The government still dominates the secondary mortgage market but the trend is starting to shift, with companies using automation to keep tabs on and ensure loan quality as they seek other alternatives, according to executives at industry vendor NYLX.
“You have people securitizing their own loans…as well looking for other alternative outlets for those loans,” said Allan Pollack, chief technology officer at NYLX. “People are looking at different delivery options.
While some players continue to be “very nervous about compliance” and make “very simple loans,” there also are some that are starting to branch out, said Mary Anne Ahmer, marketing director at the company.
Some financial institutions like credit unions and banks are expanding their portfolio products, Pollack said. These players are “looking at the non-portfolio market to get an idea of their 'sweet spot’ outside of it” for creating loans.
As the credit unions and banks are “opening the door for more portfolio product and becoming a little more active, they are very worried about compliance and they are worried about the manufacturing of the loan,” he said.
As a result, “the manufacturing of the loan is becoming more and more important,” he said.
The company also is seeking to meet customer demand by developing a historical eligibility and pricing component that allows users to manage the quality control process for the loan as it move down the pipeline, he said.
“We…have different types of pricing availability and more eligibility rules we are adding to the system. There are standard guidelines but also a much more in-depth scrub [of loan information] available for companies that are adding rules,” said Pollack. “They can customize their expectations.”
The company has been finding a growing interest in ensuring the quality of the loan from early on in the origination process, something it works with another vendor to help provide automated support for, “so when it is finally delivered to final end investor…you have a strong indication that the quality of that loan is going to meet their needs and it is not going to have any…issues with compliance or buybacks.”
Lenders, Ahmer said, are “trying to catch some of the quality [issues] earlier.”
“We are seeing a trend where people are looking to retain and service their own loans and using [technology] helps them down that path,” Pollack said. “The responsibility for that quality is now back [with] the mortgage origination channel.”
In particular, Pollack said, “a lot of people are concerned about here different controls that you can put in place within your lending organization to be more transparent to the borrower so you’re giving them best options based on their characteristics.”
Loan officer compensation rules are a particular concern.
While lenders are ultimately interested in managing profitability, this is closely tied to the delivery of the loan and its quality, he said.
Automation has become a key part of diversification for those on that path, “because there are a lot of variations and it would be hard for somebody to…know that they are within the lines of compliance and know what the different product options are as well. You don’t want to create a loan then find out you didn’t have all information” needed when originating, for example, a mortgage designed to meet the criteria of the Home Affordable Refinance Program, version 2.0, he said.
When asked about the trends in terms of the types of delivery seen recently in the market, Pollack said, “People are looking at different delivery options.”
Ahmer said, “There is…a mix of best efforts as well as assignment of trade or hedging approaches.”
