Mortgage lenders need to improve their quality dramatically or their margins will not improve, warned a panelist speaking on the issue at the Mortgage Bankers Association’s National Secondary Market Conference in New York.
Les Parker, the president of Parker & Co., said lenders need to look at margin management on a holistic basis, starting at loan pricing and ending at loan payoff. That is because it is in the origination process that mortgage servicing rights valuation is established.
So the first thing the originator needs to take into account is the economics involved. Next mortgage lenders need to sell their loans into the secondary market right.
Mortgage bankers must transition into a true manufacturing model, one that concentrates on producing a product with zero defects; that is not the situation right now where the reliability range is in the area of 85%.
Parker said mortgage banking needs to adopt a “three sigma” quality production model. Originators need to become virtually defect free if they want to be able to increase the price of their assets.
The government-sponsored enterprises have stepped up their due diligence and are finding loans with significant defects.
And while the new Federal Housing Finance Agency framework does put a sunset on representations and warrants, Parker pointed out that there still is no sunset for misstatements, misrepresentations, omissions and data errors.
Lenders need to do data to data comparisons, document to document comparisons and data to document comparisons. The question is will the lender opt to do this with more people or through technology, he asked.
In the new environment, Parker once again declared lenders “got to manufacture and sell loans perfectly.”
