CRL: Certificate Revocation List. A central list of digital certificates that are no longer valid, which should be checked by any system before authorizing a user's certificate.

"The final mitigating factor to consider is the impact of technological change on the mortgage market. Technology and the efficiencies it creates have both allowed for the creation of mortgage products and created the means for measuring, managing and pricing the resulting risks."  --From an MBA analysis of housing and the mortgage markets released last week.

Case Study: Managing Title Receipts
Kirby, Christine

(Christine Kirby is president of MBS ProClose, McLean, Va. She can be reached at ckirby@mbsproclose.com )

Miami-based Popular Mortgage was founded in 1995 and has grown right along with its hometown's residential boom. Popular Mortgage's core business is the financing of home purchases. Borrowers are referred to the company primarily by real estate professionals, builders and title companies.

Popular Mortgage is an FHA/VA direct endorsement and conventional lender that processes, underwrites, approves and funds the loan. The company also has an established home improvement and equity mortgage division. With 100-plus employees, the lender closes 200 to 300 loans per month using MBS ProClose doc prep software.

Popular Mortgage's Builder Division guides the builder and subdivision through all phases of FHA approval, including the master appraisal report (MAR), which secures case numbers for all lots in the project, facilitating the provision of "end-loans" to homebuyers. Bi-Monthly reports are generated to update builders on all loan approvals. Loan closing takes place within 24 hours after receipt of the "certificate of occupancy."

According to Popular Mortgage information technology officer Richard Lackey, "Working with residential developers has been our niche. There were several times when we were the leading FHA lender in the Miami area."

Challenge:
Popular Mortgage recognized the need to better manage its title company receipts in order to shrink collection times and eliminate the risk of lost revenues. Popular Mortgage wanted to build a proprietary, post-closing and accounting program to track title company receipts, manage short-term loan service and maintain workflow through the sale of the loan.

Solution:
Popular Mortgage engineered its back-office system to work from the database tracking function already built into the MBS ProClose doc prep system. According to Lackey, "One of the most attractive features of the MBS ProClose doc prep program is that customer data is stored on the customer-side of the firewall. And MBS ProClose makes it easy for customers to use that data to enhance back-office business functions."

The MBS ProClose IT support staff works with clients to provide custom access to loan data in a format that works for the customer's specific strategic needs-from custom-designed monthly reports to the transfer of raw data into a proprietary back-office software program.

"If you close 200-300 loans per month, and somebody forgets to send you funds that are due from the title company, it could slip through the cracks because of the sheer volume of information we are dealing with," Lackey said. "Based on the data tables provided by ProClose, our system can identify down to the penny money that's due to us. We have reduced the time to resolve those shortages from weeks to days."

A typical lender could have $2,000 to $3,000 in pent-up cash flow if title receipts are poorly managed. And, as Lackey pointed out, "You still have to make payroll and commissions."

"It's been a great help for us in gaining control of that aspect of the business," Lackey added. "Every mortgage lender has to manage this process, or you will get eaten alive. It's an area that needs to be accounted for."

In addition to tracking title receipts, Popular Mortgage taps into the MBS ProClose data tables in order to provide short-term loan service and to manage the overall workflow through post-closing.

ProClose's robust tracking database-combined with the fact that all of the lender's proprietary data resides on the client side of the firewall-sealed the deal for Lackey. He was also impressed with MBS ProClose's willingness to add fields to their tracking database on demand and with fast turnaround on such projects.

"We asked for a data element to be added to one of the forms on our loan origination software. It took another vendor six months to make that request. ProClose could accommodate similar requests in two weeks. Six months in any business client is unacceptable."

According to MBS ProClose software development manager Devin Mitchell, the ProClose tables capability is several databases that sort information, including closing data, specifically borrow information, fees, closing dates, lender information, loan details such as disbursement date, first payment date, interest rate, anything that goes into a closing document. The information is quite extensive.

"A lot of our customers run reports off of our data, which we create for them," said Mitchell.

"The closed loan report is the most basic and typical. It is run monthly, and includes closing date, disbursement date, lender and borrower information, loan program, interest rate, and loan amount and can add things to it like type of property and occupancy date."

