Friday, February 29, 2008

Recession by year's end -- worse for us

According to one economic futurist -- who reports to us on the findings of a number of forecasting panels -- we'll officially be in the recession before year's end but for most of the country the effects probably won't be as severe as those we've seen in the housing industry. Muted is the word he uses.

Jeff Thredgold serves on three national economic forecasting panels, each with roughly 50 members. One of these is the National Association for Business Economics, which released its most recent quarterly consensus forecast on February 25. Mr. Thredgold summarizes some of the findings in his most recent Tea Leaf:


The survey suggests that real (inflation adjusted) GDP, which grew at just a 0.6% annualized rate in the fourth quarter of 2007, will grow at a scant 0.4% rate in the first quarter of 2008, with 1.0% growth expected in the second quarter

Fiscal and monetary stimulus is expected to boost growth in the second half to a 2.8% real annual rate, bringing growth for the year to 1.8%. Real growth in 2007 was 2.2%

Some 45% of the panel believes that a recession will have occurred by the end of this year, although a majority of those believe the downturn will be relatively muted

The 2009 outlook calls for real GDP to grow 2.9%

The panel looks for the unemployment rate to average 5.2% in 2008 and 2009

The budget deficit, boosted by both slower growth and the cost of the fiscal stimulus package, is expected to rise from $162 billion in fiscal year 2007 to $375 billion in fiscal year 2008

The panel expects the Consumer Price Index to rise 3.0% in 2008, down from the 4.1% rate of 2007

The group expects the Federal Reserve to cut its target federal funds rate (currently 3.00%) to 2.50% by the end of 2008, and gradually bring it back to 3.50% by the end of 2009

Thredgold is a great speaker and generally appears at industry functions. He'll be a keynote speaker at the upcoming TAVMA annual convention in April.

Tuesday, February 26, 2008

IdeaWorks: Two more years of pain

I've been back in the office for a few days now, but the information I soaked up at the recent eLynx IdeaWorks conference continues to bubble up. Some really great speakers and I'll be posting more of their ideas in this space throughout the week.

Something that Robert Camerota, former chairman of the board of the California Mortgage Bankers Association, keeps coming back to me. He said, "This market will last another 18 to 24 months. You need to be thinking about where you're going to spend that time."

He was talking about the office space that many larger lenders had been leasing when the bottom fell out. This is a good time to renegotiate a lease, he said, because no one wants to be holding a lot of empty office space. Just ask anyone who owns a building in Irvine, Ca.

But what he said also applies to other aspects of the company's operation. In terms of product, are you where you want to be? Target markets? Technology? It's likely to get harder to make changes in the months ahead. What changes should you be making now in order to remain as comfortable as possible over the next 2 years?

Friday, February 22, 2008

IdeaWorks: Camerota's tough decisions

It took a dozen or more slides for Orawin Velz of MBA to lay out the current environment for attendees of the eLynx IdeaWorks conference here in Las Vegas. When Robert Camerota followed her to the podium, he summarized: "We're not in the market we think we're in today; we're back in the market of the 1980s."

Camerota has been in the industry for more than 25 years and is a recent past president of the California Mortgage Bankers Association. While he admits that his views differ from those of both CAMB and MBA, he says that if monoline mortgage bankers want to have any hope of surviving the next 18-24 months, they had better get aggressive at cutting out anything that doesn't make them money. "It's not redlining if you have a methodology for determining where you make money and where you don't."

If you're a mortgage broker, Camerota says you won't. Your day is over. While some in the audience disagreed, Camerota points to pending legislation in California that will outlaw YSPs. In a few more words, he said the broker's days are numbered.

So what's a lender to do? Camerota had a lot of ideas to share, including tactics for human resources management, facilities management and product selection.

Cut as much as you can and do it now, he said. But don't cut your investor delivery guys. The person who transports the file across the room from post close to investor delivery may be one fo the cheapest guys in your office and the last one you hired, but don't fire that person unless you want things to start getting lost.

Most bankers need to move out of their fancy offices now, or negotiate better leases. If you're in Orange County, you're in a good position to negotiate. Finally, if you're not looking seriously at reverse mortgage lending, you should. Velz pointed to research that says 35% of American homeowners own their homes free and clear. Camerota says that should be your next target.

IdeaWorks: First day was great

The first day of the eLynx IdeaWorks conference here in Vegas was great. A really good lineup of speakers, made better by the fact that many have recently been displaced and were willing to share much more with the audience about some of the actual events that led to the demise of some of the industry's top firms.

The show started out with an overview of the current situation, provided by Orawin Veiz, senior director of economic forecasting for the MBA. Orawin pulls and analyzes a lot of the stats that Doug Duncan looks into the MBA's crystal ball.

