As the mortgage industry looks for ways to entice private investors back into the space, lenders are looking to technology to provide data verification and analysis of the loans they’re originating, according to a panel discussion at the Mortgage Bankers Association’s annual convention in Atlanta.
In the midst of unprecedented mortgage buybacks required by the government-sponsored enterprises, numerous efforts are underway to improve loan quality and verification of data, according to compliance and legal officers on the panel.
Scott Samlin, executive director of legal and compliance at Morgan Stanley, presented data that showed 43% of mortgage repurchases are related to inaccurate employment and income data in the original loan file, followed by errors in value (28%), undisclosed debt (10%), occupancy (8%), underwriting issues (3%) and other issues (8%). When mortgages are improperly originated, positive loan performance isn’t not a justification. Just because a borrower never misses a payment or the loan was a stated income origination doesn’t absolve lenders from their repurchase obligations, Samlin said.
“Those days are over,” Samlin said. “If you can’t document it, then you’ll be on the hook for the repurchase.”
New technology to review loan data will improve the instances of buybacks, but the panel recommended lenders have more than one verification provider. “If you missed it the first time, then you’ll likely miss again,” unless lenders have duplicate review services, Samlin said.
Secondary market investors will demand thorough loan-level data before new private label securitizations will emerge, the panel said. While some lending standards are starting to loosen and more borrowers can access mortgage credit, there is no appetite for the type of borrower that could get an alt-A or subprime mortgage five years ago. The qualified mortgage is the product of the future, even though there are some borrowers that could benefit from an alt-A type product to establish a good history of mortgage payments and later refinance into a conforming loan, according to John Prendergast, vice president of nondepository supervision at the Conference of State Bank Supervisors.
An alternative option to 30-year loans would be 40- or 50-year mortgages, Prendergast said, but added that some investors may worry about a borrower’s ability to repay unless the borrower is young enough to likely see the end term of the loan.
Samlin added that the debate over whether there’s a place for subprime borrowers in the mortgage market is a politically charged one that will have far-reaching impacts on future mortgage originations.
