Mike Dealy is president of MDA Lending Solutions, a wholly owned subsidiary of MacDonald Dettwiler and Associates. He is responsible for leading the real estate services company, expanding its capabilities and footprint in the US through acquisition and by leveraging its platform of residential lending products and services.
In the latest installment of In This Corner, Mike discusses his firm's ability to track the moving challenges facing the mortgage industry.
Housing Wire: MDA Lending Solutions provides trusted MDA DataQuick reports that track housing-related data across the country. Based on the data you track, what local housing markets might recover quicker than others?
Mike: "MDA DataQuick's data indicates that recovery will come sooner to the mid- and high-valued markets across the country than the low end markets. Because a greater concentration of sub-prime loans in these mid-range value areas led to a greater number of foreclosures, these markets have a larger inventory of distressed properties for sale at lower prices. The combination of the greater number of homes up for sale and the fact that distressed home owners must reduce the asking prices has led to a significant drop in residential property values.
"On the positive end, these neighborhoods are more affordable, which has led to a recent up tick in sales volume. The other half of recovery would be reflected as an increase in property values, but the foreclosure rate must slow down to allow prices to stabilize. The higher end markets have the opposite situation. Fewer home owners in high-end areas were forced to sell their homes through foreclosure, keeping values stable but sales volume low as owners wait for market prices to recover.
"Our national data includes many local areas and sub-markets demonstrating these trends. In particular, Southern California provides an interesting case study of these trends. The sales volume chart below shows the volume of sales in two high-value areas, Cardiff and La Jolla, is down in 2008 and 2009 from where it had been in 2007. Conversely, sales activity in the more mid-priced areas, National City and San Marcos, has increased since 2007."
HW: You provide streamlined solutions for loan processing. Some sources say the industry prefers the legal comfort of a signed piece of paper to Web-based mortgage closing services. What future do you see for electronic mortgages?
Mike: "As with most things, change takes time. This is true in the mortgage industry, but signs point to a strong future for electronic mortgages. Despite slow adoption of this technology, more lenders are dedicating resources to make the technological changes necessary to support this solution. This has led to increased demand for support of an electronic mortgage process. The legal and technological components of this solution are well-developed, but education and training are keys to a full understanding of the process.
"Adoption of a fully integrated eMortgage solution requires significant investment on the part of lenders. Therefore, this solution must align with their business models and loan origination goals. A strong business case can be made to support this solution and many early adopters are benefiting from the process efficiencies and cost reductions that can be realized from implementation. The industry will eventually embrace this concept as it did with the introduction of automated underwriting/origination systems and risk based decisioning models. The demand for a more efficient and expedient closing and settlement process will eventually lead us down a path to adoption and increased acceptance."
HW: You provide powerful residential credit services. As we pull ourselves out of this crisis, how important is it for lenders to go back to giving loans to those best able to pay them back?
Mike: "Mortgage originators have traditionally relied on credit worthiness as one of the key indicators for repayment. This crisis has certainly reinforced the need to prudently review all information available when underwriting and approving real estate secured loans. MDA’s credit solutions have helped our customers to make informed decisions on loan applications throughout the economic downturn.
"Lenders realize the importance of managing the information available to them to more effectively underwrite loan applications. This includes Credit, Capacity and Collateral, along with other key indicators such as employment and income verification. The biggest change we have seen is our customers leveraging the additional customer service available through MDA in the form of score updates, trade line validation and other research to support the additional due diligence required by today’s underwriting needs."
HW: Obviously compliance is a big issue to industry players. One of the more recent — and most contested — policies is the Home Valuation Code of Conduct. How has MDA Lending Solutions adapted to the HVCC?
Mike: "The Home Valuation Code of Conduct basically outlines a best practice approach for securing collateral valuations in the residential lending market. The Code is consistent with, and supports, the best practice guidance presented in the Interagency Guidelines for securing collateral valuations as well. Because our business model incorporated these best practices even before HVCC implementation, MDA Lending Solutions is fully compliant with the Code’s requirements, including independent selection and assignment, provider quality control, and an appraiser 'hotline.'
"With that said, the Code clearly requires the lender to be compliant, not the appraisal management company. To support our business partners and customers, our major HVCC focus since announcement of the Code’s May 1, 2009 effective date has been to work closely with our customers to ensure the combined processes are compliant. The market segments impacted the most appear to be the mortgage broker origination and correspondent lending channels. The legacy business model in those channels commonly allowed the loan production personnel to choose and work directly with the appraiser. In response to the Code, lenders implemented business model changes in the Wholesale channels to create separation between the loan production capability and the appraiser. To assist, MDA Lending Solutions implemented workflow changes, enhanced specialized customer service support and developed appraisal fulfillment processes to meet the specific needs of the mortgage broker and correspondent lender channels."