Monday, January 29, 2007

MISMO: New governance committee

It's hard to overestimate the potential benefit that will ultimately come to the mortgage industry through the efforts of MISMO and the many companies and executives that are participating in this effort.

What began as a dream of pulling the many very different players from all over the business into a single working body to set standards that all would eventually adhere to has become...well, just that. Despite working for years without being able to quantify what the actual benefits would be to a largely skeptical audience, MISMO leadership has done a great job of pulling together multiple interdisciplinary teams that have actually moved the industry forward.

Spending executive time on something that may or may not benefit the company directly is one thing, call it a necessary expense in a competitive and risk-based world. But handing over your top people to an effort that will benefit both you and your competitors is a sign that you truly do care about the future of your industry. I salute the MISMO member companies and especially those companies that have loaned executives to serve on the organization's Governance Committee.

You can find the entire governance committee here.

Saturday, January 27, 2007

MIAC: In a new home

Mortgage Industry Advisory Corp. has moved into its new offices at 80 Maiden Lane in New York City's financial district. After being housed just a few blocks away on John Street for nearly two decades, the company will be moving into larger offices with many more technological bells and whistles.

MIAC Principal Bob Husted said the new offices will facilitate more effective communication, both internally among MIAC developers and advisors, and externally with clients. A new Help Desk is part of the new facility, with 24/7 support, larger internal client training rooms and more space for the firms 40+ employees.

MIAC offers a full suite of analytical software that mortgage bankers and secondary market players use to simulate cash flows, analyze risk and make effective hedges. The firm also acts in an advisory capacity, brokering the sale of mortgage-related assets and providing third-party mark to market valuations of the entire range of these assets.

The company will begin operating out of the new offices on Monday.

Wednesday, January 24, 2007

Advectis: Growing fast with Blitzdocs

Housing Wire has an interesting article about Atlanta-based Advectis. This blog, run by former industry journalist P. Jackson, has become one of my favorite industry reads.
"By the end of 2006, BlitzDocs users benefited from a network of more than 20,000 broker shops, the top seven mortgage insurance companies and three of the top due diligence providers, and investor participants that represent more than 60 percent of loans purchased in the secondary market. Advectis’ BlitzDocs electronic doc collaboration service enables all mortgage participants to capture, submit, underwrite, audit, share and archive loan documents electronically."
Greg Smith, Advectis CEO, told Housing Wire "We continually strive to promote and enhance electronic collaboration."

Smith's firm started out offering an easy way for wholesale lenders to get information from brokers in an electronic format. This was a serious pain point for lenders during the most recent refi-boom. BlitzDocs allowed brokers to print their own bar codes and then fax their documents directly into the wholesale lender's LOS. Very nice.

When Smith talks about enhancing electronic collaboration, chances are he's not talking about the brokers as much as he is the investors. Handing the deal off into the secondary market has always been a fairly tedius process, what with all the paper and QA/QC. The idea of handing an electronic loan folder to an investor is very appealing to lenders.

I'll be writing more about this in the near future. You can bet I'll be reaching out to Smith to find out more about what he's up to now.

Monday, January 22, 2007

Mortgage Cadence: A Lender Implements Orchestrator

Denver-based Mortgage Cadence has announced that a retail lender has successfully implemented its Orchestrator enterprise lending solution without the aid of an outside consultant. Fed up with botched technology initiatives, many lenders have been working with third-party consultants in an effort to build some accountability into the process of buying and installing new loan origination systems. While Mortgage Cadence, like many of its competitors, has a program to train and certify third-party consultants to promote and manage the implementation of its software, the firm has been working toward simplifying the process for its clients. Apparently, progress has been made.

Castle Point is an Elkridge, Maryland-based retail lender operating in multiple states and handling a variety of product types. The Castle Point team was looking for an application that would handle all of the company’s product lines, increase process times and efficiency, as well as a lending platform that would be scalable to meet their future needs, according to Mortgage Cadence.

The company chose Orchestrator, but instead of contracting with a consultant to implement the software, the lender chose to handle it with its internal IT staff. This can be dangerous as it could allow unscrupulous vendors to blame the lender for missed deadlines and budget overruns.

Castle Point did engage Mortgage Cadence’s sister company, 3t Systems, for mentoring and used that firm's implementation methodology to complete their project in 8 months with the help of the Mortgage Cadence Software Development Kit. The SDK comes with code templates,
system documentation and extensibility guides.

Two things about this story: (1) Orchestrator isn't an application for a single product line, but is designed to use a sophisticated business rules engine to allow the streamlined processing of any loan product; (2) the client trusted the vendor to implement without an outside manager and when it did hire a company for mentoring it chose a sister company instead of a disinterested third party. And the system is producing loans. I guess that's three things.

Disclosure: I have been paid in the past to write for Mortgage Cadence. I wrote this blog entry, but not the press release it's based on. I didn't get paid to write this entry. If you e-mail me, I'll tell you exactly why I recommend Mortgage Cadence, which has nothing to do with money.