"We design unique reports per our customers' requirements that include: loan data report that holds basic data but can be created with a lot of custom fields. We have a huge data dictionary that stores every kind of information that we capture: such as buyer first name. We have all sorts of information that reports by a particular number, reporting database and data dictionary, sometimes add data to."

The Popular Mortgage report required ProClose to add about 20 fields to the reporting database. Each one of those additions was done by way of a script. So the reporting database looks at ProClose in the way that the script needs it to. Information from loans gets captured in a flat file.

"MBS ProClose does a lot of data exporting for its customers," Lackey said. "For example, a customer might have a LOS (loan origination system) system and they would export data to a flat file and then customer would give to vendor for LOS system use."

(Views expressed in case studies do not necessarily reflect the views or policies of the Mortgage Bankers Association, nor does it connote a product endorsement. MBA Tech NewsLink welcomes case studies of mortgage technology products; inquiries should be sent to Mike Sorohan, editor, at msorohan@mortgagebankers.org.
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Inforte Engages in Product Rollout, Acquisitions
MBA Staff

Inforte Corp., Chicago, a self-described "customer intelligence consultancy," unveiled a new productized customer value product designed to leverage an on-demand platform to deliver analytical services and consulting.

The Managed Analytics model is a customizable, one-of-a-kind product, first introduced by the company's Financial Services consulting practice. It provides methods to link marketing metrics to meaningful financial indicators by combining advisory services with advanced quantitative analysis, proprietary algorithms, methods and actionable strategic frameworks.

Managed Analytics is an integrated set of offerings aimed at improving companies' ability to acquire, grow and retain the right customers. As such, it becomes an integrated platform solution for companies seeking profitable organic growth. By using measurements garnered from Managed Analytics, marketers can offer fact-based recommendations that can be applied directly to a company's overarching marketing strategy and/or to an agency's client roster. For example, marketers can suggest how to best attract and retain customers, enhance products, prioritize sales efforts and price effectively.

"We have tested our managed analytics model during multiple consulting engagements and believe that this innovative use of data analytics will provide significant value to the banking and insurance industries, allowing them to develop more effective, targeted marketing programs and to make customer intelligent, fact-based decisions," said Lars Skari, vice president Inforte Corp.

Inforte recently formed a new company called Provansis LLC, a joint venture with Primary Knowledge Inc. of Irvine, Calif. Provansis commercializes new offerings to the insurance, financial and healthcare industries aimed at decreasing costs while increasing the quality of underwriting certain insurance products. Inforte has an initial stake of 19 percent with options to increase its stake in the future to a majority interest.

More recently, Inforte entered into a merger agreement to acquire GTS Consulting Inc., a provider of managed marketing analytics services. This acquisition enhances Inforte's ability to offer marketing analytics and customer intelligence consulting services on an established on-demand platform, Skari said. The largest client of GTS is AOL.

Founded in 1993, Inforte is headquartered in Chicago and has offices in Atlanta; Dallas; Delhi, India; Hamburg, Germany; London; Los Angeles; New York; San Francisco; Walldorf, Germany; and Washington, D.C. Its Web site is www.inforte.com.
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MISMO Trimester Workgroup Meetings Sept. 19-23
MBA Staff

The Mortgage Industry Standards Maintenance Organization (MISMO) will hold its next Trimester Workgroup Meetings September 19-23 in Troy (Detroit), Mich.

The Workgroup meetings are sponsored by VMP Mortgage Solutions.

The workgroup meetings provide an intensive, comprehensive look at key issues involving mortgage technology and MISMO. Workgroup topics include (but are not limited to) core data, architecture, documentation, credit, real estate tax, real estate property information; document classification and mortgage insurance. For a complete schedule, click here.

To register for the meeting please click here. There is a $395 per person meeting fee for MISMO non-subscribers. You may pay this fee online with a credit card during the registration process, or better yet, you may become a MISMO subscriber. By joining MISMO, your organization is entitled to full subscriber benefits, including free registration for the three MISMO trimester meetings (an annual savings of $1185 per attendee). To join MISMO, please download our subscription application.

