Friday, November 30, 2007

Loan Score: Linking itself to other AUS

By now I'm sure you're all sick of hearing the refrain, "It was bad underwriting that led to the subprime mortgage crisis." Actually, lenders have been using technology for years that practically guarantees every loan is underwritten very, very well. All you have to do is plug in your loan product requirements and let the engine run. The Automated Underwriting Systems (AUS) in place in the mortgage industry did a truly excellent job of funneling the billions worth of subprime and ALT-A deals into the pipelines in order to satisfy their Wall Street buyers.

Unfortunately, our modern AUS are not equipped to ask the questions: "Is this too good to be true? Can we really sell this crap and laugh our way to the bank?" Fortunately, technology is too much a part of our daily lives for anyone to have a "Terminator" moment and blame the machines for this mess. And yet, at least one AUS developer is betting on the machine to help lenders get out of it.

Loan Score Decisioning Systems LLC, Irvine, Calif., a provider of enterprise-class automated underwriting solutions for lending institutions, is promoting a platform that can combine various AUS to help the lender apply the right tools and guidelines to the various products the company wants to originate. An extra bell or whistle is the platform's ability to choose a product and determine the pricing for the deal as part of the process. Recently, the firm was in the news for establishing a seamless integration (terminology we see less frequently in the age of SOA) with Fannie Mae’s Desktop Underwriter.

The Loan-Score AUS can underwrite conforming, FHA and other government loans by adding embedded functionality that directly incorporates DU findings into the Loan-Score pricing and AU decision. Of course the lender still has to have an LOS old enough to remember how to process government loans.

David Colwell, director of strategic solutions at Loan-Score says his company has created a one-stop-shop with integrated access to multiple AUSs via a single, centralized automated underwriting platform, though it is not yet clear which other AUS are incorporated into the platform. I posed that question to Joe Bowerbank, the company's director of marketing.
"Essentially, our AU platform's 'multi-layered risk analysis functionality' is able to incorporate and evaluate the findings of other AUS's into our own AUS --- complete with conditions/stips. By way of web services integrations, lenders can also access the FHA's AUS, called TOTAL Scorecard. By year-end, we'll also connect to Freddie's LP. If needed, we can also seamlessly integrate with other PPE engines. So, our AUS's integrations work to create one-stop-shop integrated access to multiple AUSs via Loan-Score's centralized automated underwriting platform. Simply put, it's the ultimate in convenience!"
As more investors develop their own AUS, those that built on SOA-based technologies could be integrated into Loan-Score, allowing the user to working in a single environment but base decisions on a number of other engines' results.

Today Loan-Score maintains a library of investor guidelines and pricing to ensure eligibility is met and market conditions are adjusted to deliver precision-based underwriting that results in fundable loans, the company said.

Monday, November 26, 2007

Trendwatch: Outsourcing REO to deinquent borrowers

There's an article in the Wall Street Journal that may be the indication of a new trend. According to DealMaker, Citi is making delinquent borrowers in fear of foreclosure an interesting offer. "You handle our REO, your current residence at least, and we won't go after you for any gap between what you sell your house for and what you owe us."

The good news for borrowers: you get to go back to being a renter without having a huge debt burden following you around for the rest of your life.

The good news for lenders: many of those costs associated with REO can be handed back to the borrower.

The risks for the borrower: your credit will still be destroyed and unless you get this in writing you may still be on the hook for the money. Also, there could be other fees tacked on by the lender as well as limitations on what offers you can accept. Plus, your deal could get all messed up at the closing table if the current lender doesn't release the old loan smoothly.

The risks for the lender: unless borrowers trust you (or fear you), they might get angry and damage the house. Also, fraud is a huge threat as borrowers might just sell to their brother-in-law for 10 cents on the dollar. Closing the deal could be problematic unless the same lender finances the new buyer.

Still, lenders hate REO for all the right reasons. If they know they are going to experience a loss anyway, it may make sense to limit their loss severity by pressing their current debtors into forced labor.

Tuesday, November 20, 2007

Compass: Analytic firm buys competitor

There was some consolidation in the high-tech world of mortgage analytics today, according to an item posted on the National Mortgage News Daily Briefing. Compass Analytics LLC, San Francisco, has purchased Tuttle Risk Management Services from LION Inc. Both Compass and Tuttle are in the business of putting values on mortgage-related assets, including those that are used as collateral for mortgage-backed securities.

Tuttle was a well respected name in this business and has been a player here for a long time, though it has been bounced around a bit from owner to owner.

Compass will now square off against New York-based Mortgage Industry Advisory Corp. (where some principals of Compass reportedly once worked), and a few other firms that specialize in creating models that account for revenues and values for these often exotic assets.

This could be a lucrative time for companies in this space, as Wall Street firms work to avoid ending up holding assets related to subprime mortgages on their balance sheets--and ultimately writing down their values.

Simplifile: Scores another county

According to a report in The Title Report, Simplifile, Provo, Utah, has scored the Recorder's Office of Pulaski County, Arkansas, as its newest client. The company offers an eRecording solution it claims can be installed and recording documents in about an hour.

A number of companies have come to market with solutions for county governments interested in recording public record documents electronically. Simplifile, which claims clients in "Arizona, Colorado, Florida, Massachusetts, Nevada, Pennsylvania, Tennessee, Texas, Utah and a number of other states," says its system can also automate the processing, receipt, and payment of eRecording fees through electronic funds transfer or Automated Clearing House (ACH).

Real Trends: emerging markets have emerged

For the last decade or so, we've been writing stories about emerging markets and their importance to the future of the real estate and mortgage financing businesses. Much of what we've written (and that I've read) seems to indicate that waves of minority borrowers are just over the horizon, waiting to transform our businesses. That's not quite accurate.

In a recent e-mail update from the folks over at RealTrends, I read about comments made by Frances Martinez Myers, senior vice president of business development at Prudential Fox & Roach, at the 2007 REALTORS Conference & Expo in Las Vegas. She pointed out that these new home buyers and mortgage customers are here now. Here are a few of the statistics she shared with the audience:
  • Single women now represent 20 percent of recent buyers, a 50 percent jump over the past eight years
  • 28 percent of households will be headed by women by 2010
  • Immigrants represented 40 percent of new household formations between 2000 and 2005
  • In the 25-to-34 age group, 20 percent of the population is currently foreign-born
If you're waiting for emerging markets to become important, you're missing the boat.