My most recent post
talked about some of the bad habits and practices we’ve uncovered
during our FOCIS and FOCIS-plus reviews of mortgage bankers. Now let's discuss some of the better practices and habits we’ve come across during these reviews.
Loan Servicing: One of the most exciting changes we’ve seen recently is a broad based move to retain loan servicing. Some mortgage bankers are originating GSE and FHA loans, issuing their own securities, selling the securities through Wall Street broker dealers and retaining servicing. There are many benefits, here are three:
- Loans are originated based on the guidelines of the GSEs and FHA; not the guidelines of major aggregators. This strategy allows companies to offer consistent product guidelines and to develop an efficient and efficient operational process from underwriting through loan purchase. Today, most mortgage bankers have to constantly adjust and maneuver to meet multiple investor guidelines.
- Loan purchase time is reduced to 3-8 days. Direct trades with the GSEs can be as little as 3 days from funding to loan settlement. If loans are allocated into securities, the securities can be financed until settlement through gestation repo lines. Repo facilities generally shorten the loan purchase time frame to 7-8 days.
- Many mortgage companies today are building a servicing portfolio that can provide cash flow and compensating balances that might drive warehouse lending costs down. Many believe servicing originated today will have a higher value when interest rates eventually rise. In addition, a servicing portfolio provides a nice hedge when new production declines in a rising interest rate environment.
Centralized Compliance: New mortgage technologies support mortgage originations by providing tools and processes to centralize compliance in an efficient and accurate way. Thus many shops have been able to leverage technology to centralize compliance during the early disclosure process. These mortgage bankers have removed the tasks of generating initial GFE and TIL by the loan officer and moved the task to a designated compliance employee. After a loan is originated and before the loan processing begins, the centralized compliance employee generates the early disclosures.
Good File Delivery: Another practiced we’ve seen is the creation and enforcement of a Good File Delivery Policy and Procedure. These companies have developed specific guidelines and requirements for loan officer to submit a loan for processing. The Policy requires loan officers to complete the application process and perform specific tasks before a loan is submitted.
Today is the time for mortgage bankers to adapt and exploit the changes in the market. A strategy of adaptation and exploitation will provide a company the opportunity to better manage risk, increase earnings and create long term intrinsic value.