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Special Reports
Return of Subprime
Fitch Likes Accredited's Use of Tech
By Brad Finkelstein
NEW YORK -- Accredited Home Loans Inc., San Diego, has "an experienced management
team that utilizes technology tools to identify lending opportunities and has effectively implemented its loan
origination system," according to a "Residential Mortgage Originator/Issuer Review" conducted by
Fitch Ratings here.
However, the challenges facing the company, Fitch found, include a reliance on
short-term credit facilities and a loan origination strategy that relies on credit and pricing exceptions for a
significant portion of total business.
Whole loan sales are the predominant source of earnings for Accredited and in
the first nine months of the year, sold over 85% of its production. It retained over 14% in portfolio. The company
has originated $5.6 billion for the first nine months of this year, up from $4.3 billion for all of 2002 and $2.3
billion for all of 2001. Approximately 91% of its 2002 originations came from the wholesale channel.
In 2002, Accredited made a decision to grow its owned loan portfolio in an effort
to enhance long-term revenue from interest income and create a consistent source of future earnings. Keeping servicing
rights for an additional revenue stream, Fitch noted, may help offset any decrease in production activities. The
servicing portfolio has grown by 70% in volume from December 2001 through April 2003.
In terms of staffing and training, Accredited has a dedicated training staff.
These employees have been with the company for an average of three years and have an average of 11 years experience
in the mortgage business. Each new hire gets an average of 24 hours of job-specific training and 6.5 hours of "non-job-specific
training." Existing employees received an average of 20.8 hours of total training.
Underwriters are paid a bonus not only based on the number of loans closed per
person, but also on the umber of loans sold at a profit.
"Therefore, underwriters are motivated to accurately describe, correctly
grade and approve only loans that can be sold within 120 days of origination and that can generate profits for
the company.
"While this heavily incentive-based system may be somewhat unusual in the
mortgage origination industry, it may be effective in maintaining loan underwriting quality," Fitch wrote.
The report also addresses how Accredited complies with predatory lending laws.
Its quality control department is responsible for performing tests to determine if the loan complies with all relevant
regulatory requirements. This includes verifying whether the proper disclosures have been completed, correct processing
of all legally required documentation and compliance with the required timeframes.
The company has developed technology tools to enhance compliance in this area.
"These controls are designed to eliminate economic incentives for employees to structure loans that are unfair
to the borrower," Fitch said. Programmed into its loan origination system is the limit on total fees paid
by the borrower to Accredited and a mortgage broker.
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