“The current subprime market forces us to go even deeper into credit reports because of the availability of the number of products that are available today,” said Ed Jones, president and CEO, at ARC Systems. “There are as many as 3,000 aspects and attributes that need to be assessed when we analyze credit."

ARC Systems provides automated underwriting software that obtains real-time credit reports that are extensively analyzed using different algorithms to weigh default risk.

"It takes into account all the numerous aspects, giving lenders a clear idea of the risk involved,” Jones said.

Traditionally, loan processing took a longer time, sometimes weeks, as many individuals involved manually assessed data. Today, with the use of automated underwriting, the process is much more efficient and also accurate—allowing more loans to be processed.

Since 1999, Arc Systems software has produced $450 billion in subprime loans.

“Analytics are critical and such thorough examination of credit reports should have been put into practice a long time ago—detailed and thorough information is the only way to make good decisions to move forward—especially when there is on overarching concern about risk,” Jones said.

The automated underwriting system uses technology and also evaluates pools of loans upstream into the secondary market. The company did that for clients such as Lehman Brothers and Ellington Management Group. Both used Arc Systems’ software to analyze pools of subprime loans, worth billions of dollars that were sold to large institutional investors.

“Automated underwriting has enabled the speedy decisioning while nonprime lending has expanded service to an entire community of citizens previously excluded,” said Jones.

Mortgage Data Management Company (MDMC) provides a range of mortgage loan analysis services for servicing and loan portfolios as it also focuses on issues of risk and fraud. MDMC reviews all types of mortgage products including subprime, Alt-A and reverse mortgages through its due diligence agency delivery services.

“We are seeing increased sampling in the Alt-A and subprime sector and are very focused on completing informed analysis for our clients, especially when we sense there is a potential risk,” said Gregory Richardson, managing director of business development and strategic planning at MDMC.

The company developed proprietary software for data collection from a variety of sources and has the capability to work with any mortgage servicing software system’s computer generated tape to gather review information.

“Today there are many sources from which we can pull information and to also verify information.  The structure of what we do is such that accuracy is our primary goal and we achieve that by thorough analysis on many different points—including compliance, risk factors, and other important factors for lenders.”

MDMC uses a guideline driven process in its due diligence analysis where cases either meet all guidelines, post a good credit risk but with reservation, or do no meet guidelines at all. In the decision process, the analysis either calls for more information and as risk factors increase, decisioning becomes more difficult because of increased scrutiny.

“Our goal is to offer our clients the best analysis, large or small, to help them both save money and also reduce risk—we offer information that is based on their business model and we go from there,” Richardson said.
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"There are two parties involved in the credit report reissue process - repositories and credit bureaus. The credit data repositories are the companies that collect and store individual credit data. The credit bureau is the agency that creates the credit report for the lender," said Gabe Minton, vice president of industry technology at the Mortgage Bankers Association, and executive vice president of MISMO. "This newly released document discusses how the existing MISMO Credit Request transaction format can be used to provide the information needed by credit bureaus to report additional end-users to the repositories."

"The Credit Reporting Workgroup has worked diligently to create this document that will surely be a valuable resource as the MISMO Credit Reporting Standard continues to be adopted across the industry," said Mike Bixby, co-chair of the Credit Reporting Work Group, former member of the MISMO Board of Directors and president of Bixby Consulting Inc.—EHereNow.

The Reissue Recommendation document is currently available for download on the MISMO website. This document content is also included as Chapter 9 of the updated "MISMO XML Implementation Guide: Credit Reporting—Version 2", which will also be available on the MISMO web site's implementation guide web page. 

MISMO is a non-profit subsidiary of MBA.

Click here to view the MISMO web page.
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First Magnus Renews with LSSI
Lender Support Systems Inc., Poway, Calif., a provider of eMortgage enabled lending and loan servicing technology, announced Tucson, Ariz.-based First Magnus Financial Corp. renewed its contract for use of LSSI’s core document preparation technology, WebDocs.

WebDocs offers Internet-based loan documentation and disclosure. The application creates loan documents within seconds, which are electronically sent to e-mail accounts that can be accessed by users.

