The wholesale funding constraints which have affected the mortgage industry for over seven years are now starting to “thaw” rapidly. This is a result of more appetite for asset backed securities, keener pricing of them and recognition that the housing market, whilst not completely recovered, is in a lot healthier state.
One question for funders now is; have they learnt lessons from the past regarding the use of the funds and the quality of origination? Will the newly completed assets reflect the exact characteristics as detailed in the lending policies and product guidelines and authorised in funding line arrangements?
For example, is the information on file accurate and can it be relied upon now? As well as data collection issues, which have been well documented, significant numbers of “out of criteria” decisions were allowed to go through in the past without proper controls in place to monitor performance, resulting in severely restricted future funding options for lenders and asset holders. Are there now processes and referral systems to properly record such decisions? Do they reflect the revised rules as detailed in the MMR?
Projects to “tidy up” these issues may still be appropriate and could be major exercises, but in the future there is a much more effective and simpler way. A regular quarterly review focusing on underwriting standards and data accuracy would highlight any errors and ensure that procedures are being adhered to. Any resulting bad practises can be rectified immediately, and that will help reduce costs in the longer term.
The opportunity for funders is obvious – cost effective oversight of the proper use of funding lines by an external, non-conflicted supplier and re-assurance that assets are being created as was intended. For lenders, the employment of such auditors shows the funders that they are serious about complying with the funding arrangements with the added advantage of highlighting potential issues in the origination process at the earliest possible stage. The result for both parties is smoother financing negotiation, based on independent reviews of the facts, quicker vendor due diligence provision, more accurate reporting and ultimately less risk.
If you are a funder proving a line already or are considering providing one, take advantage of our funding review service. Call us today.