The disaster endured by the U.S. housing industry was due to subprime mortgages. Enormous price rises of property finance ensued from a significant increase in Residential Mortgage Backed Securities (RMBS) and home prices. It forced most private loan originators and investors to give up on the property financing industry, helping Government-Sponsored Enterprises (GSEs) to acquire a much better market position than before. Instability in the private market followed, as GSEs became dominant.
In recent years, private markets have revitalized by using Mortgage Process as a Service (MPaaS). It promises a better market for private players in the mortgage industry and here are the reasons:
- Guaranteed quality loans and data transparency ensure risk reduction and more private investments.
- The data on loan origination will be collected, verified, and presented in a standardized way to help originators make better decisions on credit underwriting, and hence provide investors better due diligence reports.
- Better quality service, and meaningful and accurate loan information become available while processing loan origination. That helps in reduced loan default rates and repurchases.
MPaaS helps remove the cost of ownership from applications, people, technology infrastructure, and platforms. The pay-per-use model is used for banks to save large amounts of money.
Here is why the U.S. consumer lending market is ready for MPaaS:
- Both, industrial and economic parameters show U.S. mortgage is reviving slowly. There are proposals of closing the GSEs down, which is a big positive for revival of private investors.
- The trust of RMBS investors can be won with better risk management skills. This will also help decrease the repurchase risk.
With MPaaS entering the market, lenders have access to technology, process, and people, as well as the scope to transfer ownership risks and a few other responsibilities to mortgage software providers. However, such a shift is possible only if customers use the pay-per-use model. It helps shun capital expenses (Capex) and adopt operating expenses (Opex). Business process as a service (BPaaS) not only measures the extent to which a lender’s process is executed, but also reduces compliance and repurchase risks.
BPaaS/MPaaS is required to act as an independent information mediator by providing better quality data for banks that require better risk management. As MPaaS provides the lender a platform to manage business processes, banks have enough scope to address the challenges arising from this new system more effectively.
