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Automated Underwriting Of Portfolio Products Allows Lender To Expand

Cascade Financial Services (Cascade) has implemented LoanScorecard’s Portfolio Underwriter as its automated underwriting system (AUS). Cascade is an independent mortgage bank that specializes in manufactured and modular home financing.

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In May 2017, the company was named Regional Lender of the Year for the third consecutive year by the Manufactured Housing Institute, the national trade organization representing all segments of the factory-built housing industry. Cascade was founded in 1999 in Arizona and is currently licensed in 38 states, with plans to expand to the contiguous 48 states by the end of 2017.

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Cascade’s unique portfolio loan products include both land/home and home only loan options for manufactured home buyers. With Portfolio Underwriter, Cascade’s guidelines for these products can be captured within the engine to deliver a rules-based underwriting decision in seconds. Results of the decision are documented in an in-depth findings report, which includes the program-specific, conditional underwriting criteria used in the data analysis. This allows Cascade to automate underwriting its portfolio loans and manage exceptions based on valid compensating loan factors, rather than loan officer “discretion.” It also ensures consistent, transparent credit policy application to demonstrate Fair Lending.

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“Having an AUS to provide quick and consistent underwriting decisions on portfolio loan products is a very important part of being able to scale a business. And building an internal system that is intelligent enough to read credit reports and interface with an LOS takes significant time and upfront expense,” said Gerron Dover, Executive Vice President of Production at Cascade. “We selected LoanScorecard’s Portfolio Underwriter because it works seamlessly with our LOS, it was relatively quick and inexpensive to get set up, and it is now providing us the efficiency we need to offer our portfolio loan products on a more expanded scale. It also provides us the ability to quickly revise system parameters as we get more experience with our new loan products, and our lending guidelines evolve over time.”

“Manual underwriting is time consuming, costly, and puts lenders at risk for Fair Lending violations,” said Ben Wu, Executive Director at LoanScorecard. “That’s why more and more forward-thinking portfolio lenders, like Cascade, are turning to sophisticated automation. By using Portfolio Underwriter, they’re able to not only automate underwriting for their unique portfolio products, but also reduce errors, improve efficiency, and expand their manufactured housing finance business.”

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Eyeing Future Happenings

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STRATMOR Group released the May edition of its STRATMOR Insights report. This month, STRATMOR Senior Advisor Rob Chrisman looks into the changing credit landscape, and what that means for mortgage originations. As Chrisman explained, after perhaps overcorrecting in the wake of the 2008 financial crisis, underwriting standards are beginning to loosen once again in an attempt to broaden the reach of the mortgage market to more borrowers.

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“STRATMOR data shows that after the financial crisis in 2008, borrowers’ average credit scores rose significantly,” Chrisman said. “It also shows a material decline in those scores, beginning in 2013, driven primarily by non-bank lenders. As of 2016, overall borrower FICO scores averaged 729, the lowest since 2008, before the bottom fell out of the market. Bank originated loans saw average credit scores of 743 last year, as opposed to just 719 for independents. A diminishing pool of higher credit borrowers, who had been fueling the majority of purchase and refinance lending, has shifted market activity to lower credit groups. More generally, the mortgage industry is dealing with slower growth, due to a variety of factors, including demographic and lifestyle changes and home affordability. Looser underwriting standards – with risk-based pricing – are a way for lenders to counter those headwinds.

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“We’re already seeing lenders adjusting guidelines to suit borrowers with higher loan-to-value and lower credit score mortgages becoming more prevalent,” Chrisman continued. “Likewise, lenders – and investors – are advertising programs aimed at opening up credit to borrowers previously unable to access the mortgage market. At the same time, forthcoming reporting changes by credit bureaus are expected to improve the credit scores of tens of millions of borrowers, bringing them into acceptable ranges. Together, these developments hold the potential to unleash first-time homebuyer demand. The question is, will this be enough to boost mortgage originations? Unfortunately, probably not, at least in the near-to-mid-term. Originators have told STRATMOR that housing constraints are a bigger impediment to volumes than a lack of borrowers.”

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This month’s report also features select findings from STRATMOR’s recent Spotlight Survey on perceived benefits and barriers to adoption of the Digital Mortgage. Based upon respondents’ expectations of the top benefits of adoption – increased borrower satisfaction, faster cycle times and increased transparency for borrowers – it is clear that lenders view Digital Mortgage as a way to improve the borrower’s experience. Systems and vendor integration and difficulty in getting loan officers to adapt to new processes and behaviors were both cited as leading barriers to adoption, as was cost.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

STRATMOR Talks M&As And Underwriting

STRATMOR Group, a leading mortgage industry consultancy, released its latest STRATMOR Insights report. This month’s STRATMOR Insights features commentary from Mergers and Acquisitions (M&A) specialist and Senior Partner, Jeff Babcock, that looks at the importance of “character” in M&A activity, including five crucial behaviors that support successful acquisitions and five negative behaviors that could scuttle deals. In addition, this month’s report takes an in-depth look at matters related to underwriter and other back office personnel compensation.

