 2:34pm ET

Among the trends an executive at one industry vendor foresees for 2013 are changes in loan product mix and nonconforming secondary market investment interest.

“Refinances are still going to be part of the portfolio but in light of the some of the positive recovery that we’ve seen in the real estate market…there is probably going to be an increase in purchases, which is a shift for a lot of the originators,” Ghazale Johnston, senior executive, Accenture Credit Services, told this publication. “A lot of originators will have to shift their operating model in order to be more effective at handling the purchase volume that’s going to be coming their way.”

When asked how this might be done, she said, “We’ve seen a lot of originators create a lot of capacity the last couple of years through …outsourcing, a couple of different ways, so that they have additional bodies to handle the volume.

“We expect, in some cases, they’re going to have to repurpose that capacity…retraining individuals to be able to handle the product type, which is a little bit different,” Johnston said. “We expect a lot of originators are going to have to change their capacity model or their workforce model to one that is a little bit more aligned with the volume that is expected.”

In addition to more purchase volume there also may be more demand for nonconforming product from the secondary market in 2013, she said.

“Clearly, Fannie and Freddie have dominated the secondary market…although quality has improved dramatically over the last couple of years,” but she believes the increase in confidence needed to bring more nonconforming secondary market investors in is beginning to surface.

“They are going to start competing for product share,” Johnston said, noting that improved quality in the origination product manifesting in, for example, credit overlays beyond agency standards means private investors could “potentially buy nonconforming product if they feel the assets are of a better quality.”

But ultimately Fannie Mae and Freddie Mac will continue to dominate the market as it recovers, she said.

“There’s obviously a positive story to be told in the origination space. Housing looks like it’s starting to recover and there is a lot of buying,” said Johnston. “Fannie and Freddie are still going to be critical partners in the treatment of those loans.”

When asked about the extent to which buybacks might continue next year, she said, it is “probably not going to be as much of an issue on loans that have been originated the last couple of years, but there still are some residual effects that these guys are going to continue to work through.”

“At the end of the day I feel like 2013 is going to be…a good year for lenders,” Johnston said.