Trend
Watch - Getting Rid of Risk
By
Anthony Garritano, Editor, Mortgage Technology
Magazine
November 12, 2009
In total, 80% of respondents think risk mitigation
will be the driver in how lenders approach technology. Investors want more transparency, the government wants more oversight and
lenders want efficiency. How are all three goals accomplished? Technology to help mitigate risk.
"Without question, risk mitigation will be the driver
in future automation decisions," noted Jeff Taylor, managing partner at Digital
Risk. "The market trauma of the last several years has eliminated the
willingness of investors to accept hidden or unknown risks. Sellers will find a
marketplace unwilling to participate without a risk premium attached to the
yield (the RMBS market is not in the business of evaluating the equivalent of
junk bonds).
"The new rules that will be written for
sellers to survive will certainly include a dramatic demand for more
transparency and this will enable investors to feel confident that they
understand the true risk, yield and maturity of each portfolio they purchase.
By accessing the vast amount of information in the public domain, newly
developed risk management automation tools can run the relevant data through a
set of analytical scoring models that solidly rank the likelihood of fraud or
other negative attributes. As investors seek clarity, the sellers who embrace
automated risk mitigation techniques will enjoy a significant competitive
advantage."
According to Bruce Backer, president of
LoanSifter, adopting advanced decisioning
technology will help lenders in their efforts to be more risk averse.
"Complexities in today's risk-based pricing requires
real-time automation to fully and accurately evaluate differing and changing
eligibility and pricing underwriting from investors, GSEs
and MI companies. Historically having been in lock-step,
investors and MI companies now approach declining markets, LTV and overall risk
mitigation from their own perspective. With alt-A/subprime ARM adjustments
continuing into early 2010, investors and MI companiesí future response to
changing default levels ensure a market of complexity and fluctuation."
In the end, there needs to be a
marriage between good technology, good processes and good people.
"Determining a tolerance level for risk, and having tools in place to
mitigate this risk, is what financial institutions have and will continue to
monitor when extending credit for any type of loan," added Jeff Gentry, vice
president, business development at Kroll Factual Data. "The difference is
that moving forward the use of technology and the expanded availability of data
will continue to help institutions originate better loans. Automated
But do lenders get this message? Do
they understand the synergies between technology and people? Are they truly
more risk averse? I think Tom Madison, senior vice president and general
manager, mortgage services at Equifax, put in best in the most recent edition
of Mortgage Technology magazine,
which you can download in its entirety here,
when he said, "There's a common phrase that says lenders are becoming risk
averse, but I'm not sure they are. I think they're becoming more risk informed.
They want to understand the risk they're taking on by doing a loan and they're
being selective about the risk they take on, at the same time.
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