A friend forwarded me an article in Financial Times magazine that struck a chord with me. I have to reflect on it here because there’s an important message to get out. The article talked about how recent rate cuts have resulted in increased volume, but lenders can’t handle it so some are staffing up again. Do they ever learn?
The article quoted Mahesh Swaminathan, mortgage analyst at Credit Suisse, who said those giddy about record low rates should calm down. Low rates won’t bring back the refinance volume of 2003, he said. However, it will bring back volume not seen in mortgage in some time.
"There is a lot of pipeline congestion. Originators don't have the staffing or the credit lines to fund a lot of loans," Mr. Swaminathan told Financial Times. "You have more due diligence which requires more staffing. It [cannot] be changed overnight."
Sure it can. That’s what technology is for. I agree that more due diligence is being required, but that’s a positive. Lenders need to be using automated fraud detection tools on all loans at the point-of-sale. The Social Security Administration has gone real time so vendors can now help lenders verify borrower identification in seconds. And the IRS has stepped up efforts to make the 4506-T available as data instantly as well.
Due Diligence doesn’t require more staffing Mr. Swaminathan, it requires that lenders take a deeper look at their process and see what can be automated. It’s also important to note that more staff doesn’t necessarily result in a better loan. In order for lenders to do what technology does in seconds, the lender would have to hire highly-specialized employees.
Lenders have other things to worry about than staffing a huge internal legal and QC department. Sure mega lenders can do that, but small lenders can’t. They don’t have the resources. And they can better use those resources elsewhere. Technology isn’t the enemy, it can be an enabler that helps the industry produce the better quality loans the secondary market is demanding if it gets used.
I hope there are lessons learned here. The GSEs are going to send over $1 billion in loans back to originators so there is a need for more due diligence in the future, but that doesn’t mean putting more buts in seats is the answer. Getting trusted data from trusted sources to verify every piece of information on the loan is where the industry has to go. Let’s not repeat the mistakes of the past.
