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Special Reports
Secondary Market
Execs Find Aggregators Being Cut Out
By Jennifer Harmon
Mortgage originators currently have access to countless choices of loan products
and are streamlining labor-intensive processes. Some are leapfrogging aggregators like Wells Fargo to sell loans
directly to Wall Street, according to top executives at WellFound Decade here, which recently merged with Lydian
Data Services to form Lydian Technology Group (see related story this report).
Lydian Data Services chief executive officer William Decker said companies are
now buying loans on a flow and mini-bulk basis, which is enabling brokers and mortgage bankers to diversify and
reduce risk in the secondary market. This is creating all new efficiencies and opportunities in the market, he
said. "The market is expanding in terms of who is competing with secondary market transactions. More investment
banks have gotten involved. Some of the largest aggregators are reaching deeper into the market. We're seeing a
migration to support those channels," said Mr. Decker. "Small to midsize companies are going straight
to investment banks now and delivering. Overall, the market is more competitive. It is allowing companies who are
not necessarily as good at secondary market hedging to focus on origination and servicing transfer."
Originators are going to have to utilize technology to make sure they have efficient
processes in place, according to Lydian Technology Group president Brian Fitzpatrick. The newly combined company
is able to assist in the ability for originators to come through a unique, integrated data hub and validate data
off of their systems. WellFound, an integration and architecture company, services some of the top mortgage lenders,
while Lydian Data Services offers end-to-end outsourced systems with a specialty in conduit services for the secondary
market and closed-loan review for top mortgage aggregators and Wall Street companies.
Delivering electronic data combine the origination side of the business, service
systems and risk management all into one file. "We are prepared to take data electronically from sellers.
We can help you have the right infrastructure to communicate with your partners more effectively and to gain efficiencies
in the secondary market," said Mr. Fitzpatrick. "Everyone benefits from getting more data and speeding
up the process."
From an originator's point of view, there is a strong need to get at data and
to have the ability to pull it out of a document and to ensure it meets compliance and underwriting standards,
added Mr. Decker. "Mortgage originators are going to continue to automate their processes and have the ability
to get data out of their systems and run it against rule systems or AVM providers to validate the data they have,"
he said. "We can pull data off images and see if there are any differences before the file is delivered to
the end investor. We think there's a lot of value to multiple segments of the industry by bringing the two companies
together through electronic data transmission and running a data hub."
Moving a physical file around can get quite onerous. According to Mr. Fitzpatrick,
the company believes the secondary market should expect to see funding time reduced to shorter than even seven
to eight days. "When data is re-inputted on the side of the aggregator, it can be a very inefficient process,
and it costs more money in the secondary market," said Mr. Fitzpatrick. "We want to compress the number
of cycle days it takes to get those loans out electronically ... take out the manual checks that take place."
Outsourcing may be an alternative for companies who do not feel their core competency
is in the secondary market. Lydian Data Services can help lenders manage risk and compliance, Mr. Fitzpatrick added.
"We can turn on pieces and parts of the integrated data hub, rapidly and efficiently. Sometimes a lender's
infrastructure isn't set up to take advantage of Web services or they outsource the compliance part. Lenders have
the option to use any of all of our services," he said. "The integrated data hub cuts down on the cost
to maintain the infrastructure. It drives the cost of the transaction and timeframe down. With the right infrastructure
and cost structure, margins start to open in the secondary market.
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