Homeownership Preservation Foundation Receives $200,000 from Chase
The Homeownership Preservation Foundation, Minneapolis, received $200,000 in support from Chase, the consumer brand of JPMorgan Chase & Co.  The funding will be used to help sustain the Foundation's efforts in preventing foreclosure in the United States through its national consumer hotline, 888-995-HOPE (4673) and its Web site, www.995HOPE.org. web site.

The Homeownership Preservation Foundation along with mortgage lenders, nonprofit organizations and city government agencies, provides homeowners with counseling and resources to help homeowners resolve their mortgage troubles. Homeowners who call the number can receive free advice and counseling from nonprofit, HUD-certified organizations, 24 hours a day, seven days a week.  

Colonial Savings Purchases $1.7 Billion in Servicing Rights
Colonial Savings F.A., Fort Worth, Texas, announced it completed the purchase of servicing rights on 18,431 residential mortgage loans with a principal balance of $1.7 billion from a Midwest bank. The loans are secured by properties in Midwestern states. 

The acquisition will increase Colonial Savings’ servicing portfolio by 15 percent to $12.7 billion and will increase the number of loans serviced by 20 percent. The effective date of the transfer will be June 1.

Open Solutions to Offer Wolters Kluwer BSA and AML Products
Wolters Kluwer Financial Services, Waltham, Mass., through its line of PCi services, and Open Solutions Inc., Glastonbury, Conn., announced that Wolters Kluwer’s line of Wiz Sentri Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) products will integrate with Open Solutions’ relational core data processing platforms.

Kaleidico Launches Lead Marketwatch
Kaleidico, Flat Rock, Mich., an Internet technology company that provides Web-based lead management services, launched Lead Marketwatch, a free mortgage lead rating ticker. Lead Marketwatch rates lead quality and can be viewed on Kaleidico’s homepage at www.kaleidico.com.

Lead Marketwatch figures are aggregated from client reports run on icoSales, Kaleidico’s flagship lead management platform, and includes data on lead generators that have provided 100 or more leads to an icoSales user over a one week period. The ticker tracks a moving average of leads that were received within that seven-day timeframe and the percentage of leads that converted to applications.

Vermillion Consulting, Mortgage Banking Services Direct Join Forces
Vermillion Consulting Inc., Grayslake, Ill., and Mortgage Banking Services Direct, Horseshoe Bay, Texas, announced an alliance aimed at teaching sub-prime lending companies how to survive current market conditions.

“Sub-prime lenders are unaware of the numerous ways they can maintain profitability, even as the market contracts,” said MBSD President David Lykken. “The primary goal of this alliance is to provide new information to the industry that will enable them to become more efficient.”

PCLender Integrates Optimal Blue Pricing Engine
PCLender, Honolulu, a technology-enabled provider of best practices guidance, services to the mortgage industry, has integrated Optimal Blue’s product eligibility and pricing engine (PPE) technology with its hosted enterprise lending platform. Optimal Blue is a provider for Web-based technology that couples decisioning technology with content management for the mortgage industry.

The Optimal Blue integration is designed to allow PCLender users to improve efficiency and accuracy by eliminating the need for redundant keying of data. 

Bluebook International Announces InsureBASE for Lenders
Bluebook International Inc., Lake Forest, Calif., a provider of residential cost data services, announced launch of its first-to-market Web-based hazard insurance risk tool for the Mortgage Industry, InsureBASE Residential.

InsureBASE Residential solves for current due diligence and compliance issues surrounding the sufficiency of hazard insurance coverage at origination and throughout the life of the loan. It provides the end user with replacement cost validations via the Web or XML integration.

DocMagic Offers Free, Open-Source PCL Viewer
Document Systems Inc., Carson, Calif., a developer of mortgage technology for compliant loan document preparation and customer contact management, announced release of OpenPCL, a free electronic document viewer capable of representing documents saved in Printer Control Language (PCL).

