Subprime Woes Drive Up Demand for Due Diligence.(influence of due diligence on services of mortgage services)

New York -- The mortgage industry today is experiencing something of a dichotomy. For some, it's the best of times; for others, it's the worst.

Just ask subprime mortgage lenders and they'll tell you about the worst of times. But for prime and diversified mortgage servicers, things are looking up, according to a senior executive with Fidelity National Information Services' mortgage servicing division.

Jeff Mouhalis, executive vice president for product delivery and chief information for the mortgage division at FIS, said that with early payment defaults and buyback requests posting such a problem for nonprime lenders, demand for third-party due diligence to ensure that loans meet investors' requirements has increased.

That's a big change from the peak of the subprime lending boom, when originators had to put up with little interference from the investors who ultimately purchased loans. Now, investors and wholesalers are policing their purchases more carefully.

"The amount of due diligence that originators of loans are willing to tolerate now far exceeds anything I've ever known," Mr. Mouhalis said.

That means lenders face more intensive document reviews. Some companies run automated valuation models to double-check on collateral values, and order a full-blown appraisal if a property doesn't appear to be valued correctly. And loan buyers are starting to call borrowers, even asking questions to make sure they understand their loan product. Investors have sometimes found that ...