What are all these subprime loans worth now? Who knows. And if we don’t know how can we hope to restore investor confidence? As the mortgage industry looks to restore investor confidence as well as its own tarnished image, Overture Technologies suggests that a concept called re-decisioning may be the answer.
“Today securitization is done with macros and spread sheets,” said Linda Simmons, senior vice president of business development for Overture when I talked to her at the MBA National Secondary Market Conference and Expo. “In order for the industry to reignite the investor has to know what the security is worth. It has to be obvious.”
Overture contends that the industry can return to profitability by extending the role of automated decisioning beyond underwriting. More specifically, Overture recognizes the opportunity to leverage product and pricing eligibility as well as rules-managed decisioning in post closing, capital markets, loan modifications and many aspects of loan servicing to improve loss mitigation. With this added transparency and consistency provided through automated decisioning, investors can improve upon best execution as well as pooling and securitization efforts, all leading to the revitalization of the mortgage finance arena.
In fact, lenders continually re-decision loans well beyond underwriting, but often have limited data and documents and rarely use an automated decisioning solution. In light of the current industry challenge, the deluge of loans needing what Overture has coined “re-decisioning” has resulted in the addition of reviewing resources at a time when profitability is paper thin, if at all. Participants across the entire mortgage value chain, from originators through the rating agencies, could benefit from this automated decisioning approach. The following chart, provided by Overture, demonstrates how seed data along with nontraditional data can come together to provide the accurate value on a lot of these questionable loans.“The notion of re-decisioning is such that you have original data from the loan already. So, if you augment that data with new data you can have a better assessment of the collateral,” noted Ms. Simmons. “We’re not seeing a lot of re-underwriting going on today. I think it would help. Lenders should take more characteristics of the borrower like payment history, requests to extend credit, requests to refi and use that data to better evaluate that loan.”
Ms. Simmons sees Overture’s solution as the way to address the challenge of evaluating the heightened level of loans requiring review by offering a new and unique approach to utilizing its Mozart Decision Engine and its data interpretation and analysis tool known as Tape Cracker. These service-oriented components can be implemented and integrated across legacy systems to provide a faster, more transparent, more accurate and more consistent approach to virtually any stage requiring a decision, throughout the mortgage process.
“We have rules and seamless methods in place in our technology to facilitate the import of new data into the loan,” said Ms. Simmons. “This is all about better calibrating risk. The data is there.”
Another such piece of data needed would be an updated credit score. Realizing the need revaluate loans, Equifax has released Mortgage Market Risk. By using this tool investors can analyze mortgage loan performance and more accurately assess delinquency and default.
This new tool gives investors updated credit information on mortgage borrowers aggregated at the zip code level. Data then can be segmented to reveal borrower credit health and credit capacity trends for different loan vintages within a zip code. In addition to providing a powerful tool for assessing risk in a trading desk environment, Mortgage MRI also supports strategic market risk analysis, pool and market risk assessment and institutional valuation of mortgage-related assets.
Specifically, Mortgage MRI segments zip-level data by vintage, loan type and first mortgage payment status. Once the data is segmented, Mortgage MRI leverages leading indicators and scoring models, including VantageScore and Equifax’s Bankruptcy Navigator Index to analyze credit risk and the likelihood of a certain borrower profile filing for bankruptcy over the next 24 months. The results are then aggregated and provided to subscribers.
“Credit is back in vogue,” said Tom Madison, senior vice president, Equifax Mortgage Solutions. “There’s data that we have and that servicers have that’s not flowing to investors and rating agencies. Through this tool we can bring data to the market that’s forward-looking.
“For example, we know how many times a person tried to extend credit in the past 12 months. That’s an indicator that things may not be going well. We use over 60 credit attributes that are predictive in nature. We suggest refreshing the credit score twice a month for all loans.”
“And on the servicing side especially there is interest in this approach,” added Ms. Simmons. “However some servicing systems charge a fee for extracting data, but given the market that has to change. The idea is to put new data on the loan and use the existing seed data as well to create a better picture of where that loan is today.”