The meeting will take place at the Somerset Inn, 2601 West Big Beaver, Troy, Mich., 48084. The telephone is (248) 643-7800. Room Rates are $119.00 per night single or $139.00 per night double. To make reservations, call (800) 228-8769; when making reservations by phone, please be sure to identify the VMP Mortgage Solutions/MISMO Event. The room block expires on September 1; meeting registration does not reserve hotel accommodations (and vice versa).

For more information about this meeting, contact Carrie Morrison at cmorrison@mortgagebankers.org or (202) 557-2797 or Roger Gudobba at (586) 285-6380.
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Workshop Examines Latest in eMortgage Implementation
Sabol, Krista
Fifty-five professionals attended CampusMBA's eMortgage Workshop in San Francisco on June 15-17. This event is a staple of CampusMBA's eMortgage and technology education programs, and the program features the latest industry trends with the basics of eMortgage implementation.

New features at this session included eVaulting implementation, eSignatures and SMART docs. Attendees cited several topics as session highlights, including legal infrastructure, SPeRS, eVaulting, eRecording and eNotarization.

Tess De Guzman, vice president and manager for Washington Mutual in Seattle, was among the program attendees. She reflects on her experience:

"What I found to be beneficial for me was learning where the industry is today as it relates to eMortgages. Also, sharing the experiences from other companies who are ahead of the game in this space is very informative. Overall, the curriculum is very good and the instructors communicated the basic principles of eMortgage in the three-day program."

The program was split into two tracks: technical and business. The business track better defined the high level view of how the pieces of the eMortgage puzzle fit together. The technical track explained the eMortgage process flow, specifically how industry standards and eMortgage technologies come together to operate and to form an end to end solution. The case studies were very interactive and students posed excellent questions to each other and to the instructors.

When asked about the single most important thing about the eMortgage Workshop, Harry Gardner, MBA senior director of industry technology, responds: "This program presents the most effective opportunity for professionals to come up to speed quickly on the fundamentals of eMortgages, as well as the latest developments in eMortgage technology and business processes in the industry."

He further states that the growth curve for eMortgage adoption is accelerating, and in five years, he expects to see eMortgages as a mainstream aspect of the overall mortgage industry. To support mainstream growth, technical solutions for eClosing, eRecording and eNotarization are being adopted by lenders, title companies and county recorders nationwide.

"There is more implementation work and behind-the-scenes activity surrounding eMortgages than ever before," Gardner said. "There is a greater awareness in our industry on the importance of eMortgage implementation, and the pieces of the puzzle are falling into place. Fannie Mae is accepting eNotes for production delivery and recently released Version 2.0 of its eMortgage Guide, while Freddie Mac is actively incorporating eNotes into its infrastructure and working to release its eMortgage Delivery guidelines by the end of this year. The MERS® eRegistry is in production operation and many lenders and investors are actively integrating with it now (if not already online), as they build SMART Docs into their eMortgage infrastructure."

In support of this industry-wide growth, the Mortgage Industry Standards Maintenance Organization (MISMO) continues to grow. "We have added Doc Classification and Fraud Detection workgroups this year, and the eMortgage workgroup has experienced strong growth over the last two years," Gardner said. "The eMortgage workgroup has developed a comprehensive eMortgage Guide designed for executives and business/technology leaders in the industry. We plan to release Version 1.0 prior to MBA's Annual Convention in October."

Companies that are in the beginning phases of eMortgage implementation or thinking about implementation will benefit from attending the next offering of this workshop in Las Vegas, December 7-9. Those who have previously attended the workshop will learn about the latest developments in the industry and how they affect current business strategies. To register or to learn more, visit the program Web site, http://www.campusmba.org/index.cfm?STRING=content.cfm?section=254, or call (800) 348-8653.
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Tech Briefs
MBA Staff

Nationwide TotalFlood Services Inc. and Nationwide Appraisal Services Corp., Los Angeles, announced an initiative to embed map detail into a host of products available within the Capital Title Group Inc. family of companies.

Nationwide has created a single mapping platform to enhance its existing product offering with visual data, giving professionals who manage real property transactions options in assessing compliance and mitigate risk.

In July, Nationwide TotalFlood Services first meshed map data with broker price opinions (BPOs) to improve the way comparative data is presented. Nationwide will soon roll out the same feature for its proprietary AVM. Future enhancements will allow Nationwide to layer flood map information over property location maps.

