Wednesday, October 31, 2007

TietoEnator: 30 Minute Mortgages

A mortgage technology vendor in the U.K., TietoEnator, is promising lenders that they can offer 30-minute mortgages with its new Mortgage Origination Suite. According to Richard Gammon, Managing Director of TietoEnator Banking & Insurance, unconditional mortgage offers can now be made within 30 minutes. Additionally, lending decisions can be made with a greater degree of consistency and transparency, protecting the lender from discrepancies in the process, and from abuses of their lending rules.

The company seems to be basing their claims on straight through processing and the integration of previously manual processing steps such as elelectronic ID checking, credit searching, credit scoring and AVM ordering and analysis.

The timing is interesting. Some reports indicate that the U.K. mortgage lending environment is not much better off than ours here in the U.S. It will be interesting to see if the lenders there have sufficient appetite for risk to automate more of these steps in this market.

Friday, October 05, 2007

Ranieri: Back in the game

Lewis Ranieri has been called the Godfather of the mortgage lending business, largely due to his work on mortgage-backed securities back in the day, but also because he's been in the game as long as anybody--and usually on the winning side. He gives a great interview to Investment Dealers Digest that does a good job of distilling the current housing situation down and spreading the blame about fairly evenly.

I am very intrigued by his latest move. Root Markets Inc. is another attempt to take large lenders (and by this I'm fairly sure the reporter means Ranieri's mortgage-lending Wall Street friends) directly to main street borrowers, cutting out mortgage brokers and correspondent lenders with a single stroke. With long-time partner Marcia Myerberg running the day-to-day, he hopes to leverage the Internet to create a lead generation site that charges, reportedly, up to $40 per lead to lenders who use the online platform.

This could be a great play for a number of reasons. First, lead generation is the hottest issue for lenders right now as they watch their volumes plummet at the same time they are forced to tighten underwriting guidelines. Secondly, everyone is mad at the brokers right now and cutting them out of the picture is as close to a politically correct move as you can make on Wall Street these days---and the politicians and consumer advocates will love it. Thirdly, many non-Street lenders are pissed at the conduits after they deftly sent the responsibility for bad loans back over the net to originators, forcing hundreds of their friends out of the business and making job fairs the biggest draw at industry conferences. Finally, we have all the technology required to make this work and it can be had today for a song.

But it all depends upon what Root Markets will actually do. The article raises a lot of questions in my mind. First, it calls the venture a new business, which is true but was more true a year ago when Businessweek wrote about it and just before the Chicago Board of Trade invested $1 million in the effort in the hopes that it could eventually create a new security out of Internet-generated consumer leads. In that earlier article, Seth Goldstein, the man who started Root Leads, talked a lot more about enabling the consumer to profit from their online information. Myerberg appears to be in his office now and the company's website doesn't talk about consumers at all, just buyers of leads and the companies that sell them. Except for some little house icons on the screen, it doesn't even seem to be specific to the housing industry.

A quick glance at the screencast video that describes the offering doesn't mention consumers either. It appears to be a Web-based lead management system with some auction-type functionality built in that allows buyers to bid on leads.

I'll be interested to see where this goes. Ranieri was diplomatic when he pointed out in the more recent article that two years ago he predicted the Wall Street machine might be in for trouble if it continued to securitize dangerous ARM loans. Good eye! In that spirit, let me go on the record now saying why bet on loans at all when you can create a market around just the leads. Crazy? Yeah, probably.

Finally, while it's popular to talk about cutting all the fat out of the middle of the mortgage lending business by kicking brokers and correspondents to the curb, those players are in the market because there is a valid business case that says lenders (mostly due to consumer behavior--the one thing this group better fully understand if they hope to master the lead generation business) need them. I'm not sure the same applies to another middleman in the mortgage loan lead generation space. We'll have to watch Root Markets to find that out.

Tuesday, October 02, 2007

WaMu: A calculated risk

Washington Mutual, a top-10 bank and mortgage lender has decided to admit that the subprime lending crisis was the fault of mortgage brokers. While the company didn't admit this directly, the Seattle Times reports that WaMu will now require that brokers fully disclose the evils of certain loans to borrowers and will "try to call every borrower represented by a broker to review the terms of a loan before closing."

The company didn't say whether its post close QA/QC department would spend any time calling borrowers that originated loans in its own branches.

See, it was the mortgage brokers who caused all of this and now that Congress has let the cat out of the bag by openly criticizing them, WaMu figures it may as well come clean and admit that it will have to rein these boys in. Never mind the facts that brokers can only sell loan products made available to them by lenders like WaMu and that these lenders are responsible for underwriting the loans (the act of making sure that the borrower actually qualifies for the loan) before they are funded.

The risk here is that brokers will observe WaMu seeking positive press by making them the scapegoats and refuse to broker loans for them in the future. These bankers have doubtless thought of this and are probably betting that (1) brokers are the Black Water of the mortgage industry and will continue to hire out to anyone who pays them, (2) WaMu has great brand equity it has been working to develop for years, (3) WaMu has a strong retail branch network and can survive quite comfortably without brokers.

They may be right. If you see the company start losing market share to Countrywide, you'll know they weren't.