Friday, June 27, 2008

King: The lenders wish list

Terry King, Group Director for MRG Document Technologies has a piece in the most current Mortgage Technology eNewsletter that I found very interesting. King picks up the age-old discussion about best-of-breed versus end-to-end and does a good job of summarizing the current state of the industry, but then he adds some real value.

Near the bottom of his article, King provides a menu of products and services that he says are at the top of the tech-savvy lender's wish list. His list closely mirrors my own experience interviewing many lenders over the years.

While King maintains that the end-to-end system doesn't exist yet, we've seen news over the past few months of companies forming partnerships and alliances or acquiring firms to at least give the impression that they have such an offering. Recent announcements that spring to mind include those made by Metavante, OpenClose/LION, Xerox/Blitzdocs, ISGN's new branding efforts and MRG's own alliance with Lydian. Companies like ISGN and Wolters Kluwer have made no secret of the fact that they are willing to buy up anything that fits into the mortgage transaction in order to offer an end-to-end solution. But will lenders ever really go for it?

I doubt it. A lender would really have to trust a vendor to put all its eggs in that basket. With SOA and industry-wide data standards, there is no pressing need to do so because hooking up with other service providers is much simpler than it used to be. But it could happen if originators take a page from the AMC playbook. That's Appraisal Management Companies, by the way.

There's a lot of turmoil in the collateral valuation space right now. No one is sure what the landscape will look like when the dust clears, but what we are seeing are more companies that offer valuation cascades. These tools allow a lender to step up or down through a risk-prioritized series of collateral valuation products until the overall deal risk matches their pre-set tolerance. It's usually a factor of valuation product accuracy (often measured by a confidence score), other risks already present in the deal (FICO, LTV, property type, etc.) and the cost of the valuation method.

While plenty of vendors are happy to tell lenders that they can accurately match up lender risk tolerance with their own valuation products, few lenders trust them enough to actually let them do so, choosing instead to either use their own staff appraisers to test valuation methods and place them into the matrix or, increasingly, to call on an outside expert.

Lee Kennedy, Managing Director of AVMetrics, Simi Valley, Calif., told me recently that his company is busier than ever helping lenders use complex and powerful cascading technology, like Veros Real Estate Services' VeroSelect, to make best use of these tools. All of the lender's eggs may be in the basket of one collateral valuation provider, but the way they utilize that vendor is governed, in part, by an outside consultant.

We've had consultants on the origination side for many years. They spend a lot of time helping companies install new LOSs and set up the business rules to make them run smoothly. But in the future, these experts will likely spend less time setting up complex, behind-the-firewall technology platforms and more time helping lenders choose the right mix of best-of-breed Web services to build their own end-to-end platforms.

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