Thursday, January 18, 2007

Trend: Banks may kill branches

Banks are rethinking their branch expansion strategies. According to a story in the most recent SME Newsletter, put out by Financial Institutions Consulting (FIC), many banks have too many branches these days.
"Much has been written in recent years concerning the branch explosion. However, the inverted yield curve, higher interest rates, sophisticated customers, and tougher competition combine to erode branch profitability. Management needs to take a particularly hard look at additional branches versus other investment options."

What does this mean for mortgage bankers and loan brokers that compete with banks for mortgages?

While more borrowers than ever before are making loan application online, which threatens to make 2007 the year of the digital signature, most still drop out of the automation and work with a loan officer before closing. This gives the advantage to loan brokers and Net Branches on the ground where borrowers live.

That means banks interested in making mortgages are likely to get even more aggressive at courting mortgage brokers and cross-selling within the institution (something they're not very good at), which will put pressure on national wholesale mortgage lenders.

But with a host of other financial services products to sell, I wonder if banks will put much emphasis on home lending as we move further into the trough of the cycle. It won't surprise me if more banks relegate mortgage offerings to the wholesale side of the house and outsource more of their retail business to virtual originators that mask their highly-efficient operations behind the bank's own branding.

Monday, January 15, 2007

LowerFees: Discount store for settlement services

Marcie Geffner writes about on Inman News today. The new firm hopes to bring some transparentcy to the industry by allowing home borrowers to shop for settlement services online.

I've written about a number of companies in the past that were working toward making the home buying and financing transactions more consumer-centric. There seem to be a number of inherent barriers.

In the case of this firm, Ms. Geffner sums it up very nicely.
However, where seems to have missed the mark is in its obsession with "lower fees," rather than meaningful information about settlement products and services, and what differentiates providers and their products from one another. Commodities are sold on the basis of price, and are subject to intense price competition because there is by definition no other basis of
differentiation -- commodities are identical by nature.

Well said. Transparentcy does not equal commoditization.

Friday, January 12, 2007

Wells Fargo: Marketing to Hispanics

I wrote about this last year in Mortgage Banking. While emerging markets are poised to be bring the lion's share of new mortgage deals to the table in the future, most ethnic communities either don't know or don't trust existing mortgage brands. While some companies, like Countrywide, are reaching out to these markets in an effort to build new bridges, others just start from scratch.

You may have read recently in the REAL Trends e-mail update that "the Hispanic National Mortgage Association (HNMA), a company focused on increasing homeownership opportunities within the Hispanic market, and Wells Fargo Home Mortgage, a division of Wells Fargo Bank, have announced that they have formed a retail joint venture that will offer traditional mortgage lending products and services, and special resources, to assist Hispanic and non-traditional customers seeking residential mortgage loans."

In simpler language, Wells Fargo is working with this group to launch a new brand into the Hispanic marketplace. ILUMINA Mortgage, LLC, will reportedly "evoke clarity and transparency in the homeownership process."

At the very least, it will make it clear to this very important emerging market that Wells Fargo is willing to invest in a new operation in order to begin building some trust. Partnering with HMNA will pay some dividends as well. Expect to see more of this in the future.

Wednesday, January 10, 2007

Inman: Lean times for lenders

A very nice overview of the likely short-term future of the mortgage lending business was recently penned by Inman News' Matt Carter.

Highlights: MBA says originations down 11% in 2007 (better than the 40% drop we've seen predicted by this group in the recent past). Refi's drying up, but still to account for nearly 40% of the business by 2008. Center for Responsible Lending is predicting 20% foreclosure rate in the subprime business (would be great for their agenda, but the industry can't afford that and would begin getting very creative with workouts, so I wouldn't bet on this). Generally gloomy, turning darker before it gets better.

I also have to agree with Mark Dangelo. Our capital markets are now sophisticated enough that there is unlikely to be a subprime credit crunch, despite rising delinquencies and innovative (read weird) loan programs.

I generally count on Inman to provide good coverage of the real estate side of the business, but this article indicates they could be a future force on the mortgage side as well. Well done.

Friday, January 05, 2007

FED: A book about ARM Loans

The Federal Reserve Board and the Office of Thrift Supervision are thinking that American home loan borrowers are not well enough informed about some of the new loan products available today. This, to me and I hope I'm not being offensive, is rather like suggesting that cigarette smoke may actually be bad for us. Ya think?

The agencies have issued a revised version of the Consumer Handbook on Adjustable-Rate Mortgages, a.k.a. the CHARM booklet. Regulation Z requires every lender to provide a copy or suitable substitute to every borrower who applies for an ARM loan. The updated booklet describes interest only and option payment mortgages.

Back in Missouri, we called this closing the barn door after the horse was already out. But better late then never, I guess.

Today, adjustable-rate, interest-only loans constitute the highest percentage of second mortgages underwritten by the same bank that originated the first loan, according to The Wall Street Journal. According to UBS (and reported in WSJ), a high percentage of borrowers with delinquent, defaulted and foreclosed loans have second mortgages, which they've usually taken out at the same time as their first loans to buy a house.

