The practice of labeling loans as A, B, and C will disappear as lenders sharpen their underwriting skills and become better at pricing, a top mortgage executive says.
"Down the road, the differences won't be between prime and subprime," said Warren Raybould, senior vice president with GE Capital Mortgage, Raleigh, N.C.
Instead, sophisticated modeling systems will establish loan terms according to very fine distinctions along a continuous spectrum, Mr. Raybould said. That would replace the practice of using categories to lump together a lot of loans and price them similarly, he said.
Mr. Raybould spoke at last week's Eastern Secondary Mortgage Market Conference in Raleigh. The North Carolina Bankers Association, the sponsor, asked a panel of lenders from high-profile companies to consider the future of mortgage banking.
Another view of that future came from Stanford L. Kurland, president of Countrywide Home Loans Inc., Calabasas, Calif. "Industry leaders will be defined by their ability to spend heavily, but extremely effectively, on marketing," he said.
Successful companies will be very adept at hanging on to customers and offering an array of products, the panel agreed. "It is by far cheaper to market to existing customers than to go out and get new ones," Mr. Kurland added.
Lenders should supply products like title insurance and appraisal services "that add to the value of the loan," Mr. Kurland said.
Paul S. Reid, president of American Home Funding, Richmond, Va., went a step further. Mr. Reid, a former president of the Mortgage Bankers Association, suggested partnerships with lawn care companies and other businesses involved with home upkeep.
"We need to peel the onion back and say we can be a direct marketer to our customers," he said.
The lenders also weighed in on industry consolidation, saying more mergers would occur and the industry would benefit.
"This will create critical mass for dealing with issues that face us," said Mr. Raybould.
The industry still faces some serious legal challenges, said Marc C. Smith, president of Crestar Mortgage Corp., Richmond, Va. He pointed to the $10 million the industry has spent defending against recent class actions over alleged violations of the Real Estate Settlement Procedures Act.