The native language used to communicate with computer printers, PCL is widely used throughout the mortgage industry because it delivers accurate electronic representation of what the final document will look like on the printed page. DSI developed the software and posted the project to SourceForge.net, the world's largest Open-Source software development web site, hosting more than 100,000 projects, with more than 1 million registered users.
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The portfolio includes eight grocery-anchored centers, one power center and two strip centers in Phoenix, Tempe, Mesa, Glendale, and Peoria.

Timothy Storey, a principal at Newmark Realty, arranged the fixed rate and mezzanine financing on behalf of a Phoenix-based borrower. The senior loan was funded by Principal Commercial Funding, Des Moines, and the mezzanine loan was funded by NRF Capital, Irving, Texas.

Nearly 60 percent of the tenants are national retailers with investment grade credit ratings. They include Wal-Mart, Safeway, Walgreens, PetSmart, Best Buy, and Kroger.

Many of the properties, built between 1971 and 2004, have been renovated in recent years. They range in size from more than 34,700 square feet to more than 305,680 square feet.

Patrick Barkley, vice president at Newmark Realty Capital, arranged permanent financing for the acquisition of Apache Plaza, an unanchored retail center in Apache Junction and also in Arizona. Morgan Stanley Mortgage Capital Inc., New York, funded the loan for the nearly 43,000 square-foot property, which consists of a multi-tenant strip retail building at 39,000 square feet and two, fast-food restaurant pads each totaling 2,000 square feet.

Built in 1980, the property is on nearly 4.2 acres of land in the eastern portion of metropolitan Phoenix and features access along Apache Trail. It will undergo an exterior facade renovation within the year, according to Newmark Capital.

Meanwhile, Terri Slocombe, principal of Newmark Realty Capital, arranged permanent financing of $5 million through Genworth Life Insurance Co., Richmond, Va. At more than 32,300 square feet, the 18-tenant, strip retail center includes four buildings. The shopping center, located in San Jose, Calif., consists of a concrete tilt-up industrial building that has a footprint area of nearly 33,350 square feet, on more than 148,500 square feet.
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Learn about all of the latest legal and regulatory developments and trends, as well as cross-cutting issues affecting the mortgage industry at this premier event. Parallel tracks, designed for lawyers and compliance officers at all levels of experience, address significant and timely issues facing the industry, including:

• Nontraditional Mortgage Products
• HMDA/Fair Lending
• Data Security, ID Theft and Privacy
• Protecting Against Mortgage Fraud
• FCRA/FACTA
• RESPA and TILA
• Servicing Developments
• State Law/Licensing Developments
• Secondary Market and GSE Issues
• Reg AB
• Class Action - Litigation Developments
• Banking Regulation/Preemption
• FLSA/Employment Law
• Legal Ethics
• Dealing with Reputational Risks
• Natural Disaster Preparedness
• Compliance Considerations

Additionally, MBA will sponsor a house building event on May 6 with Habitat for Humanity, part of MBA’s commitment to helping rebuild New Orleans, which was devastated by Hurricane Katrina in 2005. This special event takes place from 8:30 a.m.-1:30 p.m. CT.

Who Should Attend:

• In-house counsel and senior executives from mortgage banking firms, other real estate lenders and real estate secured investors

• Outside counsel with mortgage banking industry clients

• Compliance officers and managers

• Others who want to stay abreast of legal issues in the residential mortgage banking business

(This conference is closed to the press).

To download the conference brochure, go to
http://www.mortgagebankers.org/files/conferences/pdf/M2702076_brochure.pdf.

Please contact Travel Incorporated, MBA's official travel agency, to take advantage of special discounts on airfare and car rentals. You can make your travel arrangements (Monday-Friday, 24 hours/day). A proposed schedule will be sent to you immediately. Reservations will include 5-10 percent savings depending on the destination and meeting. You may also call our official air carriers and car rental agencies directly. To contact Travel Incorporated, call (800) 524-3002.

The discounted hotel rate cut-off date, April 13, does not ensure availability of rooms. If rooms are available until April 13, you receive the discounted hotel rate based on availability. After April 13, reservations are made on a space-available basis only, and you are charged the regular hotel rate. Program registrants are responsible for making their own hotel reservations. Contact the Hilton New Orleans Riverside by phone or fax. When making your hotel reservation with the Hilton New Orleans Riverside, please ask the reservation agent for the Group Code: LIR.

