Now that use of artificial intelligence is closer to critical mass, industry collaboration could help remove considerable costs related to moving data from physical collateral documents as mortgage assets trade, according to the Housing Policy Council.
HPC estimates that the lack of advanced technology for exchanging collateral data from documents costs the market around $5 per loan annually. When multiplied by the 40-50 million mortgages that trade each year, it costs up to $200 million or more.
The latest technology could help reduce that, but not without the industry coming together to build mortgage-specific, standard operations for asset trades, according to
"You've got all this investment happening now in technology, origination and servicing within individual companies focused on innovation. But when it comes to exchanging information among companies, there's not a lot of infrastructure," he said.
Reasons to collaborate
To be sure, some automation has already been applied to collateral documentation, the most prominent form of which are promissory notes that establish the right to collect debt associated with mortgaged properties. This right is key to establishing the value of assets that trade.
There has been growth in electronic promissory notes over the years in connection with new loans that can help make information associated with them more portable, but the industry is still in a transitional period where many outstanding collateral documents are paper-based.
Document custodians take care of holding promissory notes and Intercontinental Exchange's mortgage technology unit includes a registry for them. Also,
All these resources exist, but the market is still missing standard, secure and verifiable market-wide automated access to all the necessary information from promissory notes, according to Drayne.
When asked about whether concern about competition could be a barrier to collaboration, Drayne said, "It's natural for any company to think about its own interests and how those interests are served or not served by some collective effort."
However he said the feedback he's broadly gotten suggests there is common dissatisfaction with current market operations.
To get a sense of why, consider that lack of immediate access to verified collateral data can do things like cause a holdback in a mortgage servicing rights trade, in which typically a percentage of the payment is withheld until this gets resolved.
"Everyone understands how much waste there is in the status quo. There isn't anyone who says things are fine the way they are. Everyone agrees that there are ways of applying technology better to manage collateral information," he said. "No one company is going to solve this."
To encourage a collaborative approach to building a common collateral-data repository, HPC released a request for input to the industry Wednesday calling for feedback on how this might be achieved.
HPC is looking for feedback on topics that include how any necessary investments in a repository would net out with potential savings from creating one.
The council plans to collect comments through the end of October with the aim of reporting back to the industry on its findings by early next year.
