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Ben Wu is executive director of LoanScorecard,
a leading provider of automated-pricing,
underwriting and compliance solutions and a
wholly-owned subsidiary of Calyx Software.
The company’s offerings include Custom AUS, a
customizable automated underwriting system
for non-agency loans; Pricer1, a personalized product and pricing engine that can be
accessed via web browser or mobile app; and
LO Connect, an integrated automated distribution solution for aggregators and wholesale
lenders sourcing non-agency loans. Reach Wu
as it prepares for the new Home Mortgage Disclosure Act (HMDA) data-collection requirements scheduled to take effect in less than a year. Being
able to demonstrate that a consistent, quality underwriting process is used
to manufacture assets is essential for complying with these rules.
In addition, an AUS can help originators stay abreast of their wholesale
lenders’ ever-changing guidelines. Loan originators may work with up to a
dozen wholesalers. Each wholesaler has extensive guidelines and, because
most originators don’t submit non-agency loans at the frequency they do
agency loans, they may not fully understand the programs available.
Many originators can’t figure out what information to submit to a niche
wholesaler, and what not to submit. If an originator puts together a loan
package and submits a borrower who gets denied, then everyone loses.
The originator and borrower waste time completing the application and
gathering the documentation. Underwriters waste time on dealing with
unqualified loans and going back and forth with originators about guidelines that were not met.
On the other hand, when originators are too conservative or play it too
safe because they have been burned before, then money gets left on the table because they don’t consider or present alternative loan products. Every
month, originators turn away borrowers who have had recent foreclosures,
short sales, or bankruptcies, even though they think those borrowers have
the ability to repay going forward.
Wholesale test drive
Matching hard-to-fit borrowers with the right
investor is much easier with automation, but
many mortgage companies continue to believe they have to submit non-agency loans
manually. Ideally, these companies should
build relationships with wholesale lenders
that embrace technology — particularly in
the areas of automated underwriting and
pricing. With automated underwriting, originators can know if the two weeks of time
and energy they spent on a non-QM loan has
been worth it, because the likelihood that it
will be approved is high.
Likewise, a state-of-the-art pricing engine
gives originators confidence in dealing with
investors and borrowers. No originator wants
to go back to a borrower and say, “You know that 6 percent interest rate
mortgage I found last week? I missed a loan-level price adjustment and
the interest rate is actually 6. 5 percent, so your monthly payments will
go up $500.” Most borrowers will think this was a bait and switch or that
the originator is inexperienced or unqualified. Either way, the relation-
ship is soured.
Innovative wholesale lenders are deploying decisionmaking technology
at the point of sale that effectively allows mortgage companies to “test
drive” the wholesaler’s offerings to determine whether or not they want
to establish a relationship. Originators can go on the lender’s website —
without being approved — to see live pricing, input limited data and get
an immediate indication of whether loans would be approved.
The traditional approach followed by many wholesalers, unfortunately,
is to put their pricing and underwriting technology behind a firewall, so
only approved brokers have access. There’s no way to try out the wholesaler or their specific product offerings. This can be problematic if an originator begins submitting 10 files a month to this new wholesaler, all of which
are ultimately denied because the originator didn’t understand or read all
These “false starts” increase operating costs, trigger HMDA filings and
foster bad will. In addition, some wholesalers rate the mortgage companies
they work with based on pull-through ratio. Companies that submit a lot of
files that never pull through will get rated lower and are penalized on pricing. Automation
and test driving can alleviate these concerns.
Originators today have access to a lot of
non-agency and niche products. In a shrinking market, mortgage companies will need
to find wholesale lenders that have a creative and expansive suite of niche products,
so their originators can offer more options to
help hard-to-fit borrowers. Companies looking to seize non-agency opportunities also
should look for forward-thinking wholesalers that offer products and technology that
make it easy to reach those borrowers so they
can close more loans. n