Predictive Methods: Reconciling Appraisal Outcomes

*Reconciling Appraisal Outcomes*
**By William E. King**

***It is common for lenders to get several valuations for a single property to ensure an accurate determination of value. These valuations need to be reconciled into a single, overall property valuation that will become the basis for the lending decision. Reconciliation is a method by which an appraiser or reviewer concludes a final, well-supported valuation of the property.

****In today’s environment of The Dodd-Frank Act, UCDP, and CFPB, managing appraisal outcomes can be challenging. Chief appraisers need to “see through” appraisal reports and challenge or dismiss valuations that aren’t well supported. In light of the highly regulated landscape, this requires greater objectivity than ever before.

****Key challenges that tend occur in reconciling estimations of property value include:

****>> Appraisal Reconsideration: If the property value is deemed unjustified by the owners or loan officer, an appraiser can be approached to reevaluate the value to determine if something was inadvertently excluded from the appraisal. Although rare, third parties will sometimes claim the property was over-valued given the comparables in the neighborhood.

****>> Avoiding Undue Influence: By definition, an appraisal is an unbiased opinion of value. USPAP requires that 1) an appraiser have no bias to the property; 2) appraisal results not be contingent on a predetermined result; and 3) the appraiser’s compensation not have any bearing on the outcome. Dodd-Frank has helped reduce undue influence on an appraiser, however, pressure does still exist.

****>> Mitigating Rep & Warrant Issues: When faced with a buy-back situation, one of the first areas of focus is the appraisal to ensure that it conformed to GSE appraisal requirements. If not, lenders may be faced with repurchasing a loan and dealing with the foreclosed property directly. Due diligence in appraisal review at loan origination, including reconciling multiple valuations can go a long way in preventing Rep & Warrant related buybacks.

****>> Managing Loss Severity: It is important that a property be correctly valued to minimize loss severity in short sale and REO situations.  Multiple valuations and a thorough reconciliation of those values can save lenders from more significant losses with defaulted/foreclosed properties.

****Many tools and practices are available to help ensure a higher level of accuracy and gap management in arriving at a property valuation conclusion. Thorough appraisal reconciliations must be supplemented with appropriate analytic tools. It is incumbent on lenders, whether through an AMC or direct panel management, to ensure the quality of the vendors utilized. AMCs derive their value through quality reviews and it is important for them to focus on the factors that really drive support for the value opinion. This topic will be discussed by a variety of industry experts in more detail during a panel at the 2012 Predictive Methods Conference June 4-6 in Southern California.

Market Analysis: The Future Of The Correspondent Channel

*The Future Of The Correspondent Channel*
**By Tony Garritano**

***Everyone asks: Is correspondent dead? I respond: Sure, a lot of the bigger players may be pulling back or exiting, but that doesn’t mean the space is gone. In my estimation, it just needs retooling. It needs a fresh approach. New entrants will reinvent how correspondent lending is done. What correspondent really needs is technology to create a more trusted process. I was told of a company offering technology to do just that. The purpose of this new automated solution is to help this sector of our industry shoot back to life. Here’s the scoop:

****Genpact Limited, a business process and technology management provider, has released virtual correspondent and private-label origination applications for its Quantum Mortgage Operating System (MOS). The applications are leveraged with Genpact’s Mortgage Business Process as a Service offering (BPaaS), which combines the technology with Genpact’s business process services, data analytics and mortgage domain expertise.

****The virtual correspondent and private label applications combine Quantum MOS’ data-centric loan automation platform with Genpact Mortgage Services’ BPaaS offering to increase effectiveness and reduce the loan cycle time by as much as 30%. The applications can be set up in either a delegated or non-delegated model, enabling users to customize the workflow to best suit the needs of each lender.

****“Lenders who can push enterprise software to their correspondents while also leveraging business process services in the back office will be able to realize lower costs and quicker closing times,” said Roger Hull, vice president of Genpact Mortgage Services. “Genpact’s Quantum MOS private-label and virtual correspondent applications utilize a correspondent web portal, underwriting apps and automated quality control processes to increase accuracy, ensure compliance and improve risk transparency.”

****The private-label origination and virtual correspondent applications are hosted within Genpact’s Quantum MOS, which uses a data-driven approach to automate every step of the loan process. The platform combines automated decision-making, highly efficient processing, and file transparency to provide valuable data and insights for more accurate underwriting.

