This will be a year of lenders seeking a return on investment when it comes to loan quality because of the new regulatory environment, the head of LoanLogics declares.
Revenues are declining as expenses are increasing because of the new burden placed on lenders by the qualified mortgage rules, president and CEO Brian Fitzpatrick explains in an interview with National Mortgage News. He is on a crusade to improve loan quality.
Mortgage lenders need to concentrate on quality but to be able to stay in business; they also have to be able to make money. So LoanLogics is taking its LoanHD platform, which monitors the health of a portfolio, and combining it with a loan quality management platform, which Fitzpatrick declares is an industry first.
The Fort Washington, Pa.-based company came about as a result of the merger between compliance technology firm Aklero and product and pricing engine NYLX. PPEs have shifted in function from being just a sales tool to one involved in loan quality, he says. Still, LoanLogics is the only firm that has combined PPE and QC, with the goal of creating a no defect loan.
Approximately 70% of loans that will end up being sold on the secondary market have some sort of manufacturing defect, Fitzpatrick says. The number of loans in process being suspended because of manufacturing errors is "through the roof."
So, originators should use an independent third party to ensure their loan quality and not rely on the loan origination system provider, in part because firms typically change LOS providers every five years.
Also by using the LOS for the QC function, there is "an environment of collusion," he says.
The new system performs its quality checks against the documentation, rather than the information in the LOS. It is a "fatal assumption" that the data in the LOS system is correct, Fitzpatrick says. Approximately one-third of the data in the LOS is inaccurate.
To fix this, LoanLogics is bringing to the industry "a do-it-yourself" platform, he says.
Not only does LoanLogics want to empower its own customers to improve loan quality, it wants to empower its competitors in the mortgage technology to enable this to happen as well.
So he is willing to sell licenses for this technology to LoanLogic’s competition because it is helping the mortgage industry look better and more profitable.
It took millions of dollars of investment and lots of time to bring this system to fruition.
Fitzpatrick would rather have these tools in the hands of all mortgage industry players and win in the long-term.
As part of the development process for the system, Fitzpatrick was able to convince the LoanLogics board to get into two new businesses on a temporary (one-year) basis.
He learned the economics of the QC business. The companies in this business were only able to check between four and six loans per day, and he wondered how they stayed in business. He discovered most were between 60 and 90 days behind and that was deliberate.
With LoanLogics' new system, the performance of this function (QC) has markedly improved.