As Senior Partner Dr. Matt Lind explained, the data collected from both STRATMOR’s semi-annual Compensation Connection survey and its recent Back Office Incentive Compensation Spotlight survey, suggests that a balanced approach to incentive-based compensation is of key importance to lenders. “Despite rumors to the contrary, average underwriter compensation has remained relatively steady for the last several years, with only marginal upticks in some years which likely reflect standard merit increases,” said Lind.  “We also see that companies are taking a balanced approach to underwriter incentives that rewards productivity but also emphasizes non-volume related factors. This is in contrast to incentive compensation plans for other back office personnel that emphasize throughput over non-volume related factors.”

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“An additional and notable finding,” Lind continued, “is that 24 percent of respondents on average allow their underwriters to work remotely, with independent lenders more than twice as likely as banks to do so. This is a less tangible form of compensation that nevertheless carries significant value to underwriters and is a way for lenders to flexibly adjust underwriting capacity to match workload. The corporate culture and controls at banks, however, appear to limit this practice, which unfortunately may limit their ability to recruit underwriters who have become accustomed to working remotely.”

Overall, STRATMOR reports that 71 percent of lender respondents to the Back Office Incentive Compensation Spotlight survey provide incentive-based compensation to fulfillment and production support personnel (processors, underwriters, closers, post closers and shippers). Of the 29 percent that do not, over half are considering or in the process of implanting such plans, leading STRATMOR to project that in the near future almost 86 percent of lenders will have incentive plans in place for back office origination personnel.

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Finally, the National Borrower Satisfaction Index based on STRATMOR’s MortgageSAT Borrower Satisfaction Program showed June borrower satisfaction levels backing off to 89 from April and May’s high of 90 out of a possible 100. STRATMOR attributes this small decline in satisfaction to a sharp increase in June origination volume – almost 20 percent higher than April – that likely caused a corresponding decline in service levels. Further declines in satisfaction appear likely as we move through August as the high volume of purchase closings collides with back office summer vacation schedules at many lenders.

2016 YTD MortgageSAT data also showed that when the mortgage originator attends the loan closing, the borrower’s level of satisfaction, likelihood to use the lender again, likelihood to recommend and to positively comment on social media all increased significantly. Based on these findings, it appears that requiring retail originators to attend loan closings can be a very cost-effective approach to increasing borrower satisfaction, requiring virtually no capital investment.

Click here to download the August 2016 edition of STRATMOR Insights, and to sign up to receive the report each month, please click here.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

A New Way To Underwrite A Loan

I’ve always felt a responsibility to bring new ideas and approaches to our readers. It’s new ideas that will improve mortgage lending going forward. To this end, I learned this morning that Overture Technologies has integrated trended credit data into its automated underwriting system. This move enables lenders and investors to gain new insight into the credit risk of their non-agency loans. The enhancement to the industry’s leading independent automated loan underwriting system (AUS) follows Fannie Mae’s recent announcement regarding use of expanded credit data in its Desktop Underwriter AUS.

“We are committed to helping our customers profitably transfer credit risk at scale,” said Kim Thompson, EVP of Overture Technologies. “With over 7 million Americans rebuiliding their credit after a housing-related default, and the emergence of new, post-crisis attitudes about debt among many more consumers, lenders need new credit and other data to accurately evaluate loan applications. And as these new data sources become available, our technology will enable lenders to consistently and effectively evaluate and price their risk based on the powerful combination of traditional and new data inputs.”

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Trended credit data records a consumer’s use and repayment of revolving credit over time and provides important insight into consumers’ evolving ability and willingness to repay a new debt obligation. Lenders, particularly those specializing in loans to borrowers with previous bankruptcy or housing defaults, can leverage this data to understand how consumers have managed their use of credit as they re-establish their credit history. As prime lenders seek new markets, trended credit data may provide a more accurate picture of the credit worthiness of debt-averse growth segments, such as millennials and immigrants, and other consumers who use credit cards for payment convenience.

“Like any new lending criteria,” Thompson continued, “those based on trended credit data will need to be analyzed consistently and objectively. Our technology enables lenders to do this across their multiple distribution channels, in flow or bulk purchase transactions. Lenders want to innovate and our technology enables them to do so profitably and compliantly.”

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

What’s Acceptable?