****“To be profitable in today’s market, lenders must eliminate as much waste in the pipeline as possible without sacrificing quality,” said Rob Pommier, vice president of Genpact Mortgage Services. “Genpact’s Quantum MOS applications enable our lenders to leverage the mortgage ecosystem to quickly, accurately and effectively originate, close and trade high quality mortgage assets through their correspondent channels.”

****You see what I mean, it just takes a little creativity and the willingness to reshape the process to get correspondent rolling again. Stay tuned for some more excited news coming from Genpact. I hope to be able to share it with you soon.

Your Competitive Edge: Sure-Fire Rules For Success (Part Two)

*Sure-Fire Rules For Success (Part Two)*
**By Michael Hammond**

***Last week I started to tell you about an article by Karl Stark and Bill Stewart called “4 Rules for Better Marketing” that will help anyone serious about marketing get ahead. Let’s face it, everyone wants to get ahead, and you can succeed even in the current tense mortgage market. The first two rules detailed in the article advised companies to No. 1 know your client, and No. 2 create a compelling reason for that client to do business with you. Here’s the last two rules to help ensure your future marketing success:

****Rule No. 3: Hit Them Hard When They Are Ready to Buy

****With the right product at the right price and a promotion tailored to an attractive niche, you must be relentless in reaching out to potential buyers at the right time—when they’re most inclined to buy. A typical window during which a potential customer is willing to buy lasts from six months to two years. If you do not convert them in that time period, the prospect is likely to either choose a competitive offering or decide not to purchase.

****Therefore you need to redirect your marketing spend toward making repeated impressions on these customers. By better targeting high-potential customers, you can redirect spend away from lesser prospects, thus improving their campaign effectiveness without increasing overall spending.

****Rule No. 4: Experiment and Learn to Improve Your Mental Model of the Customer

****Your ability to predict a customer’s “ripeness” (willingness to buy) and “sweetness” (potential lifetime value) can be improved by taking a more experimental approach to the market. This requires:

****>> Running pilots of different marketing messages and four P (Product, Place, Price, Promotion) combinations

****>> Measuring the results of each pilot, uncontaminated by other marketing programs

****>> Analyzing the data deeply to extract the desired learnings

****>> Investing in ways to lower the cost of running these types of pilots

****>> Sharing the learnings across the organization

****These rules and actions are all easier said than done, but they can be a key source of value. By investing in this approach, you may be able to cut your cost per acquired customer in half and generate a positive return doing so. Great companies use this approach to marketing to create a sustainable competitive advantage. It can work for you too.

Market Analysis: Wipro Embraces Mobile

*Wipro Embraces Mobile*
**By Tony Garritano**

***No, I haven’t heard of another LOS acquisition, but I was recently treated to a demo of a new offering. I thought it was very slick. As it turns out, more LOS companies are trying to harness the power of mobile technology. Franklin, Tenn.-based Wipro Gallagher Solutions (WGS), a provider of end-to-end lending solutions for financial institutions, introduced Enterprise Mobile Origination (e.MO), a native iOS lending productivity suite for the iPad, designed to enable sales teams in the field to run and originate new loans of all types. Here’s the scoop:

****The e.MO application integrates with any loan origination system (LOS), including WGS’ NetOxygen LOS, and provides all the tools to keep sales informed and connected to the customer. The application monitors leads and manages all associated contacts through the entire lending process. It maintains lead status, follows up on additional requirements, and requests credit and AVM results while creating a lead. Its alert and notification system monitors borrower activity via user-friendly iPad push notifications for the duration of the lead throughout the entire lending lifecycle.

****The e.MO application positions loan originators as consultants to their customers with its mapping and house price index (HPI) designed to offer well-informed decisioning support to borrowers based on the ability to map their property of choice and compare real estate opportunities in the geographical area.

****e.MO’s built-in calculators compare items, including fixed rate versus variable rate products, loan terms and payments while in the field with a borrower and engages leads with graphical representations of their buying power. Its reporting dashboard easily communicates information to loan officers and compares lead generation using charts representing lead status, lead completion and performance levels within the branch, region and country.

****Other e.MO tools include a product filter that leverages the product and pricing engine of choice and provides significantly reduced turnaround time for the origination process with information readily available on the iPad. Loan information is immediately available to processors, underwriters, funders and closers through the LOS via seamless real-time integration with e.MO.

