Nearly a half decade after the start of the mortgage crisis, portions of borrower vetting for securitized mortgages are still being done primarily by loan originators. This causes a potential risk management gap, particularly for non-Fannie Mae and Freddie Mac-backed mortgages that are bundled and sold as mortgage-backed securities.
“The bond market needs to focus more on the front-end origination of mortgages. For certain, they have to do the same type of due diligence review as lenders. It can be an automated review to look at a whole portfolio to see which loans were good and which were bad. I don’t see that tech on the buy side," said Christine Pratt, a senior analyst at Aite Group who specializes in lending and credit risk.