MILWAUKEE - Mortgage Guaranty Insurance Corp. and Foster Ousley Conley have joined forces to develop a new artificial intelligence underwriting system that will utilize MGIC's asset performance models.

MGIC, a major insurer of mortgages, and Foster Ousley, a Walnut Creek, Calif., firm that specializes in mortgage quality management, will unveil the system today at the Mortgage Bankers of America Association convention in Chicago.

Called the automated quality control artificial intelligence underwriting system, or Aquarius, the system will consider and evaluate mortgage loan applications from two very different perspectives: that of an underwriter and that of an investor.

Officials will look at an application "and determine if it's a loan that would be accepted by an underwriter and also if it's salable in the secondary market," said Curt Culver, an executive vice president of MGIC.

Rule-based System

Traditionally, artificial intelligence underwriting systems have sought to replicate the decision-making process of an experienced underwriter who "mentors" the system. The system "learns" to mimic the underwriter's decisions by compiling a data bank of hypothetical situations.

Aquarius will have such a rule-based system, but will also judge applications according to a mortgage performance model developed by MGIC.

MGIC has developed the performance model using proprietary data on mortgage loan performance that the company has amassed through its mortgage insurance business. The model purports to be able to predict the likelihood that the loan will remain current.

|Best of Both Worlds'

The overlay of these two somewhat dissonant methods of analysis raises an interesting question: If one can predict how a mortgage will perform over time, why would one care what an underwriter thinks?

"We look at it as offering the best of both worlds," said Kevin Cademartori, a director for MGIC. "Some people may not have confidence that the past is like the future. But no matter what your perspective of how underwriting should be done, this system covers it."

As well, since underwriter-modeled systems are now the standard in the industry, the developers feel that their choice to integrate that with a newer model will ease for mortgage banks what may one day become the dominant application evaluation system.

Wide Latitude

MGIC and Foster Ousley gm hopeful that potential clients will be attracted to the system's built-in flexibility in handling "plain vanilla" applications. Plain vanilla are the 30-50% of all applications that can be approved without extensive review.

Aquarius, according to MGIC officials, allows users tremendous leeway in defining criteria for plain vanill a applications.

The system uses neutral net artificial intelligence development software created by HNC Inc., a San Diego-based computer company.

The developers intend to have a working model available for sale to mortgage originators by the end of the first quarter.

Foster Ousley Conley is a provider of appraisal quality management and other services to the mortgage industry.

Milwaukee-based MGIC is a leading mortgage insurer.

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