Lenders that don't adopt new origination technologies are keeping the rest of the industry from working more effectively with Wall Street, a veteran investment banker says.
Wholesale acceptance of computerized underwriting and credit scoring would create standards that "take away the risk" of loans' running into trouble, said Howard B. Hill, president of Howard B. Hill & Co.
With stronger underwriting at the front end, securities that consist of these loans would be less volatile and more appealing to investors, Mr. Hill said.
The prospect may be especially attractive to Wall Street, as mortgage securities continue efforts to rebuild credibility after a market swoon in 1995.
Still, Mr. Hill's viewpoint is provocative to some lenders. Not all mortgage bankers favor automated systems, saying the technology singles out only top-notch credits and leaves little leeway for working with marginal borrowers.
Mr. Hill has a lot of experience at looking for ways to improve the mortgage industry. He spent the last decade building mortgage securitization systems that are still used by leading Wall Street firms like Daiwa Securities and Prudential Securities.
He now runs a consulting firm from his turn-of-the-century home overlooking a shimmering bay on New York's Long Island. His recent projects include developing a blueprint for Freddie Mac, formally the Federal Home Loan Mortgage Corp., to package its own multiclass securities. (The controversial move, which would reduce Wall Street's traditional role, remains only in outline form, Freddie Mac officials have said.)
Much responsibility for mortgage securities' continued well-being rests with lenders, Mr. Hill said during a recent interview. Originators produced $200 billion of mortgage loans that were securitized this year and are expected to top that amount in 1997.
The volume shows the industry can recover from the upheaval that gave mortgage securities a black eye in 1995, Mr. Hill said. "Reports of the market's demise were premature. There is still action out there."
Greater standardization, through systems that allow automated underwriting and credit scoring, would make loans that much easier to package and sell, he said.
He also maintained that borrowers benefit because automated systems are so quick. "Customers know within 10 minutes whether they qualify," Mr. Hill said.
The systems do expedite processing, a plus for dealing with anxious customers, said Mary Matthews, vice president of risk management at Crestar Mortgage Corp.
