Mortgage Industry Trends

Fraud Risk Rises, Inventory Falls & Lenders Expand Programs

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fraud-ahead-inventory-downThe national mortgage average fraud risk indicator, according to CoreLogic, increased by 3 points in the fourth quarter, going from 135 to 138.

The CoreLogic’s mortgage fraud risk index is determined from the total of loan application fraud risk scores during the prior quarter. Scores are calculated for the 100 most populated U.S. Census Bureau Core Based Statistical Areas (CBSAs) in the United States.

This is an indicator that lenders may be expanding the credit box and other qualifying criteria and originating more risky loans. Something of which lenders must be aware and very careful.

In related news, with rates rising we may see some additional downward pressure on the supply of homes coming to market, making it difficult for buyers and mortgage lenders to do business.

Those who do look to buy may find it a little more difficult to qualify due to the increased rates and higher property values.

This puts more pressure on lenders to find ways to finance more buyers. Not an easy task.

However, lenders continue to find ways to help more potential homebuyers with their home financing, helping themselves to generate income to help keep their doors open. Some are new and some not so new.

Programs like:

 

  • Fannie Mae’s revised Construction to Perm Program
  • Lender gifted down-payment and shared equity loans
  • Lease purchase programs
  • State programs to create tax-free down-payment savings plans
  • 10% down non-QM loans with interest-only payments, and no MI

And, wait for it…A program that qualifies borrowers based only on employment verification and sufficient funds to close. Can you say, “No Doc”?

 

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With fraud risk up, inventories down and product and qualification criteria expanding lenders need to be very careful about loan quality. Under current conditions they may need to take a little more risk in producing business but the risk must be carefully analyzed and monitored.

Like any smart gambler, you can’t risk more than you can afford to lose. Speaking of affording, it’s important to match variable loan origination costs to the variable loan origination income. This too creates risk.

What functions and related expenses should be maintained in-house and which can be outsourced, or supplemented through technology to reduce expenses and overhead? For technology and outsourcing, you need to partner with the right vendor.

Although new innovative products are needed, care must be taken to implement, originate, and manage these programs for maximum income, while minimizing expenses and risks. It’s a balancing act that a successful lender must master.

In the never-ending quest for more and new business, don’t lose sight of the increased risk and the continuing need for solid loan quality and regulatory compliance.

Not all production losses can be offset by increasing volumes. Sometimes, that just increases the losses. Lend carefully my friends.

Michael Vitali

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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Michael Vitali

About Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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