Technology Reduces Friction Between Lenders, Investors
As buybacks continue to rise and investors look more for quality over quantity, technology can play a role in easing the friction between lender and investor to ensure that all loans sold into the secondary market are of a better quality.
"Investors are increasingly more concerned about the quality of the asset," said Lou Pizante, CEO at automated compliance vendor Mavent, Irvine, Calif., as part of a panel at the MBA National Secondary Market Conference here. "Investors are spending more money on technology to perform due diligence functions. Also, they're increasing the sample size that they review as well as the type of reviews conducted. They're more aggressive."
In explaining this shift among investors to check and double-check every loan they buy, Patrick Barber, vice president, business development at due diligence and risk mitigation firm Clayton, Shelton, Conn., noted, "Investors and lenders don't want to make the same mistakes. Everyone wants to discovery the risky loans upfront. Everybody is looking for fraud.
"In terms of own services, we've changed as well. It used to be that due diligence was conducted at the seller's shop, but now 60% of our business is done in a centralized location where the seller either ships us files or provides us with electronic images."
So, technology is filling the void in some cases and making it possible for the transmission and QC of loans more automated and efficient. "We're seeing a switch from bulk platforms to conduit platforms," pointed out John Le, president and CEO of origination vendor Portellus, Irvine. "Investors are looking to purchase loans more on a flow basis now. This approach allows decisioning to be more granular and go loan by loan."
Portellus offers a business rules management engine to offer more granular decisioing based on user-customized rules. Portellus and other rules-based technology vendors tout that their products allow business analysts to maintain existing rules sets, and to author, test and deploy new rules without complex programming.
Thee systems can be standalone or attached to a core systems in an attempt to expand that system's capabilities. The Portellus application offers a Web-based management interface, PRIME, an intuitive interface that provides non-technical business analysts with the ability to quickly and simply develop, test and deploy new business logic across the lending enterprise.
Technology that employs these intuitive business rules can allow the lender or investor to tailor their processes in an attempt to be more agile. Business rules systems combined with automated compliance engines can be used to trigger searches and checks at numerous stages within the lifecycle of a loan, ensuring better loan quality.
Technology aside, the lending community is also stepping up to help mitigate future buybacks. For example, Fairway Independent Mortgage Co., a mortgage banker with over 100 branches nationwide, has launched a new policy that prohibits any company loan officer from charging a prepayment penalty longer than one year, on any option-ARM product. This new policy demonstrates Fairway's commitment to the borrower in times when mortgage companies have been accused of putting their interests before those of customers.
"We feel that holding the customer to a two-, three- or four-year prepayment penalty offers absolutely no benefit to the customer," said Steve Jacobson, president of Fairway Independent. "Our goal is to put our clients' best interests ahead of our own."
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