Dollars and Cents in Mortgage Finance is Counted in Zeros and Ones

I recently visited the campus of CoreLogic [stock CLGX][/stock] in Westlake, Texas, about 40 miles northwest of Dallas. During a tour, quality control officer Bill Stewart mentioned that roll tape machines only recently went the way of the Dodo. To be sure, the only roll tape at CoreLogic is inoperable and on-display as a curiosity on the way to the “command center” — a reminder of the way things were long ago at the firm. Further, Stewart’s colleague Paul Armstrong mentioned that some community banks and county clerk offices still communicate by fax (CoreLogic enters the info into computers for them). One word: WOW. Thankfully, the role of technology in the greater mortgage finance space is less about keeping such relics and more about one floor of a building containing hundreds of servers, or processors buzzing away 24-7. Of course, it requires another building just to power and cool that floor, but the point is that information can now be singularly located, easily organized and highly accessible. There is power in data management, great power. On this point, fax machines and roll tape are not going to be missed in our world. But that doesn’t mean we still can’t get passed up. And in the race, so far, we remain one step ahead. Google Maps, for instance, would salivate at the mapping technology at CoreLogic. And that same mapping technology is being studied by other web-based mappers (think Yahoo, Microsoft) for either purchase, strategic alliances, or perhaps as a model to copy. Consider it a message in flattery, for it is only when your identity is stolen that you realize you are worth stealing from. In most cases, the mortgage finance industry is aligned for the purpose of greater transparency: scorecards, due diligence, open underwriting files, etc. And it putting together the HW Focus supplement on technology, free with July’s issue of HousingWire, it seems in today’s world of mortgage finance, dollars and cents is measured in zeros and ones. Consider this: there are firms touting loan level data — that which provides info on the credit score of homeowners, repay history, collateral performance. This echoes strongly in the secondary market and share in this space is set to grow. CoreLogic also has a product that’s about two years old that measures flood and storm risks (that’s the mapping technology bit from above). According to Barry Sando, the head of Business and Information Services there, interest used to come from insurers. Now, lenders are approaching in droves. As the role of due diligence increases, issuers also want to get their hands on the outside risks that weather events play on houses, the theory goes. It is not an outside expectation that investors would also like to know the risk of brushfires burning swathes of their collateral. But at some point, it going to start to feel pricey. Knowing what to buy and who to buy it from requires strategy and sound execution. According to Home Lending Source CEO Doug Reilly, an estimated 10% of gross revenue should be going to the implementation and upkeep of technology, if a mortgage originator is in an expansion phase. That’s a lot more expensive than paper for a fax machine. It sounds like a huge chunk of change, and it is. But then again, these times are changing and considering the multitudinous challenges ahead, who can afford to fall behind? Jacob Gaffney is the editor of HousingWire and HousingWire.com. Write to him.