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?

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