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The Power of the Internet Realized
By Scott Kersnar, Senior Editor, Mortgage Technology Magazine
I recently went to the website of a formerly well-publicized niche lender to find out how this company was faring in these uncertain times. Uh oh. The company had a 2007 copyright date on the website itself — but the most recent press release (stating that they were doubling their sales staff because they were bullish on the mortgage industry’s outlook) was dated July 2006. Guess they haven't been bullish about anything after New Year’s Day 2007.
Keep your website up-to-date, folks. Not doing that tells the world your company’s wallet is getting thinner. One very simple and inexpensive way to avoid leaving the impression that you are experiencing terminal cash-flow problems is to post a current (and clearly dated) press release on your website. That tells the world you are not standing by the door ready to hand out the pink slips and change the locks if you lose another warehouse line or one more customer. Surely you can find some good news to talk about.
Some of the best news these days is about the Internet channel itself. Flagstar just went live with fully electronic mortgages and AllRegs — beefing up to strengthen its place on the Internet -- acquired Lender E-Source, a Web-based purveyor of mortgage lending product and underwriting guidelines. Mortgagebot has just launched its Mortgage Marvel.com direct-to-consumer website tightly integrated with 250 of its lender customers. The company said the launch is timed to capitalize on the prediction that the Internet will be the dominant mortgage origination channel within five years, now that 70% of prospective borrowers shop online for mortgage rates and fees.
Whether the news is good or bad, the mortgage industry certainly remains in a state of flux as it sheds excess post-boom production capacity. Lenders are turning away from exotic loan products and reaffirming prudent underwriting standards. As noted in my last column, people have been saying that a 640 FICO score "has become the new 620." Since then some have told me to make that 660 instead of 640. Wait a minute here: If we are undergoing some kind of FICO score devaluation, what does that say about how FICO scores have been used?
Though many step up to say Fair Isaac should not be blamed for lenders’ overreliance on the FICO score, the fact is that the industry is leery now about its own underwriting assumptions. That keeps capital from flowing to good loans as well as bad. "Scores are in need of tremendous upgrading," says VantageScore Solutions SVP Sarah Davies. In her view, the problem with continuing to rely on the FICO score is that it’s not sensitive to the record booms and subsequent troughs of today’s lending environment. "It was built in a real estate market that was radically different. The kinds of loan product available today didn't exist then, the financial pressures on consumers didn't exist."
Some believe that the current paralysis in much of the mortgage market may turn out to be a blessing in disguise by stimulating development and deployment of better analytics. Irvine, Calif.-based Loan-Score Decisioning Systems LLC claims to have the industry’s most accurate eligibility and pricing engine loosely coupled with a best-of-breed AUS offered on a Software-as-a-Service basis. Commenting on the shrinkage of the industry in the wake of the subprime debacle, Loan-Score Decisioning System president Scott Burgess said, "The changes that have occurred in the industry ultimately will benefit the consumer. A lot of the middlemen are getting weeded out. Lenders are under incredible pressure to cut costs and get more efficient."
"More efficient" has to mean that they do business with greater prudence and foresight, he said, arguing that the flow of capital will go to lenders that employ eligibility and pricing systems that are analytic and accurate.
Dave Christel, president of St. Petersburg Fla.-based warehouse lender Natty Mac, seconds that view. "From a warehouse lender’s perspective the use of technology is critical in today’s marketplace. How a company uses technology, be it automated underwriting engines, pricing models, fraud prevention, valuation software, etc., is one of the first questions asked when entertaining a new warehouse customer." He said lenders using the right technology "get the best pricing and delivery execution" and spend the shortest time on the warehouse facility.
The ability to predict the risk of default before loans are made certainly frees up the flow of capital. Responding to widespread mortgage industry demand for ways to curtail early defaults, Carlsbad, Calif.-based BasePoint Analytics has just released BasePoint EPD alert, an early payment default statistical pattern recognition product designed to assess the risk of early payment default in mortgage applications and loans. When lenders score all new applications with EPD alert and select the highest-scoring 10% to 15% of applications for further review, they are able to weed out the majority of loans likely to default early -- before funding.
As Loan Score’s Scott Burgess observed, the lenders doing the most business now are those that deploy technology that clearly benefits the consumer — and that means the banks and credit unions that have established trusted brands. What this means for mortgage lenders and brokers is that they must increasingly be viewed as trusted financial advisors, capable of making debt management a piece in the borrower’s overall financial health.
Adrian Nazari, founder and CEO of Palo Alto, Calif.-based Financial Crossing, is a well-known pioneer in liabilities management. Financial Crossing’s platform can help a loan officer go far beyond rate shopping and credit repair to analyze a client’s financial situation and objectives and proceed to optimize a client’s liabilities. "Our objective is to educate borrowers about liabilities in ways similar to those employed on the asset side," he said.
Instead of shying away from demonstrating a net tangible benefit to their prospective borrowers, loan officers can access the Web-based Financial Crossing platform to guide consumers toward understanding ways to achieve their own goals. He points to the experience of users like Chase Mortgage, IndyMac and WaMu as evidence that productivity and pull-through and retention rates increase with guided selling. And any lender can afford it.
"They can have access to all our analytics and unlimited planning resources for $50 per seat per month," said Mr. Nazari. "It’s a long road to convert a loan officer into a financial advisor," he acknowledged. Nevertheless, focusing tightly on the needs of the borrower will pay off over the long term.
