Shoring up the mortgage underwriter shortfall

The mortgage industry is contending with a loan-underwriter shortage that has acted like a governor on an engine — slowing the pace of a fast-growing private-label securitization market.

The shortage stems from the imbalance created by the robust demand for underwriters in the private-label market set against the relatively stagnant supply of available underwriters — who also are in high demand in the booming mortgage-origination sector.

The imbalance has been particularly acute for third-party due diligence (TPR) firms that employ underwriters to review and assess the quality of loan pools used as collateral in private-label securitization deals.

Executives with TPR firms and the bond-rating agencies that make use of their due-diligence reviews agree the problem is a big challenge. It is complex, with multiple, varied causes. They also point out that it is, in large measure, a byproduct of a healthy, expanding mortgage industry marked by a resurgent residential mortgage-backed securities (RMBS) market. 

Despite the challenge, these industry executives remain resolute in their efforts to find a fix, largely because the long-term growth of the housing industry depends on it. To that end, they offer some possible, if imperfect, solutions that may help to address the underwriter shortage in the months and years ahead to ensure a smoother-functioning, more efficient private-label market.