****“Tablets are shifting the way business is conducted for the entire lending lifecycle, yielding a net effect of improved customer service and satisfaction,” said Narayan Bharadwaj, business head for WGS. “We already offer NetOxygen on the cloud and the extension of our solution to a mobile device further strengthens our value proposition in line with our overall strategy to provide multi-channel, product-agnostic enterprise lending solutions to make the lending process as convenient as possible for borrowers.”

Understanding The News: New Website Builds On Clayton’s Reach

*New Website Builds On Clayton’s Reach*
**The Power Of The Web Continues**

***Clayton Holdings LLC, a provider of due diligence, underwriting, surveillance and default servicing to the residential and commercial mortgage and fixed-income industries, announced today that it launched its redesigned website. The company said that it designed the new site to better align it with the services that Clayton is currently providing to mortgage servicers, originators, commercial banks, investors, hedge funds and credit unions. Here’s the full story:

****“Over the past few years, the composition of our offerings has adapted to a changing market and client base,” explained Tom Donatacci, executive vice president of business development at Clayton. “Although loan file reviews and servicer surveillance remain the cornerstones of our business, we have grown our presence in commercial real estate due diligence and small balance servicing; additionally, we are very active in performing foreclosure reviews and assisting regulated institutions with their operational planning and regulatory compliance.”

****Donatacci added: “Our new website gives current and future clients a clear, intuitive way to learn about our services and solutions. Visitors to our site can stay current on Clayton, read articles on industry issues, see upcoming conference schedules, and reach the appropriate professionals quickly and effectively. Identifying the expertise to solve complex business problems with speed and efficiency has never been more important than in today’s market.”

****Clayton Holdings LLC, headquartered in Shelton, Connecticut, provides information and services that financial institutions, investors and government entities use to evaluate, acquire, securitize, service and monitor loans and asset-backed securities. Clayton offerings include residential and commercial loan due diligence, consulting, surveillance, staffing solutions, independent pricing, and risk-based analytics. The company provides customized residential and commercial special servicing solutions through its Quantum Servicing subsidiary and REO management, BPOs and a short sale program through its Green River Capital subsidiary.

Market Analysis: Reaction To The Avista Acquisition Starts Rolling In

*Reaction To The Avista Acquisition Starts Coming In*
**By Tony Garritano**

***As you all know, D+H, the parent company of point-of-sale vendor Mortgagebot, acquired loan origination system Avista Solutions for $40 million. I broke the news yesterday. Since the scoop, I’ve gotten a lot of reaction from various industry experts. It’s great to hear your thoughts. Now that we’re about 24 hours removed from the news breaking, I thought that I would share what people are saying about this deal. I also got a chance to talk with Matt Cotter, senior vice president of sales and marketing at Mortgagebot. Here’s the industry reaction to this big acquisition:

****“Avista is a perfect fit,” said Cotter. “Our customers have been asking us to get into the LOS space for years. The challenge is that we are focused on the point-of-sale and to build an LOS would distract us. So, the acquisition made perfect sense. Also, Avista is a Software as a Service-based product, which fits with our culture.

****“For D+H, this continues their process of diversifying their revenue and geographic footprint. Avista will act as a subsidiary. Mark Phlieger and his entire team at Avista will stay. Mark reports into Scott Happ of Mortgagebot, who reports into D+H. This acquisition is about growth and adding value.”

****Personally I have known Mark Phlieger for many years. He is certainly a friend. Good for him that he started the company and built it to the point that it could be sold for a nice price tag. He did a great job. Also, kudos to Mortgagebot and D+H for acquiring an LOS as part of their strategy to expand in the U.S. mortgage space. To me, it sends a message that both companies are committed to our space.

****So, what happens now that the acquisition is done? “Priority No. 1 is to get the files from Avista and Mortgagebot talking back and forth. From there, we’ll do a tighter integration. It’s a high priority. Historically there has been best-of-breed applications where you have great functionality but you trade off with the integration process. We want to provide an end-to-end solution that is best-of-breed.”

****Celebration aside, some of the reaction that I have gotten since breaking this story has been mixed. Off the record, several origination vendors are a bit fearful. Now that POS Mortgagebot has an LOS in Avista, many LOS vendors see Mortgagebot as competition. They know that the end goal will be, as Cotter suggests, to come to market with one offering at some time in the future. Some of these vendors have said off the record that they may not integrate to Mortgagebot as tightly and may look to some of Mortgagebot’s competitors instead. They don’t want Mortgagebot trying to sell their clients on switching off of their LOS of course.