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Pictometry International Corp., Rochester, N.Y., a provider of digital, aerial oblique imagery, announced that C&S Marketing, Sacramento, a provider of property valuation, collateral assessment and fraud prevention services for the mortgage banking industry, has successfully integrated the company's imaging database of U.S. homes as part of C&S' collateral risk valuation and assessment services. C&S can access the visual information via Pictometry's Server-to-Server Solution that enables C&S data servers to automatically incorporate Pictometry data as needed.
 
Pictometry's software enables users access up to 12 different views of any property, building, highway or other feature in a county in a 3D-like format. The software also allows users to create measurements such as distance, height, elevation and area, directly from the oblique imagery as well as insert content from Geographic Information Systems (GIS) or other data.  Traditionally used by government agencies in a wide range of applications from 9-1-1 dispatching centers, public safety, and homeland security, to transportation, community planning, and appraisal services, Pictometry's visual information provides C&S Marketing with a database of property information that can be used to streamline lending workflow and insurance processes required for mortgage approvals.

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Ellie Mae, Dublin, Calif., a provider of software and services for the mortgage industry, has announced that it is now distributing release of its latest Encompass Mortgage Automation System. Encompass 2.7 includes several major enhancements, including an integrated electronic document management solution, increased collaboration features, more reporting tools, new business development capabilities and more security compliance tools.

Another key enhancement to Encompass enables the integrated contact management system in Encompass to synchronize with Outlook and ACT! As such, when a new borrower's contact information is inserted into Encompass, it will automatically appear in the user's contact database of choice, and vice versa.  Calendar events can also be synchronized, making sure that both programs have current information at all times.

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Document Processing Systems Inc., Novi Mich., announced that its DPS eMortgage Studio online lending platform was used by 1st Advantage Mortgage to execute the industry's first cash sale of an electronic mortgage loan to a secondary market investor through the MERS eRegistry.  

The mortgage was electronically closed, registered and immediately sold, using the eMortgage Studio as the interface between DPS partner 1st Advantage Mortgage LLC of Chicago and the eRegistry.

Last year, the DPS eMortgage Studio became the first system to complete fully paperless, all-electronic mortgage closings and register the eNotes with the MERS eRegistry, the electronic system of record for ownership of electronic notes. The loan was closed in conjunction with Chicago Title and sold to Fannie Mae by 1st Advantage Mortgage.

"Much of the cost savings of eNotes comes from streamlined delivery to the secondary market," said Dan McLaughlin, executive vice president of the product division at MERS. "By allowing 1st Advantage to sell an eNote to Fannie Mae through the MERS eRegistry, DPS has enabled them to sell earlier on a best execution basis."

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DocuLex, Winter Haven, Fla., a provider of document imaging software, announced release of DocuLex Office OCR, an optical character recognition software product enabling conversion of paper documents and TIFF, JPEG, PCX, DCX and BMP files to a text-based format.

The product can be amended as needed with prominent business communications software (Microsoft Office, etc.). The program generates a formatted text document that preserves the layout format, character, font and style of the original document.
 
DocuLex Office OCR converts scanned documents into electronic files within seconds, and can handle color and black/white images, with duplex scanning support to process documents in English, French, German, Italian, Norwegian, Portuguese, Spanish, Dutch, Danish and Swedish. It employs recognition technology to support 2618 fonts (including Windows_ 500 TrueType fonts). Users can choose to output to various formats including MS Word, Excel and HTML.
 
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Chicago Title, Jacksonville, Fla., a subsidiary of Fidelity National Financial Inc., announced the pilot launch of Wireless Remote Closings, a new tool that enables title operations to conduct closings at a remote site, such as a lender's, developer's or agent's office.

To conduct Wireless Remote Closings, title personnel need a laptop, a wireless modem card and a desktop printer customized to print checks securely and safely. Special software can be downloaded that enables users to securely connect to the Chicago Title network and access its production system. Users can open and print necessary closing documents in real-time, make last-minute changes and print MICR-encoded checks at the remote site. Title operations can also use the tool to perform mass closings at an off-site location.