Hilton New Orleans Riverside (web site: http://www1.hilton.com/en_US/hi/hotel/MSYNHHH-Hilton-New-Orleans-Riverside-Louisiana/index.do)
2 Poydras Street
New Orleans, La. 70140
Phone: (504) 561-0500
Fax: (504) 568-1721
MBA discount rate: $199 Single/Double, $249 Executive Level, Single/Double.

To register online, visit http://events.mortgagebankers.org/legalissues2007/register.

Conference sponsorship is the ideal vehicle to grab the attention of this important audience and position your company as a leader in the industry. All sponsorships include a tabletop exhibit opportunity, but space is limited. For more information, contact Mark Brady at mbrady@mortgagebankers.org or call (202) 557-2790.
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Attend the conference and hear perspectives from industry leaders on changes and trends affecting the real estate finance industry, and learn how other lenders are strategizing to compete in a complex market.

Keynote speakers include Angelo Mozilo, CMB, CEO of Countrywide Financial Corp., Calabasas, Calif., who highlight’s the conference’s Opening General Session. Also speaking at the Opening General Session is Ace Greenberg, chairman of the executive committee at Bear, Stearns & Co. Inc., New York. MBA Chief Economist Doug Duncan keynotes the Second General Session. Baseball legend and broadcaster Jim Bouton will appear and sign autographs at the Opening Reception: A Taste of New York on May 20.

Join your peers to exchange ideas and strategies on such topics as:

• Mortgage securitization structuring alternatives

• Housing market overview and mortgage performance

• Impact of regulators, such as the SEC and FFIEC, on mortgage products and securitization

• Mortgage pipeline risk management

• Private-label and whole-loan business and legal developments

• New developments in MBS and investor strategies of Fannie Mae and Freddie Mac

• Secondary market servicing

Who Should Attend
This conference is designed for industry leaders and decisionmakers from residential and capital markets, including CEOs and senior level executives, mortgage investors, investment bankers, rating agency professionals, risk managers and mortgage lenders.

To register online, go to http://store.mortgagebankers.org/ProductDetail.aspx?product_code=M2702048/REGIS or call 1-800-793-6222 Monday-Friday, 9:00 a.m.-5:00 p.m. ET. Early registration deadline is April 20. Once you have registered, you may make your hotel reservation using MBA’s Online Housing System, http://events.mortgagebankers.org/secondary2007/travel/housing.aspx?c=housinglogin.

The conference takes place at the New York Marriott Marquis, 1535 Broadway. MBA discount rates start at $239/night for a single room. For more information, visit http://marriott.com/hotels/travel/nycmq-new-york-marriott-marquis-times-square/. MBA has also secured accommodations at the Sheraton New York Hotel and Towers, 811 7th Avenue. MBA discount rates start at $299/night single and double. For more information, visit http://www.starwoodhotels.com/sheraton/property/overview/index.html?propertyID=421. The hotel cut-off date is April 25.

Exhibit and Sponsorship Opportunities
MBA's National Secondary Market Conference & Expo 2007 provides the perfect opportunity to access the real estate finance industry's secondary market decision makers. To sign up for exhibitor space, contact Kim Newell at (202) 557-2791 (knewell@mortgagebankers.org) or Patty Miller at (202) 557-2792 (pmiller@mortgagebankers.org). For sponsorship opportunities, contact Mark Brady at (202) 557-2790 (mbrady@mortgagebankers.org).
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In 2004 and 2005, natural disasters caused $89 billion in privately-insured catastrophic losses, a total of $107.3 billion with loss payments from the National Flood Insurance Program (NFIP) in 2004 and 2005 . A high concentration of real estate in hurricane-prone areas is due to “long-term population migration trends to coastal areas where hurricane loss severity has been forecasted to double every ten years,” according to MBA testimony.