****In my talk with Matt Cotter, he was understanding and sympathetic to their concerns. He told me, “We have hundreds of joint clients with many of the LOS systems. For us it is important that we continue to work with every LOS. We are going to have to make sure that we deliver on our commitments and ease their concerns over time.”

****What’s the big takeaway from this deal? “This is best-of-breed plus an all-in-one approach,” answered Cotter. “These are two systems that are functionally rich that will eventually be combined into one system. The products will be end-to-end, but they’ll also stay stand alone to compete on their own merits. The customer will decide what they want. As a theme, both Avista and Mortgagebot focus heavily on the midtier. Both products are also SaaS, and that’s something we believe in.”

****I’ll keep you posted on next steps. In the meantime congratulations to Avista, Mortgagebot and D+H. The mortgage industry is worth investing in. The people in this space are dedicated. This deal validates our industry’s clout and relevance.

Market Analysis: Breaking LOS Acquisition News

*Big LOS Acquisition News*
**By Tony Garritano**

***I don’t usually do this because I know that you don’t like getting multiple e-mails a day and I don’t want to spam you. However, this warrants an extra e-mail, believe me. I always expected more consolidation in the LOS space. It’s been too slow as far as I’m concerned. Sure, we saw DataTrac get acquired recently, but that’s it. Now the big news starts my friends. Today I learned that Avista Solutions has been acquired. Here’s the scoop:

****Davis + Henderson Corporation today announced that it has acquired Avista Solutions, Inc. of Charleston, South Carolina, a leading provider of Software as a Service (SaaS) mortgage loan origination software to community banks and credit unions in the United States.

****The acquisition adds to D+H’s customer base and expands the range of integrated technology solutions D+H offers to the North American financial services industry by complementing the SaaS consumer point of sale (POS) mortgage origination platform it delivers to more than 1,100 U.S. banks and credit unions through its Mortgagebot subsidiary. Like Mortgagebot, Avista’s loan origination system (LOS) technology is delivered via the Internet as a service and revenues are generated on a subscription-fee basis under long-term contracts.

****“This acquisition is fully aligned to D+H’s “follow your customer” approach – in fact, customers have told us unequivocally that they want us to extend our offering with an LOS platform,” said Gerrard Schmid, CEO of D+H. “With Avista, we’ve added an innovative, fast growing LOS business featuring proven capabilities that are highly synergistic to those we offer through Mortgagebot. Together, we now support the entire mortgage origination process for U.S. lenders and provide customers with a comprehensive suite of products that enable efficient, effective growth from origination through to closing. We are pleased that Avista’s team, including Mark Phlieger, its founder and CEO, are joining D+H to drive future growth.”

****Founded in 2001, Avista is a profitable and growing financial technology business with over 150 financial institution customers and a technology suite that includes a complete loan origination system with integrated product and pricing engine, document imaging, workflow capabilities, and a comprehensive network of seamlessly integrated third party mortgage service providers.

****“We believe that a combination of our innovative LOS technology and D+H’s industry leading mortgage point of sale solutions will allow us to jointly reach more customers, more rapidly, and with a more effective one-stop value proposition,” said Mark Phlieger, CEO of Avista. “Speaking on behalf of our team at Avista, I am excited by the prospects of taking our business to the next level.”

****The purchase price is $40 Million (USD) payable in cash, and funded from D+H’s existing credit facilities. The addition of Avista is expected to provide accretion for D+H shareholders in 2012, on an Adjusted net income basis.

Market Analysis: Advancing The Cause Of Paperless Processing Further

*Advancing The Cause Of Paperless Processing Further*
**By Tony Garritano**

***Anyone who has purchased a home is familiar with the stack of paper that has to be signed to finalize the loan transaction. Less known are the challenges lenders face to get the loan to the closing table–complex interactions behind the scenes, multiple participants needing access to the same file and regulation requirements for data transparency. PROGRESS in Lending has learned that Xerox Mortgage Services is helping lenders simplify the process with new features for its BlitzDocs intelligent collaboration network. Here’s the scoop:

****To help both internal and external participants work together more effectively, BlitzDocs’ new advanced workflow capabilities automatically queue loans to accelerate the process from origination to closing. In addition, using the new manager dashboard, lenders can track loan status and better manage productivity and workload across various people and processes.