I smell smoke. Let's see if this new booklet can help put out the flames before it all burns down.

Thursday, January 04, 2007

Trend: Made to Order Loans

Anthony Garritano has a nice story in the most recent issue of Mortgage Technology Newsletter in which he writes about business rules management (BRM) and how the technology is making it easier for lenders to roll out new loan programs. A number of lenders have been successful in using new product development as a competitive differentiator, luring in good brokers with the promise that these new programs will better fit their borrowers' needs. Good BRM technology can certainly make it easier on lenders who want to reinvent wheels, but I'm afraid that by the time most business executives figure out how to leverage the tools it won't matter.

Over the past year or two, we've seen a lot of new product development, much of which was aimed at helping people who didn't qualify for loans with low monthly payments get low monthly payments. Consequently, we're hearing that the 206 vintage of nonconforming loans is the worst performing in history. Does this mean that we shouldn't spend time developing innovative new products. On the contrary.

My feeling is that lenders will actually end up going to the other extreme. Instead of creating fewer new products, every loan will be a new product, developed specifically to meet the needs of the borrower and investor.

I think it will be a function of more powerful automated underwriting engines tied with sophisticated business rules management engines that mix and match loan terms to satisfy all parties to the transaction at the point of sale. I'll get the loan that's perfect for me, priced according to the risk involved and written to the specifications of the investor who will pay the most for the paper at the time it's originated.

Will this happen tomorrow, or even this year? I doubt it. But I bet it will happen before lenders get good enough at using BRM to roll out new loan products on a regular basis. What do you think?

Wednesday, January 03, 2007

Trend: Watch MI in 2007

National Mortgage News reported in its Daily Briefing yesterday that private mortgage insurance took a beating in the fourth quarter of 2006. "The amount of private mortgage insurance written by the members of the Mortgage Insurance Companies of America totaled $17.8 billion in November, down 5% from $18.8 billion in October," the paper reported.

Expect to see all of that change this year. Borrowers closing loans to purchase homes in 2007 who have annual household incomes of $100, 000 or less will be able to get a low down payment mortgage and deduct the full cost of their mortgage insurance premiums on their federal tax return, according to a MICA press release issued last month.

With the new federal tax deduction, borrowers will have to take a closer look at the home equity piggyback loan when they refinance and brokers will be expected to explain the benefits of each. Given the fact that many borrowers are likely to come back to the table with payment shock after their seconds adjust, moving back into a single mortgage loan may look pretty attractive.

I expect private mortgage insurance to get a boost next year and lenders to increase rates or fees on first mortgages to make up some of what they will lose on HE seconds that don't happen.

Tuesday, January 02, 2007

Trend: Credit back in focus

Borrower credit has always been important to the mortgage lender, originally as an indicator of the borrower's capacity to repay the loan and more recently as a hurdle to overcome in the underwriting process. Today, if lenders think about credit at all it's when a loan falls out of the automated underwriting system and needs to be "reworked" to make the deal. But that's likely to change this year.

The first reason you're going to be hearing more about credit this year is because more deals are going to go bad. While the numbers are still coming in and the experts will argue about what they mean for a while, delinquencies will rise in 2007 and 2006 will likely be the most popular vintage of seriously delinquent paper.

The second reason you're going to be hearing more about credit is because credit information providers are getting tired of being ignored. We're already hearing about new products (see Scott Kersnar's article in the most recent National Mortgage News Daily Briefing Weekend Edition) and price hikes (see Ken Harney's column in last month's Washington column).

Finally, this year we're going to see a lot of ARM loans adjust. When that happens, borrowers who spent the money they were saving on their mortgage payment (and more) will come back to the table. Their collateral will be the same, but their credit situations are likely to be much different. They're also likely to be angry, whether they have any right to be or not.

I expect that lenders will be spending a lot of time pouring over borrower credit reports in an effort to help them get into loans. This could be a very good year for those firms that provide tools to help brokers and loan officers explain and repair consumer credit files.

Trend: the search for good brokers

As the mortgage lending cycle turns, it appears that 2007 will be another year of the broker. As the business contracts, wholesale lenders will seek out the best brokers they can find in an effort to shore up falling volume and to avoid investing in brokers that leave the business.

Many wholesale lenders have begun offering training and technology to brokers in an effort to entice them to enter into stronger lending agreements. A number of the nation's largest banks have launched Web portals that cater to the needs of brokers. In the end, a wholesale lender's ability to woo competent brokers is more likely to come down to the personal touch.

That makes American Brokers Conduit's (ABC) recent announcement newsworthy. The company, owned by Don Henig's American Home Mortgage Investment Corp. REIT, opened another wholesale lending branch office in Cranford, New Jersey, and hired former Wells wholesale lending executive Robert "Wes" Meyer to manage it.

ABC now has 33 branches across the country. While ABC's wholesale AE's can't be everywhere a top-10 lender's broker-facing portal can be, they can certainly shake hands with a broker more effectively. We'll be watching to see how much difference that makes as lenders duke it out for brokers this year.