“The recent spate of natural disasters has caused insurance companies to reexamine their business models for insuring natural disasters,” MBA said. “This process has resulted in insurers and reinsurers pulling out of or reducing their portfolio allocations in certain disaster prone areas of the country. This resulting insurance capacity loss has caused property insurance rates to spike from 100 percent to over 600 percent in certain coastal areas with heavy hurricane exposure, which has put a tremendous strain on state-operated insurance pools that serve as the insurer of last resort in these areas.”

In some coastal areas, commercial mortgage lenders declined financing because the price of insurance “no longer conforms to underwriting requirements,” MBA said.

In residential, Fannie Mae and Freddie Mac continue to require wind coverage despite an exodus of private insurers from the marketplace, forcing homeowners to get wind coverage through state-sponsored insurance funds, such as Citizens Property Insurance Corp. in Florida. The state-run fund provides wind coverage of up to $1 million in residential and commercial properties.

“As a result, the majority of properties with conventional conforming and government loans can be adequately serviced by the state plan, although clearly properties with insurable values over $1 million are forced to obtain additional private insurance , which may be hard to find,” MBA said.

Meanwhile, commercial/multifamily property owners unable to pass costs onto tenants must absorb costs—reducing their profitability and possibly operating at a loss. “For some low-income multifamily properties, property owners have not been able to pass on large insurance rate increases to tenants,” MBA said.

The result is negative cash flow, loan payment default or violating terms of the loan which require all-peril insurance coverage or more costly "lender-placed insurance" to be put in place for the life of the loan.

Increased insurance costs could also put commercial mortgage-backed securities (CMBS) pools on ratings agency “watchlists,” and potentially result in ratings downgrades if debt service coverage ratios (DSCRs) decline.

Commercial loan servicers need to monitor insurance placement, which increases staff and costs not accounted for in the existing servicing contracts, MBA said.

Council of Economic Advisers Chairman Edward Lazear testified that government insurance would displace insurance provided by the private market, and a federal program would likely distort rates from their "actuarial values."

Lazear said lack of insurance availability in Florida, North Carolina, parts of Mississippi, Louisiana and Alabama, can be traced to “certain state regulatory actions.” He pointed to Citizens Property Insurance Corp., and the reinsurance fund, Florida’s Hurricane Catastrophe Fund , as examples of available and affordable insurance but with rates that are not “actuarially sound.”

According to Lazear, a federal backstop could under price insurance across the country leaving the federal government vulnerable to covering costs in case of a hurricane, earthquake or other natural disaster.

“National catastrophe risk insurance would displace private insurance and undermine the economic incentives to mitigate risk. It would force all taxpayers nationwide to subsidize insurance rates for the benefit of a relatively small group of people in high-risk areas. This would be both costly and unfair to taxpayers,” Lazear said.

More than 95 percent of the 1.1 million homeowners’ claims in Mississippi and Louisiana had been resolved, with fewer than 2 percent of such claims disputed, nearly $40 billion in claims payments made to policyholders to restore homes, businesses, and vehicles, according to statistics from the American Insurance Association on the first anniversary of Hurricane Katrina.

"Insurers have done our very best to help make our policyholders whole again following the devastation wrought by Hurricane Katrina – a goal which we have overwhelmingly achieved with nearly all of the claims resolved,” said Marc Racicot, president of American Insurance Association , who called on Congress to take a holistic approach to addressing the problems posed by natural catastrophes.

“The solution to the current stress being felt in the property insurance market in several Atlantic and Gulf Coast states is to improve, not displace, the private sector’s ability to serve homeowners and businesses in the path of potential storms,” Racicot said.

MBA’s position includes no interruption for insurance coverage; affordable insurance premiums without unreasonably large deductibles; and to make insurance available at an affordable price for every peril, including mudslides, flooding and earthquakes. Exclusions include ordinances or laws; power failures; property neglect; acts of war; intentional actions; and governmental actions.

The position also includes insurers providing evidence of insurance summarizing the type of coverage for borrowers and to keep insurers responsible for notifying all insureds listed on the policy of coverage as to cancellation of insurance, coverage lapses, gaps and renewals.
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