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How is it that a small mortgage banker is able to fund 100% of their production through a mortgage bank and pay only 40% commission to its loan officers without losing them to another shop? The owners have created total secondary market transparency for the loan officers. ...

There is always an opportunity to grow profits without taking on additional risks. Sometimes it makes sense to engage someone to help you identify those new opportunities and point out areas of risk. Musicians become great musicians because they constantly take music lessons from many teachers. Athletes become great athletes because they have coaches to help them improve. If you are an owner or manager of a mortgage bank, think about bringing in some outside people occasionally to help you look for new approaches, processes and ideas. ...

We perform our FOCIS audit for warehouse lenders looking to identify hidden risks and potential “tapebombs” that may result in unexpected losses. We also perform FOCIS-plus studies for management and boards of mortgage companies who are looking for ways to increase revenues, control cost and better manage risk. Both studies require us to interview the senior management team and other middle management to uncover business practices and leadership styles. One of our key findings is how the leadership and behavior of the CEO influences a company’s management style and corporate culture. ...

In the past year, we’ve still seen a few companies allow their loan officers to lock directly with investors. Investors today allow their correspondent customers to manage secondary market activities and margins from their web sites. We believe this is a dangerous process that can lead to revenue leakage and poor pull through with investors not to mention product guideline violations and a higher chance of loan repurchase demands. All of these can be costly to an operation. ...

One of the studies we perform for mortgage bankers is a review of the capital markets area. We review various policies and procedures, controls, hedging strategies, reporting and performance measurement tools. We also see if there is board oversight and validate if management is adhering to the risk policies approved by the board. A key deficiency we see in many shops is the lack of reporting and measurement of secondary market activities. One key measurement is the difference between the expected gain-on-sale and actual gain-on-sale. Let’s dig into what this means and why it is important....