Big Changes at FHA, including New Tech

Image via Wikipedia

I got the news from a story on Forbes.com today that the David Stevens has finally been sworn in to serve as FHA commissioner. This has been a long time coming and there were some politics involved. We'll soon know whether he can handle the job.

He's taking over an agency that has become the last hope for millions of subprime borrowers who are still able to make payments on a mortgage but no longer fit the requirements of conventional lenders. Making up about 3% of total loan volume since the early 80s, the agency is now insuring close to a third of all mortgages written, which is expected to be about $400 billion this year, according to Forbes.

Forbes said what I said not long ago in a column I wrote for HousingWire (how's that for name dropping): the big hurdle for FHA is technology. Forbes points to 39 old computers that are on average 19 years old--that's around 190 years in computer years. For most mortgage lenders, the key technology offered by the agency is the FHA TOTAL Scorecard, a simple algorithm used to generate an “accept” or “refer” decision on FHA loans.

The tool can't pull or parse credit on its own but takes information from the lender's AUS to return a decision. There are only a handful of underwriting systems that are integrated into the Scorecard: Fannie’s DU, Freddie’s LP, Chase’s ZippY and Countrywide/BofA’s CLUES/CLOUT.

At least until a few weeks ago. Loan-Score Decisioning Systems, Irvine, Calif., a provider of enterprise-class decision management solutions, completed the necessary integration for lenders to connect to the Federal Housing Administration’s TOTAL Scorecard platform directly from its automated underwriting system (AUS) last month.

“The demand for FHA products has increased rapidly and our integration with TOTAL Scorecard allows clients to more efficiently manage the FHA lending process and provide better service to borrowers,” said David P. Colwell, executive vice president at Loan-Score, in a release at the time. “In order to attain results from TOTAL Scorecard, lenders must use an AUS to connect to the system. Because Loan-Score is now an FHA integrated AUS, our clients’ end users are able to seamlessly hit TOTAL Scorecard for instant, accurate decisioning. Loan-Score’s centralized automated underwriting platform also accompanies our product eligibility and pricing engine (PPE) to deliver a comprehensive, integrated decisioning solution for both the point-of-sale and back-office. This establishes a significant competitive advantage over vendors who only offer a PPE system.”

"We’ve worked on this project for over a year," Joe Bowerbank, chief marketing officer for Loan-Score, told me in an e-mail. "The hard-hitting financial crisis news that went down in the fall coupled with a change in administration didn’t help timelines. Still, we worked diligently with the FHA to complete an integration between our AUS and their Scorecard platform."

According to Loan-Score, the new integration offers efficiencies and cost savings. Lenders that use DU or LP pay fees that can range from $15 to $30 a transaction to hit Scorecard, Bowerbank said. And that's whether or not the deal will fly. Chase and BofA will not charge a lender, if the loan comes to them.

"We anticipate that this news will have quite an impact on the industry as it relates to FHA underwriting," Bowerbank said. "Other vendors have been trying to develop an integration, but Loan-Score is the first. And, only vendors with a true AUS can come to the dance."

Loan-Score is using Wordpress

I was pleasantly surprised to see another mortgage technology vendor was sharing thoughts with the industry through their own blog. The folks over at Loan-Score are launching a new WordPress blog and I have no doubt they'll be sharing some very interesting information.

Over the past couple of years, the automated underwriting business has fallen out of favor a bit, catching some of the blame for rushing billions of dollars worth of bad loans through the application process and into the pipelines of lenders, many of whom were subsequently forced out of business by buybacks when the borrowers defaulted.

Product & Pricing Engines (PPEs) don't really underwrite the loans, but they give loan officers a glimpse at what's possible for a given borrower given a certain set of assumptions. They have become important tools for originators.

Because they bolt onto the front of the origination process, PPEs have to integrate well with other tools lenders use, which is why I was pleased to see Loan-Score open up that discussion on their blog. I'll definitely be subscribing to this feed and suggest you do as well.

Photo credit: Nikolay Bachiyski

Loan-Score Decisioning Systems, Irvine, Calif., an enterprise-class pricing and automated underwriting solutions provider, announced a new customer not long ago. United Residential Lending, a national mortgage banker, has rolled out the company's integrated product and pricing engine (PPE), automated underwriting system (AUS) and broker portal. The solution seamlessly integrates with Del Mar DataTrac, United Residential’s back-end loan processing system to deliver enhanced customer visibility into the approval process.

“Loan-Score’s solution allows our customers to visit our new broker portal, run product and pricing scenarios, upload a 1003, pull or re-pull credit, return a decision and receive immediate automated underwriting approvals while at the point-of-sale,” said Shane O’Dell, senior vice president at United Residential Lending. “We selected Loan-Score because of the depth their AUS and PPE offers and their proven integration with DataTrac. The integration automatically updates our brokers’ pipelines with loan details and condition status as the back office makes changes. Providing customers that level of visibility and service is paramount to growing our business. The portal we’ve rolled out really empowers our brokers with the capability to provide fast and accurate answers to borrowers.”

The lender will use Loan-Score’s outsourced managed services team to maintain its programs, custom pricing and overlays to ensure that constant investor changes are up-to-date and accurate. Loan-Score also automates United Residential’s daily rate sheet creation and maintenance, making it a virtual display of rates that is easily accessible at the portal. The solution is delivered via SaaS.