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According to CoreLogic, there will always be some amount of delinquency in the mortgage market, but what is an acceptable level? At its worst during the housing crisis, the serious delinquency (SDQ) rate was 8.6 percent in February 2010. Recently, CoreLogic reported that there were 1.6 million SDQ mortgages in the U.S.—a rate of 4.2 percent of all active mortgages. Overall, the SDQ rate is on the decline, and a look beneath the surface shows that while loans originated from 2004 to 2008 drove the SDQ rate higher, loans originated in the past four years are among the most pristine loans made in the past 15 years. Does this low level of delinquency for the most recent originations indicate that credit standards have been tightened too far?

Do mortgage vintages really need to be as pristine as they have been in the most recent years? While there are many factors besides loan performance that should be considered in the policy decisions around access to credit, it is clear that mortgage originations made in the mid-2000s are still driving the SDQ rate, and originations made since 2009 are performing much better. Originations from 2009 to 2014 make up 62 percent of active loans, but only 15 percent of SDQs. It is also clear that even when controlling for certain elements of risk, the mid-2000 vintages still have high SDQ rates relative to the last few years.

What remains to be seen is what will happen with the economy, since even with good underwriting borrowers can still fall behind on payments due to economic distress. Given that forecasts for the economy and unemployment rate indicate slow and steady improvement and for house prices to continue to increase at a moderate pace, the excellent performance of current mortgage vintages gives some support to the notion that underwriting could be loosened in a responsible manner that still supports sustainable homeownership.

About The Author

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Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Executive Spotlight: Mathew Crosswy of Stonehill Strategic Capital

matt-crosswyThis week, the spotlight shines on the lodging sector within commercial real estate, and our guest expert is Mathew Crosswy, principal at Atlanta-based Stonehill Strategic Capital, where he is in charge of the company’s efforts in sourcing and underwriting new credit opportunities, while continuing to build and maintain existing relationships with investors and borrowers. Prior to heading Stonehill Strategic Capital, he was responsible for sourcing, negotiating, and financing hotel investment opportunities for Peachtree Hotel Group.

Q: What kind of a year has 2014 been for the hospitality sector within commercial real estate, and what factors shaped the year? 

Mathew Crosswy: As a whole, 2014 has been a strong year for the hospitality industry.  Underlying lodging fundamentals continue to improve with strong business, group and transient travel, resulting in Revenue Per Available Room (RevPAR) growth expected to exceed 8.0 percent for the year.  RevPAR growth was fueled primarily by historically high levels of demand coupled with a strain in supply during the “Great Recession” and moderate supply growth during 2014. The long term average historically hovers around two percent.  In 2014, it was slightly above 1 percent.

Occupancy growth was strong in the past few years, but in 2014, ADR growth finally came to the market.

Q: Looking ahead, what kind of a year will 2015 be for the hospitality sector? And what markets do you predict will enjoy the greatest activity in the hospitality sector in 2015?

Mathew Crosswy: Lodging fundaments are projected to remain strong in 2015 with RevPAR growth projections from 6 percent – 8 percent. The strong performance indices and projections are great, but this also is resulting in new equity flooding into the space.

A trend towards the end of 2014, which is likely to continue into 2015, is that trades are becoming more and more difficult to justify from both a cost per key basis and a cap rate perspective. In the third quarter of 2014, cap rates for all hotel trades averaged around 8 percent, down 28 bps from 2013, but most notable is the spread between the sectors:  full service, down 58 basis points (bps); limited service, up 29 bps; major metros, down 74 bps; secondary markets, down 36 bps; and tertiary markets, up 13 bps. This trend illustrates equity chasing trophy assets, which competition will get so aggressive, the pricing trend will move into limited-service hotels in secondary and tertiary markets.

Q: What role will foreign investors play in the purchase and operation of major hospitality properties in 2015?

Mathew Crosswy: As evidenced by recent trades, foreign capital is chasing major metro trophy assets and safer havens for yield.  This trend is likely to continue, but the growth in dollar valuation will play an interesting role in the longevity and the countries from which the foreign nationals participate.

The health of these countries and the concerted efforts to improve the economies through monetary policies and capital injections will be key, as well. EB-5 also continues to be a popular source of capital that is benefiting from a robust number of regional centers being formed and also sponsors finding deals.  However, the huge influx of this capital has caused a constraint in the oversight and approvals making this an attractive source of capital, but one that requires patience.

Stonehill Strategic Capital is online at http://stonehillstrategiccapital.com.

Phil Hall has been (among other things) a United Nations-based radio journalist, the president of a public relations and marketing agency, a financial magazine editor, the author of six books and a horror movie actor. Also, as you will discover, he is not shy about stating his views.