Recently, I found myself enjoying the sights and sounds of New Orleans while attending the MBA Conference on Quality Assurance and Underwriting. For me, New Orleans seems to capture a modern-day sense of Hemingway's Lost Generation, getting swallowed up by time and passing the days without regard for future or past.
The next day as I sat listening to Ken Markinson, AVP and regulatory counsel for the Mortgage Bankers Association, give the latest update on the Dodd-Frank Act's qualified mortgage and qualified residential mortgage, I wondered if anyone remembers how to actually underwrite and decision a fully documented loan?
The well-documented flaws in the mortgage loan origination process over the last few years have resulted in stringent regulations designed to bring sanity back to lending, albeit with more stick than carrot. Lenders will be required to create safe mortgages with a strong likelihood of repayment. Failure to do that will come at a heavy price. And while the debate marches forward regarding the long-term impact of these regulations on the availability of credit, it occurs to me that we have a more immediate problem.
Do we have an entire “lost” generation of underwriters accustomed only to Automated Valuation Models and Automated Underwriting Systems? Has this been a part of the discourse regarding long-term impacts? Where did all the seasoned underwriters go?
I know from experience that more than a few of the seasoned underwriters eventually found new employment with outsourced services companies such as Interthinx where they are engaged in re-underwriting files, quality control, or fraud prevention. An incurable optimist would tell you that the silver lining is that their valuable skills are not lost altogether, that they have instead migrated.
Lenders do still have the option of looking to a trusted third-party vendor which is no small thing given the resource constraints of the present environment. Let's not forget that a focus on quality and fraud prevention is a fitting adjunct to the traditional underwriting tasks, as evidenced by the distribution of repurchase findings attributable to negligence or misrepresentation.
Technology has been a wonderful aid in the creation of the modern mortgage lending industry, and has had many wide-ranging benefits, but it may have come at the risk of dulling skills when it comes to the analytics of underwriting.
Can the old school underwriting tasks of calculating income from tax returns, credit analysis without an overreliance on scoring models, collateral analysis and interpretation of the voluminous data presented on a full appraisal still be performed? Can we balance the science of loan production with the seemingly lost art of underwriting?
In today's mortgage environment finding the ability to assess a borrower's overall profile and ability to repay is compounded by lower origination volumes, financial services employment runoff and a culture where everyone's trying to do more with less.
After the session it was clear to me that the knowledge base of a seasoned workforce has a value, if not a clearly defined price tag. Regardless of the degree of implementation of the new regulations, the skill set to handle the creation of a solid work product which will meet the guidelines of a qualified mortgage will be entirely dependent on leveraging those forgotten abilities and reclaiming that lost generation. My advice is to look for third-party vendors who combine the best of technology with the experience of skilled underwriters and certified appraisers. In so doing, perhaps today's generation will remain undaunted amidst the new regulatory landscape.
Matt Merlone is the director of asset services at Interthinx.
