Over the last 15 to 20 years, the mortgage industry has gone through many changes and more emphasis is now being placed on oversight and regulation when it comes to originating a loan. To comply with these new rules, one industry executive believes that the concept of the certified loan is a “game changer” that can help protect lenders from fraudulent applicants.
“The certified loan is a shot in the arm that the mortgage industry needs to move away from the issues of the past and move into the future,” said Michael Peretz, vice president of origination services at Altisource in an interview with this publication.
In the past, the restrictions were a lot “looser” when it came to underwriting a loan, Peretz said. But currently, the underwriting process is a lot more difficult because of the different regulations that lenders have to follow in order to make sure the quality control of a mortgage loan is at the highest possible level.
According to Peretz, if a mortgage loan origination company is really interested in fraud or risk mitigation, then they are going to have to give up parts of their role in the manufacturing of a loan. If this does happen, Peretz added that the company’s loans would have a higher quality and eventually be worth more on the market.
“If the originator can do part of the process and a third party can do another part, that is the best combination,” Peretz told this publication. “I wouldn’t tell an originator to take their entire process and outsource it because he’s the first stop in preventing fraud and curtailing risk. But what a good third party does is enhance what that mortgage originator already does.”
When you look at fraud mitigation on a loan product by taking it away from the originator in order to create process and product improvement as well as objectivity, you end up with a loan where the worst cases of fraud can almost be completely eliminated, Peretz continued.
Peretz believes that small- to medium-sized originators, whether it be the community banks or non-depository mortgage companies, are best suited to utilize the certified loan process because they can offer transparency to the end borrower. He thinks that some of the bigger lenders are hesitant to decrease their role in the loan manufacturing process because they have been in business for a long time and want to handle the product from start to finish within their own shops.
“By putting this uniformity on the process and having them use a third party to objectively scrutinize and apply certain products to their loan, it allows for the investor to see that loans from a various number of originators have a uniformity to them,” Peretz added.
“We believe the next logical step from that is loans that were originated and authenticated in the same way will prove out to perform better than loans that were authenticated and originated in a disparate number of ways.”
The purpose of a certified loan is for a third party to objectively help the originator, insurer and investor know that the data given to them does not contain any fraudulent information.
“Unless you are doing something to improve your quality performance of loans, which is what the investors care most about, you look like every other originator by not utilizing the certified loan process,” Peretz said. “Some lenders will not do this. In the end, it may be better because we can distinguish the fact that clients who do choose to be part of this process will bear a better loan.”