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A recent Proofpoint survey of more than 300 large organizations revealed that, beyond the corporate email system, IT professionals are most concerned about Web-based email as a source of private information leaks.

More than 70 percent of respondents reported being "concerned" or "very concerned" about Web-based email as a source of risk. More than half shared the same concerns about postings to blogs and other types of message boards.

"Protecting sensitive information from unauthorized disclosure has become a major concern for organizations worldwide. Recent industry and government regulations require organizations to maintain the integrity of customer and employee personal information, as well as sensitive corporate digital assets, from being misused or from falling into the wrong hands," said Brian Burke, research manager of security products with IDC. "As a result, they are actively seeking security solutions that offer new capabilities for detecting and/or preventing information leakage via email, the web and other channels."
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CampusMBA Hosts 'Paper Pusher No More' Audio Program
Sabol, Krista

CampusMBA, the education arm of the Mortgage Bankers Association, hosts an Audio Program, "Paper Pusher No More," Wednesday, August 31 from 3:00 - 4:30 p.m. EDT. The meeting number is E2502518I.

You want your loan agents and brokers finding and closing loans, not dealing with mundane, tedious tasks such as collecting, filing, faxing, shipping, or validating documents. But proper documentation is the life-blood of the loan process.
 
In "Paper Pusher No More," industry expert Jim Henderson will discuss methods to enhance productivity of your employees. Topics will include:

· Time studies and task analysis: Old-fashioned industrial engineering is a great place to start ;

· System boundaries: Eliminate paper pushing and mundane tasks by choosing the right computer systems for your processes;

· New technologies: An overview of new technologies that might help and where they are typically a fit; and
 
· The ultimate buy-in: Making your employee's job easier.

Jim Henderson has spent the past 10 years in business process automation, first as a systems engineer and architect and then in the president's role at KeyMark. KeyMark began with scanning, OCR and automated forms processing at state department of revenues and moved to automation of electronic and paper billing and mortgage loan processes using integrated business rules engines, workflow, unstructured forms processing and document management.
 
Jim has served with the HIPAA Electronic Claims Attachment Subcommittee and has spoken at numerous industry events including AIIM, ARMA and AICPA. He is a Certified Information Capture Professional and Certified Document Imaging Architect.

It's never been easier to train your staff on the most current topics relevant to your business. Listen in to a 60-minute presentation by an industry expert, followed by a 30-minute interactive question and answer session. Just dial in from your conference room speakerphone to train your staff-whether there are two or 20 employees in attendance.
 
ThePowerPoint presentation that accompanies the audio program will be sent via email one week prior to the program date, and can be reproduced for all attendees.
 
CampusMBA Audio Programs are a timely, convenient and cost-effective way to train your entire staff on the latest topics. Why register for an Audio Program?

· Inexpensive-$225 for MBA members/$325 Non-member per site;
· Timely topics-regulatory and sales strategy issues brought directly to your speakerphone and conference room;
· Quality Program-program and presentation materials developed by industry experts;
· Simple-just use your speaker phone; and
· Current-latest topics brought to you in a timely way.

For more information, visit the CampusMBA Web site at www.campusmba.org; call (800) 348-8653 or email cbuzolich@mortgagebankers.org.
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MBA Member Directory Goes Electronic
Murray, Venita

Members of the Mortgage Bankers Association can now use MBA's new Electronic Membership Directory. This electronic Directory is always current and, like the print version, contains detailed information regarding all MBA members.

Have you started using your MBA Membership Directory?  If you have, then you have experienced first-hand the value of the information now available at the stroke of a finger. If not, start today!  To receive your member access, please contact Venita Murray, senior membership specialist, at (202) 557-2845 (vmurray@mortgagebankers.org).

Please take a moment to review your company listing.  MBA updates the Directory monthly, and you can make changes to your listing at any time.

Updating your profile is easy.  Just visit http://mymba.mortgagebankers.org and enter the username and password that was provided in a recent email from Venita Murray.  At this site, primary contacts or a representative of your company can:

* Update company information;
* Register additional users to the Directory (all staff members can use one CD to load the Directory).
* Manage MBA subscriptions such as Mortgage Banking magazine, and more.

