You’d have to be living under a rock to not have heard that this past weekend was very significant for the mortgage industry. Fannie Mae and Freddie Mac faced failure and were seized by the government. Who’d have thunk it? In talking to some noted mortgage technologists, the reaction was positive.
“As innovators of DU and LP, Fannie Mae and Freddie Mac changed the way the industry did business in the nineties,” noted Linda Simmons, SVP business development of analytics and decisioning vendor Overture Technologies. “With the recent changes, Fannie Mae and Freddie Mac may have the opportunity lead the industry into its next life form.
“In that regard, the GSEs have the ability to focus on completely transparent decisioning options starting with underwriting but going far beyond it along the mortgage value chain to add consistency and reliability for everyone involved in mortgage finance. They play a unique role in restoring confidence and moving the industry forward, technologically, and they have done it before.”
“In general, this is a good step that will help restore investor confidence and stabilize the global market,” added Larry Huff, co-CEO at pricing and decisioning vendor Optimal Blue. “Ultimately, this will be one of the key elements leading to the re-invigoration of the mortgage market as a whole, both in the U.S. and globally, although there is still a long way to go. This was an important step for the government to take - and a well needed one.”
Mr. Huff was a littler more conflicted about how the move would impact mortgage technology though. “It's difficult to tell, although initially, we're seeing the market respond well - driving up volumes as investors drive down rates and up the price of bonds. We have seen a great pick up in volume today and we hope that continues in the near term,” he said.
“In the mid-to-long term, there is going to be a mortgage market and a continued need for technology. How the industry redefines normal is yet to be determined, but we assume the future will hold a healthy, vigorous and more diversified secondary market. From Optimal Blue's perspective, if the market is more diversified, it will specifically help our business - with more products and prices, the complexity increases, driving up the value proposition for our technology. It will be interesting, but the strong will survive.”
A long-time skeptic of the role the GSEs have played in the progression of mortgage technology, Scott Cooley, president at M&A firm Cooley Consulting, pointed out, “Long term, I believe this is a great thing for the industry. The GSEs were far too big and powerful. The benefit they provided should be done in such a way that many top lenders could offer the same thing. A duopoly doesn’t work as we found out. Through a different system, we need to allow the larger banks and lenders to have the same attributes that the GSEs used to have so long as they meet certain accounting and asset requirements.
“In a similar fashion, the stranglehold that the GSEs had on innovation prevented many of the more advanced technologies from incubating. Vendors were faced with the fact that the GSEs needed to affectively approve many solutions in the industry. Further, their ability to take over a technology niche (like AUSes) prevented the private firms from innovating. The private marketplace remains the best place for technological development.”
So, will the GSE seizure lead to greater technology innovation in the future? “ With their dramatically reduced role, we’ll see many more technology vendors tackle all sorts of the industries inefficiencies,” answered Mr. Cooley. “Imagine what could be built for lenders if the black box AUSes were opened up for all to understand and copy. Imagine a single AUS that could qualify any borrower for Fannie, Freddie, FHA and VA. Today, both Fannie and Freddie made it difficult for lenders to qualify the same borrower on both systems. We could also see greater use of automated appraisals and other technologies that the GSEs were hesitant to approve in the past.
“I believe that the more insignificant the GSEs become, the better our industry and consumers will be,” concluded Mr. Cooley. “The transition period will take some time with some bumps along the way. Still, we all will eventually benefit from the change.”
