Recently, the subject of credit quality has become a hot topic and there has been particular scrutiny of the processes used to maintain it and the degree to which the liquidity crisis has affected underwriters.
Credit quality, fraud prevention and investor confidence have become vital elements of mortgage business.
But some say the credit standards needed in today’s environment can be compromised by a reliance on automated systems. This ignores a number of fundamental issues.
By its nature, human intervention relies on subjective an-alysis and therefore can be inconsistent. Investors considering the purchase of mortgage-backed securities cannot examine each individual mortgage case so they need to be confident that all decisions to lend have been approached in a uniform manner.
The only way they can be sure of this is to know that identical criteria are applied to each loan and decision to lend. But even for the most professional underwriting team, this is a tall order. Along with facilitating consistency, technology allows lenders to more accurately forecast, identify and minimise their exposure to bad mortgage deals.
Automated credit scoring and affordability checking have gone a long way towards ensuring borrowers’ ability and propensity to pay is accurately assessed.
Technology has also guaranteed that oversights are minimised and that lenders’ exposure to fraud is reduced.
By combining data intelligence, predictive analysis and decision-enabling technologies, lenders are able to take measures to combat criminal activity, promote transparency and minimise risk.
For the health of the mortgage sector as well as the overall economy, confidence needs to be restored.
I agree that ensuring impeccable credit quality will go a long way towards achieving this goal but my opinion about how this can be guaranteed differs from that of many of my colleagues.
Technology has enabled lenders to enhance asset quality, minimise fraud and predict portfolio performance more accurately.
If I was considering investing in retail mortgage-backed securities, I know which method I’d opt for – and I know that many of our trading partners agree.