Changes made to corporate profiles are uploaded to the membership directory on a weekly basis.  Each month, users are prompted to update their directory.  Accepting this prompt will load all changes that have been made and will provide you with the most up-to-date details regarding not only your company, but all MBA members.  Keeping your company profile updated guarantees that the most current information is being displayed and accessed by your peers in the industry.

But, please don't stop there: share this valuable networking tool with all of your employees. Simply take a moment to register any and all staff members via http://mymba.mortgagebankers.org and pass your CD along to other staff members so that they too can download the Directory.
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Earn Your CMT--the Designation of Technology Excellence
Sabol, Krista

Three letters have a significant meaning to Information Technology professionals in the mortgage industry-CMT. Just ask Art Tyszka, CMT.

The Certified Mortgage Technologist (CMT) designation signifies an individual's knowledge of mortgage banking technology. It is designed for Information Technology (IT) professionals, managers, and executives (CIOs and CTOs) in the real estate finance industry, recognizing their industry experience, professional education, and knowledge of the unique technological needs of the real estate finance industry. To date, 35 have received the designation. Tyszka is one of those graduates.

Tyszka, a segment manager and licensed lender, leads strategic planning efforts that ensure VMP Mortgage Solutions' products and services meet the unique needs of mortgage-specific institutions. With a strong background in product development and marketing communications, Art spearheads the creation and execution of initiatives by monitoring current events and emerging issues in the mortgage lending segment of the financial services industry.

Tyszka joined VMP in 1993 and served as an influential team player in the company's marketing communication efforts for more than seven years. His contributions at VMP grew in 2000 when he was appointed to a product manager role in which he guided the successful development and implementation of multiple Internet-based solutions including vmpdelivers, VMP StateLink, VMP Online Compliance and the VMP Fraud Management Solution.

A resident of the metropolitan Detroit area, Tyszka earned a bachelor of arts degree in advertising from Michigan State University. He has also completed industry coursework through the Mortgage Bankers Association and participated in professional workshops and training.

When asked about his motivation for pursuing the CMT, Tyszka responded: "I didn't initially set out to earn the CMT. Traditionally, my focus has largely been for a technological point of view, and my goal was to gain a better overall understanding of this extremely complex industry, so I enrolled in the School of Mortgage Banking Course I. After doing so I realized that earning the CMT designation would add credibility to my education plan."
 
Tyszka said the CMT is a very attainable designation for anyone involved with technology in the mortgage industry. "I highly recommend this designation," he said. "As many technical resources come and go with only a limited focus, I think earning the CMT says a lot about a person's commitment to the mortgage industry. It's a great way to let peers know, for example, that you not only understand what XML is, but more importantly-how it can flow through the many steps of the mortgage process and how it can help facilitate the cycle."

Are you ready to earn recognition for your leadership, development, and experience in mortgage banking technology? To be eligible for designation consideration, candidates must meet rigorous standards. They must have a minimum of two years industry experience, have a technology background, and be in a technology leadership position within the residential or commercial real estate finance industry. They must acquire 75 points in the areas of industry experience, education, and participation.

After meeting the point requirements, candidates then move to the next step of the process which includes submitting a thesis on a specific initiative, implementation, or conversion in which they actively participated, and passing a two part oral presentation/exam conducted by a panel of industry experts. Designees must meet continuing education requirements every two years to remain in active status.

To get started or to learn more about the CMT designation, visit www.campusmba.org/cmt, email jridings@mortgagebankers.org, or call (800) 348-8653.
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Analysis: Technology, Housing and the Mortgage Market
MBA Staff

(The following is excerpted from the Mortgage Bankers Association's White Paper, Housing and the Mortgage Markets: An Analysis, presented last week. The White Paper was prepared by the staff of MBA's Economics and Research Department. The full report can be found at http://www.mortgagebankers.org/documents/newslink/MBA%20Events/MBABubbleWhitePaper.pdf.)

During the economic downturn in the early years of this decade, the housing and mortgage markets were one of the few sources of strength. The decline in interest rates sparked an enormous refinance wave that enabled households to lower their mortgage payments and access accumulated home equity. This bolstered consumption spending at a time of weak demand.