She set the stage: we're entering the third year of a housing recession, but it's still not clear whether the other indicators will conspire to make this an actual economic recession. Many indicators, such as builder confidence, don't look good at all and indicate that we haven't hit bottom yet.

The biggest threat to recovery: lender REO. If lenders dump all of those properties back on the market -- when we already have one million new homeowner vacancies above the 1.7% rate of 1985-2005, we'll have so much stock that it may be impossible to recover in the short term.

But what will they do with them? The longer the lender holds the property, the less likely they are to be able to control their loss severity. A speaker later in the day gave us one possible solution. I'll post that here soon, along with other great ideas from other IdeaWorks speakers.

Tuesday, February 19, 2008

A new tool in the office

We've added a new computer system that will allow us to bring you some interesting new content soon. More news on that shortly.

Monday, February 18, 2008

Avista: Grew in 2007

Avista Solutions is another mortgage technology player that had good news recently. The company reported late last month that its 2007 mortgage volume was up 42% over 2006 to $187 billion. The company further reported that its Agile Network handled over 1.1 million mortgage applications in a single year for the first time.

"Avista's customers, especially those that run us end-to-end, tend to be leaner shops," said Mark Phlieger, CEO of Avista Solutions, "That was important in two ways this year. First, when the products with fatter margins completely disappeared from the market, our end-to-end customers were able to hunker down and make it through on the thinner margins of conventional and government loans. Secondly, the move to conventional and government products puts a focus on price. Running a lean shop has given our customers a pricing power that lets them control their regional markets, pricing for the volumes and the products that they want. They've been able to capture a windfall of these new volumes."

Avista won Mortgage Technology magazine's 2007 Help Desk Award last year and specializes in Web-based loan originations. According to the company, the Avista Agile LOS™ origination system combined with the Avista Product Advisor™ and Avista ImageFlow™ allows users to create loan applications via the internet or by import from external loan origination software.

I think it's fairly safe to say that the LOS has left the desktop and that any company that really wants to be a player in this space in the future will adopt SaaS delivery and create systems that will work in the presence of an Internet connection or not. There are a number of players working in this space.

What may have been most beneficial to Avista last year was the ability built into its tool to originate across a number of channels and product types. While Agile is a word the company is trying to brand, it helps when the tool can actually deliver on that. Avista has at least one client that says its platform does deliver.

"I entered the year with a 70% Alt-A pipeline, and we left it with a pipeline that was 99% conventional," said Glen Ogden, CMB, Vice President of Mortgage Services, The Mortgage Co-op. "Avista's platform allowed us to re-evaluate and quickly reinvent who we were and what we did not once, but twice in 2007.

More than ever, having front line originators back up your product's claims will be key to success as the downturn continues.

Friday, February 15, 2008

PriceMyLoan: Gets another client

It's possible that I may have overestimated the negative affect of the downturn on AU vendors. It seemed reasonable to me that if Fannie, Freddie and FHA were the only games in town, underwriting would become pretty simple. Apparently, AU vendors are still selling technology.

Earlier, I pointed out that Loan-Score had scored another client. Now, I hear that Insight Lending Solutions, Costa Mesa, Calif., has sold its PriceMyLoan tool to Flaherty Funding, Rochester, New York. According to the vendor, the solution has already been implemented.

Key to the sale was allowing the lender to play with the tool first in the vendor's Private Testing Suite, a sandbox of sort that we've seen implemented by other vendors who know their prospects need to see near-production-ready implementations in order to enter the buy zone.

"The Private Testing Suite was key because we needed to be sure we were making the right choice," said Ken Polowitz, business development manager at Flaherty. "Our entire staff was able to poke and prod the system without anyone hovering over our shoulders. We were able to delve deeper into the system than any other vendor would allow."

Insight said that the feature that closed the deal was PriceMyLoan's ability to extract live credit report data. Another example of a feature that formerly set subprime AU apart from conventional lending's AU tools.

"We've been hammering this message for years now," said Gigi Campbell, national sales director for PriceMyLoan. "Comprehensive analysis of live credit data is the basis for an accurate underwriting and pricing decision. We know that others are just beginning to build connections to credit vendors, but the real question is what do they do with that data? Can they differentiate between a rolling and non-rolling late? How do they parse public record information? And how do they manage the varying data formats that are provided by different credit vendors? Our unique history in credit reporting gives us the knowledge and experience in handling credit data that very few companies understand."

Many companies have built connections to credit vendors, or secured access through online vendor management companies, but Campbell's questions are on the mark. If the data isn't used properly, it doesn't really matter. Or at least not until the loans come back.

PriceMyLoan is offered under the SaaS model.

Loan-Score: Signs another client

San Diego-based Plaza Home Mortgage, Inc. is the latest firm to buy into Point of Sale decisioning technology from Loan-Score Decisioning Systems, LLC, also based in San Diego. The lender will use it on the wholesale side, giving its third-party originators easy access to its LOS for real-time status reports on deals in the pipeline. Plaza Home will use the technology in 16 wholesale branches nationwide to drive efficiencies on $3.6 billion in annual funding.