****BlitzDocs now also provides annotation capabilities that allow lenders to easily edit, sign and comment on paper-based images and electronic documents rather than printing out documents to hand write notes or add signatures. BlitzDocs supports multiple versions of annotated documents so lenders can choose what is viewed by third parties and which version is sent to investors. Lenders also benefit from an audit trail showing who made the notes and when.

****“The enhancements made to BlitzDocs are well thought out and take our paperless collaboration to the next level,” said Jennifer Edwards, vice president of Town and Country Banc Mortgage Services, Inc. “BlitzDocs continues to help us simplify our processes and allows us to connect with all necessary parties from origination to post-closing.”

****Lenders working with Xerox Mortgage Services benefit from an extensive network of BlitzDocs certified partners and providers, now including Medallion Analytics and MRG Document Technologies.

****“To save time and adapt to industry regulations, lenders are recognizing that basic imaging is not enough – they need to extend collaboration beyond their own business,” said Nancy Alley, vice president and general manager of Xerox Mortgage Services. “Xerox is driving this industry change with new technology and a growing network of partners that make it easier for loan participants to work together to meet borrower needs and stay one step ahead of changing regulations.”

Our POINT Of View: The Truth About Workflow

*The Truth About Workflow*
**By Ted Hicks**

***The commonly used definition of workflow as one linear process is simply outdated. In a mortgage shop there are multiple processes going on at the same time. Most technology platforms can only handle the main workflow. A loan process goes from point-of-sale, to processing, to underwriting, etc. Many people in the mortgage space think of a loan process as a one-dimensional process, but what about the lock process, the confirmation process, the compliance process, etc? There are several processes going on at the same time as the loan is going through the workflow. So, how do you make everything happen in a streamlined, efficient manner? Here are my thoughts:

First, it’s not just about notifications.  It’s about having the type of intuitive technology that functions transparent to the user but is able to generate necessary information to a specific user at precisely the right moment. As such, the system needs to identify the different loan processes properly. If the system doesn’t understand parallel processes outside of the traditional loan workflow, it simply won’t work. You also need to see what’s going on and what sub-processes need to be done and what triggers those actions.

Lenders know that they have to accomplish all these things, but they don’t think of it as a multi-dimensional process and technology doesn’t help, quite frankly. Today most technology tools track milestones. What’s the problem there? The system looks at things as a serial workflow. In a parallel workflow system several steps can occur at the same time.

Every loan has milestones, but lenders need to contort the technology to lock a loan at a certain time or to re-disclose if the need arises. Why? The technology should do that for the lender. So, why doesn’t technology do this today? Vendors realize the complexity of the mortgage process, but the systems are old, which limits how a system can work. If a vendor thinks about parallel workflows they are thinking about creating new technology because their existing technology won’t cut it.

In the end, just as the definition of workflow has changed, technology needs to change as well.

Market Analysis: Are You Afraid Of The GSEs?

*Are You Afraid Of The GSEs?*
**By Tony Garritano**

***We have seen the GSEs launch a number of requirements that try to ensure loan quality. They are cracking down for sure. Most lenders are fearful, but they don’t have to be. Technology is always there to help. For example, PROGRESS in Lending has learned that Interthinx has released its new Watchlist Review Module, a stand-alone application that allows/enables lenders to check all loan participants against several industry lists to ensure compliance with Fannie Mae’s Loan Quality Initiative (LQI) as well as rules from the Office of Foreign Assets Control (OFAC) and the Bank Secrecy Act (BSA). Here’s the scoop:

****“Much of the risk involved in the mortgage loan transaction rests with the loan participants,” said Gayle Shank, vice president of product management at Interthinx. “Knowing whether these individuals — including the personnel involved in the closing — are on any industry lists is a critical due-diligence step that federal regulators expect lenders to take. Those who fail to do so greatly increase the risk associated with a loan transaction.”

****Shank pointed out that the BSA requires lenders to screen closing participants against industry watchlists but said that lenders lacked a comprehensive way to do so. The new Watchlist Review Module solves that problem by screening individuals and companies against all exclusionary lists at the same time. “It’s a great time-saver for lenders because it eliminates the need to visit and search various individual websites,” she noted.

****The module uses name-matching software combined with algorithms to identify matching records. The system provides a customizable, intuitive report through a single-source interface.