Sue Allon launched a new platform in September that would allow mortgage financiers and originators to better fit home loans to various investor programs.
One month later, the state attorneys general and federal agencies launched the national probe into alleged foreclosure abuses across the industry. The servicing overhaul completely froze the pipeline and delayed fragile plans for future securitizations.
Allon, who founded the investor due diligence firm Allonhill in 2008, said her Rate Lock platform moves a few hundred loans per month. While those were originated with the intent to securitize, and the number is 20 times larger than the year before, far more of these loans will be moved through the mortgage finance juggernaut in some other way.
"As soon as servicers are back to just servicing loans, that should dovetail exactly with seeing new originations surface. You will see investors coming back to buy a loan for securitization, because they know if something goes wrong and the borrower stops paying, the investor knows what to expect when they invoke their right to foreclose," Allon said in an interview with HousingWire.
Since the market locked up in 2007, there have been fewer than 10 private-label mortgage-backed securities deals. Most were jumbo packages from Redwood Trust (RWT). Credit Suisse (CS) put together an MBS offering this year, as did a Fortress Investment Group (FIG) subsidiary.
But government-backed Fannie Mae, Freddie Mac and Ginnie Mae continue to finance more than 95% of the market.
And the cost to fund these loans is in constant threat of going up. Congress raised guarantee fees in April to fund the payroll tax extension. The latest piggy-bank option could raise fees again to offset reductions on student loan interest rates, noted Guggenheim analyst Jaret Seiberg Monday.
"We believe the risk is high that Congress will look at higher guarantee fees to offset the costs of a cut to student loan interest rates," Seiberg said. "For now, we see this mostly as a headline risk though there is a real chance that Congress acts."
Entrepreneur Bill Dallas recently gave a speech at the HousingWire REThink symposium, detailing how revived mortgage companies can take the opportunity to reinvent the process and build a more efficient origination channel.
The Rate Lock system at Allonhill is a sign that least some firms are tossing out an antiquated system. Before the crisis, the process of selling a loan to a buyer was so muddied, often a purchaser would fund the loan then have to figure out what it got stuck with, Allon said.
"They got stuck with trying to get that off their inventory, and a great way was offloading it into a securitization," Allon said. "They had to do something with it. Sometimes, they could negotiate putting it back, but lot of times, they couldn't. It was a competitive market. They didn't have a chance."
In the aftermath of such a practice, Allon's system allows a loan purchaser to list what it will pay for a loan each month on a simple spreadsheet, and the due diligence firm matches the mortgage against the criteria next to it. The seller, or the originator, knows it can make that particular loan at a given rate as long as it is validated.
Allon said servicers are adapting to the AG settlement requirements and are finalizing fixes going forward. But a healthy private-label system is still a ways off, and there are many potential snags on the road ahead.
"We can see the light at the end of the tunnel," Allon said.