Times have changed. The economy has recovered. With this recovery, views on the housing and mortgage markets have changed as well. The booming real estate market is now seen by some as a pending problem, and potentially as a source of systemic risk. Some would have you think the entire industry is set to burst at any given moment. One measure of the extent of press coverage regarding the housing market is that a LexisNexis search on the term housing bubble for July 2005 returned over 650 articles.

The purpose of this study is to put this discussion into proper perspective by assessing a broad array of market data, reviewing the risks and reaching some conclusions. This study is organized into three sections. The first discusses the current state of the housing markets. The second discusses the growth of innovative mortgage products and the impact these products may have on the marketplace. The final chapter analyzes the impact of developments in the housing and mortgage markets on households, financial institutions, the financial markets and the economy more broadly…

…In examining the housing and mortgage markets, we monitor a range of risk factors. To the extent that there are layered risks, the probability of a local housing market downturn increases. These market-level risk factors include:

· A high and sustained rate of home price appreciation;

· A decline in employment;

· A significant share of investor activity driven by "flipping" or speculative investment;

· A significant share of condo sales relative to total sales;

· An unusually large proportion of IOs, Option ARMs or other product that exposes borrowers to potentially substantial payment shocks; and

· An unusually large proportion of stated income or other Alt-A products, perhaps combined with other product features in order to maximize purchase power.

In addition to these risk factors, there are a number of risk mitigants in place in today's mortgage and financial markets that all work to reduce potential risk to the system:

· A healthy economy: strong consumer spending, steady job gains, strong income growth and low interest rates;

· Growing household net worth: household wealth has been growing at a healthy pace as asset appreciation has exceeded debt growth;
 
· A strong, well-capitalized banking sector and well-functioning and liquid financial markets;

· Widespread securitization, which leads to greater liquidity and dispersion of risk through the financial system;

· Alignment of incentives: the borrower, the lender and the investor all lose when a borrower defaults on his mortgage; this alignment of incentives limits the extent of problems caused by any potential downturn;

· Widespread implementation of technology, which increases efficiency throughout the system; and

· Effective regulatory oversight.

All of these factors work to mitigate potential risk to the system. Policymakers and others need to understand the importance and effectiveness of these mitigants as well as the potential importance of the enumerated risk factors…

…The final mitigating factor to consider is the impact of technological change on the mortgage market. Technology and the efficiencies it creates have both allowed for the creation of mortgage products and created the means for measuring, managing and pricing the resulting risks.

More specifically, technology has:

· Allowed for the servicing and management of complex financial instruments that can be managed in real-time, maintaining consumer compliance with payment changes;

· Enabled lenders and others to analyze large databases of consumer information, allowing them to model the behavior of households; this has greatly enhanced the ability of lenders to bring new products, appropriately fit to household needs, to market;

· Enabled investors to simulate the behavior of different mortgage products taken by borrowers with different characteristics across a range of economic environments; this has resulted in more precise valuation and pricing, improving the efficiency of the market;

· Enabled automated underwriting, which has standardized risk assessment, reduced inefficiencies in the mortgage application process and allowed tighter targeting of new mortgage products and more accurate pricing for consumers; and

· Resulted in an electronification of the mortgage process, reducing overall costs, lowering the hurdle rate at which origination becomes viable for the consumer and profitable for the lender and increasing the efficiency of the market as a whole.
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About MBA Tech Newslink
 
Publisher: Cheryl Crispen, Senior Vice President - Communications and Marketing
Director of Online Publications: Mike Sorohan MSorohan@mortgagebankers.org
Deputy Editor: Michael Murray MMurray@mortgagebankers.org
Senior Staff Writer: Vijay Palaparty 202/557/2904 VPalaparty@mortgagebankers.org
Advertising Opportunities: Bill Farmakis 203/834-8832 bill@jlfarmakis.com

Any reprints or other use of these articles in whole or in substantial part, in any medium, requires advance written permission from the Mortgage Bankers Association. For reprint information on stories in MBA Tech Newslink, please contact Joanna Vulakh at 1-800-394-5157 x25.

MBA Tech Newslink, a weekly electronic publication, is a member benefit free to employees of MBA member companies, and available by paid subscription to non-members. For membership information, visit MBA's website at http://www.mortgagebankers.org/AboutMBA/membership

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