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M R EP O RT | 25 FEATURE Increasing Portfolio Value and Reducing Risk The need to perfect loan collateral and document custody. By Debbie Lastoria and Meaghan Hanley E very loan has a value at origination. The loan officer makes their com- mission, and based on the secondary market, the investor pays for a loan in accordance with the underwriting basis for which it was closed. This value should survive the life of the loan, but it may not. The value may be impacted by a refinance for a better interest rate or default by the borrower, and this is consid- ered based on statistics. However, there's an exposure that exists with the condition of the collateral file. Having a solid process of tracking and maintaining the mortgage note, recorded mortgage, and title policy at origination is key. The Growing Need for a More Complete Custody Process I t's been reported that homeown- ers in some form of default are back to 11% when pandemic-related forbearance is considered. This compounded with increased origination, payoff volume, and the teleworking challenges will put stress on any collateral handling practices. With the challenges of 2020, the needed controls on manag- ing a perfected collateral file have become more of a priority at origination. Regardless of whether you know the condition of the file, a perfected collateral file will be required for ALL life of loan events. The market for whole loan sales is reopening, and all indicators point to a healthy expansion in 2021 especially when factoring in the non-QM origination and EBO (Early Buyout Program). Some new origination or sea- soned portfolio issues that should be considered for best execution downstream are: • Ensuring proper controls for agent and/or correspondent follow-up • Building a tracking and report- ing vehicle that incorporates third-party data sets • Pre-sale review and remediation to proactively resolve known is- sues for first mortgages (Jumbo and Agency), CRA Loans, HELOCs, and stand-alone second mortgages, non-QM, HECM, and nonperforming and re-performing loans • Complete collateral due dili- gence on all file location • Validate MERS compliance including a file to land record comparison Quantifying the High Risks in the Current System F inancial services firms are paying too much to involve several different vendors and still getting a partial solution, exposing them to substantial risk because it's impossible to make good decisions about what to sell, how to price it, or what to buy. Document custody has tradition- ally been the last line of defense for a quality portfolio and the first source of information for a loan under inspection, but without the research and remediation components, it can't get the job done. Resulting in portfolio sellers remediating the collateral files on a reactive basis. What a Better System Looks Like N o matter the reason the industry must call upon the loan's collateral file for informa- tion, it'll continue to struggle until it can combine all the important elements into a single solution. The document custodian must evolve into a partner to inves- tors and servicers, with solid procedures in place to ensure the integrity of the collateral over time. Factoring in 2020, our long- term reality of an ever-changing environment requires these solid procedures and flexibility in ensuring their objectives. After studying the problem, we found a set of core functions that must be included in a complete process, solving the problems the industry is encountering today: 1. Secure and efficient document custody. The solution must offer a state-of-the-art vault with advanced physical security, fire and other disaster protection, climate control and effective file and document tracking. 2. Effective remediation support. The solution must offer the ability to perfect the files by locating miss- ing documentation or creating new documents if required. 3. Efficient collateral review. The solu- tion must provide fast, efficient information about the collateral files. The document custodian of the future post-pandemic must be able to house and re- mediate massive pools quickly and be able to report status on very short timelines. This may require partnering with alter- native resources to complement existing infrastructure and the demands of 2021. This goes beyond the scope of today's document custody providers, but it's essential if we are to have hope of solving the problems we've seen in the past and expect to grow in our indus- try this year. . DEBBIE LASTORIA is the VP of National Sales, where she brings over 35 plus years' experience in the industry to the organization since she began her career with NTC over 10 years ago. In 2015, she was one of the women who made HousingWire's "Women of Influence" list; in 2016, she made the list as a "Leading Lady" in the MReport's Women in Housing magazine; and, in 2019, she was awarded a Bronze for 'Woman of the Year' in Sales by the Stevie Awards, where they recognize women for their achievements in Sales. MEAGHAN HUNTER- HANLEY has worked in the mortgage industry for 19 years, including 10 years on the loan origination side and more recently in servicing and capital markets. In 2015, she was nominated for HousingWire's Rising Star, and in 2017, she was nominated for HousingWire's 'Women of Influence' as well as awarded the title of "Inspiring Women in Business" by the Tampa Bay Metro Magazine. SPONSORED CONTENT