NEW YORK CITY-Industry groups are calling on federal regulators, ratings agencies, deal sponsors, originators and investors to come up with a uniform set of standards to increase transparency in underwriting, fraud and regulatory compliance throughout the real estate industry, said Digital Risk LLC, a provider of mortgage risk solutions at the Mortgage Bankers Association National Secondary Market Conference in Midtown Manhattan on May 8.
The firm, which provides compliance and transaction management services to both the residential and commercial real estate industry, is working to build a consortium of mortgage professionals who can create guidelines that include actionable and reliable methodologies, as well as reforms to the federal Real Estate Settlement Procedures Act, or RESPA, under the US Department of Housing and Urban Development.
Alex Santos, company president and managing director, says in an e-mail to GlobeSt.com several due diligence procedures – such as re-verifying income searching for undisclosed liabilities – are standards that should be established in order to detect the underwriting mistakes of the past.
“On RESPA, we are seeking clarity on some of the grey areas of the law,” he says. “In our experience, there are different interpretations, all reasonable, of the law’s details that when clarified will increase the consistency of the due diligence and ratings process.”
Without such diligence standards, the company argues that private capital will continue to ebb from the residential mortgage backed securities market, and furthermore, the industry may face additional government regulation. The company also told MBA members that because the markets are struggling to accurately value loans because of the volatility in real property values, capital is on the sidelines until uncertainty dissipates.
In establishing a common set of best practices, Santos says the ratings agencies are a “critical stakeholder” in enforcing and developing these standards, and the company has had preliminary discussions with Moody’s, and will be reaching out to Fitch Ratings, Standard & Poor’s, Kroll and DBRS.
The company, headquartered in Orlando, FL, is spearheading an exploratory committee and plans to hold an initial meeting in the coming weeks.
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