"Today’s market is forcing lenders to operate in a highly profit-pinched environment,” said David Colwell, executive vice president at Loan-Score. “By using Loan-Score’s AUS at the point-of-sale, the system basically serves as a ‘deal filter’ that accurately determines whether loans are actually fundable before they go to underwriting."

Another reason to pursue eMortgage

Image via Wikipedia

For years now, mortgage technologists have been offering electronic mortgage technology, basically digital docs that Fannie Mae or Freddie Mac will accept in the place of paper documentation, to mortgage lenders who really weren't that interested. Originating eMortgages would involve changing the way lenders worked with closing agents and borrowers. It might be more confusing for borrowers, despite the fact that they use a similar keypad to buy just about anything from Home Depot, Best Buy, Wal-Mart or Staples. It might involve additional software or hardware that could be expensive or difficult to implement. Some of these excuses may have been actual reasons a few years ago, but they aren't today.

Today, eMortgage technology is affordable, easy to install, understood by closing agents and borrowers and readily accepted by secondary market investors, at least the ones that are still in the market. And here's another reason to go all-electronic now:

According to a story in the Honululu Advertiser, homeowners there are finding a handy way to stall the foreclosure process. They simply ask to see the original paper documentation.

"During the real estate frenzy of the past decade, mortgages were sold and resold, bundled into securities and peddled to investors. In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse or destroyed."

As the "victim" of possible foreclosure points out in the story:

"I'm going to hang on for dear life until they can prove to me it belongs to them," said Lovelace, a 50-year-old divorced mother who owns a $200,000 home in Zephyrhills, near Tampa. "I'll try everything I can because it's all I have left."

It's probably time now for lenders to get rid of the paper once and for all.

ProVest expands skip-trace program

Image by Getty Images via Daylife

ProVest LLC, Garland, Texas, a national process server management company working in the mortgage space, said it has expanded a program designed to find delinquent borrowers that have walked away from their propoerties. The company made the announcement at the MBA’s National Mortgage Servicing Conference & Expo in Tampa.

Currently, ProVest says it is working with 16 of the top 20 mortgage servicers as well as a government sponsored enterprise (GSE) to locate delinquent homeowners that the companies have been unable to contact. The companys says it searches for upwards of 100,000 borrowers every month, locating more than 55 percent of the individuals.

As the recession deepens, delinquencies around the country continue to rise. At the same time, home values in many markets are still falling. Borrowers who are underwater on their mortgages have been tempted to simply walk away and let the proporty go back to the borrower. ProVest says that finding the borrowers is the first step on the path to getting them back on track and saving their mortgage. But as servicers gather in Tampa there can be no doubt that many are talking about the fact that the majority of these borrowers can not save their homes.

“Lack of knowledge is one of the most critical factors that stops homeowners from being able to save their home, whether it is because that homeowner was not contacted in time or he or she did not understand the home retention options available,” Scott Strady, CEO of ProVest, explained. “Our borrower location services are proven to facilitate communication in more than half of the delinquent cases that would otherwise have been left to foreclosure. It is an integral step in our plan to help homeowners achieve the best possible resolution for their mortgage, which, in turn, will strengthen our economy.”

Whether they can help them stay in the home or not, lenders are desperate to find these delinquent borrowers. Companies like ProVest are well positioned to capitalize on that need.

NetMore America hires new operations exec

NetMore America, Inc., Walla Walla, Wash., an expanding next generation mortgage banker, has hired Michele Sophiea Newsham as the company’s new executive vice president of operations.

Newsham brings over 20 years of national operation management experience within the mortgage industry with a strong focus on process design, efficiency modeling and team building to the job, the company said. She is expected to play a critical role in the company’s risk management efforts and will be based at NetMore’s operations center in Clackamas, Oregon.

“Michele’s successful background in operational management, leadership in building partnerships across company lines while balancing production needs and back office compliance is an exceptional fit for NetMore’s immediate and long-term goals,” said Mark Freedle, president and CEO of NetMore. "Having just closed over $126 million in loans in January 2009, a 33% increase over December 2008, and with our objective of being a nationwide lender by 2010, NetMore is focused on continuing to enhance our operational efficiency to achieve higher productivity and mitigate risk throughout the lending value chain.”

Newsham is responsible for national operations for wholesale lending and NetMore’s professional branch system. She joins the company from Senior Lending Network, where she served as vice president of national operations managing the wholesale and retail operations for reverse mortgage originations. Previously, she was senior vice president of national wholesale operations for American Brokers Conduit, Long Island, NY.

"I am delighted to be joining NetMore during this exciting period to help further prepare the company for its nationwide expansion and next stage of growth," Newsham said.

Never say never

As it turns out, I do have a need for a blog that just deals with the challenges and opportunities that face mortgage technology vendors. And so I will be bringing this blog back to life.

While my corporate website, www.rickgrant.net, will continue to provide stories and information about the new media marketing and public relations services I offer, this site will be devoted to talking about the entrepreneurs, inventors, managers and champions who have refused to give up on the mortgage business, even in light of this historic downturn.

Stay tuned for their stories.