Loan-Score’s AUS underwrites all types of loans and will seamlessly integrate with Fannie Mae’s DU®/DO, Freddie Mac’s LP, FHA Total Scorecard and DataTrac, Plaza’s back-end processing and banking system. The solution is designed to deliver instant product eligibility, pricing and automated underwriting approvals, complete with all conditions and loan details. The solution utilizes a centralized rules repository to ensure continuity and accuracy for each of Plaza’s 16 branch locations. Brokers stand to benefit from the enhanced portal and pipeline management capabilities that will be embedded into the lender’s existing corporate website.

Brokers will run an initial prequalification, then complete or upload a 1003 into Loan-Score’s system to accurately decision and underwrite a loan. It is then automatically populated into the appropriate fields within DataTrac via a tight, nine-point integration with Plaza’s core system. Loan-Score’s AUS and DataTrac automatically talk to each other, updating conditions and loan-level status in real-time within the broker portal using advanced Microsoft® .NET 3.0 Web Services. This seamless integration allows for the bi-directional flow of loan-level details and real-time status between back-end processing staff and brokers at the POS, and also eliminates the need to re-key data, thus reducing costly errors.

“As market needs have shifted, so have we in terms of our development efforts,” said Scott Burgess, president of Loan-Score. “We engineered our AUS to evaluate very complex lending scenarios where deep credit analysis is critical to accuracy and risk mitigation. The industry, however, has clearly gravitated toward safer underwriting practices. Consequently, we responded by establishing seamless integrations with Fannie’s DU®/DO®, Freddie’s LP® and connectivity to FHA Total Scorecard. This is huge given the market shift.”

The Loan-Score AUS is offered on a SaaS basis.

The deep credit analysis that Mr. Burgess refers to sounds very similar to the features that were once touted by subprime AU engine developers. Firms that specialized in those tools have fared poorly of late as lenders reduced their loan program menus and liquidity dried up for subprime lending, ARC Systems being a notable example. Bundling this tool with real-time statusing and tight integration with a popular LOS was a smart move.

Tuesday, February 12, 2008

Zaio: Acquires Appraisal.com

Zaio Corporation, a technology and database company, has acquired Appraisal.com, a firm that provides collateral valuation management technology to more than 100 lenders and 7,500 appraisers across the country. The firm's appraisal network includes over 9,000 working appraisers.

Zaio shook up the industry when it entered the space, promising to create a database of real estate valuations that would allow it to serve lenders more quickly than traditional appraisers. Since then, the company has acquired Jim Kirchmeyer's appraisal shop and AVM business and now has acquired the Appraisal.com network and Day One form-filling software. Today, the company claims to have a database of 140 million properties.

According to a press release, Zaio will redirect orders placed on Appraisal.com to its own network of appraisers. Any orders placed within the next 60 days will receive a 60% discount. It appears that the company will also attempt to convert Day One users to its Zaio Zones software with special offers.

Kirchmeyer, who now serves as Chief Marketing Officer is quoted in the release as telling Appraisal.com lenders and appraisers, “Simply continue to use the Appraisal.com and Day One technology as you have in the past, with the full confidence that Zaio, and its two national service centers in Buffalo NY and Tempe AZ, are here to ensure you have a positive experience.”

Friday, February 01, 2008

What a good trade press interview should be

There's an excellent post today over on Jeremiah Owyang's blog about how to host a great analyst interview. While you may only get to sit down with a trade press reporter in person once a year or so, his tips apply equally well in that arena. In fact, if I had received a presentation like the one he describes (and I sat through quite a number that came close), I would have been much better prepared to write about the mortgage technology offering.

Check out the post and see if you can apply any of it the next time you sit down across the table from a reporter.

A better understanding of subprime MBS loss

HousingWire carried the story about another rating agency revising its loss projections for subprime mortgage-backed securities. These firms have fallen under a bit of a cloud because some think that they should have been in the best position to see the subprime crisis before it hit. While they've done a great job of working quickly to downgrade hundreds of securities after the fact, they are still in the process of trying to fully understand how the value of these securities is likely to change in the future.

I've been talking to executives inside two firms that do this sort of work for a living and there is a lot of background noise audible on their sides of the calls. I'm not saying it sounds like panic, but there is definitely a lot of activity going on inside these firms.

I understand the whole "black box" idea, and how proprietary models are the only asset these companies have to deploy in the marketplace, but I think it's time now for somebody to step up and explain why we should accept their predications. Or admit that historical analysis no longer provides any insight into the events of the last six months and that without new assumptions based on something someone pulled out of a hat, there is no way to know what the next six months will hold. But then, this isn't really compatible withe the concept of investor confidence, is it?