The last few weeks have taken us to Alabama, Arizona, California, Idaho, Kentucky, Massachusetts, Michigan, Missouri and Washington. We often discuss counterparty risk with our clients and one of the areas of counterparty risk is for a mortgage banker to align with strong investors.
Many mortgage banks are seeking approvals through Fannie Mae, Freddie Mac and Ginnie Mae to mitigate the take-out investor counterparty risk. Not all mortgage banks have the financials, personnel and operational procedures to sell directly to the Agencies and we’ve identified three areas a company should review before starting the approval process.
Business Model Adaption
Many mortgage banks sell their loans servicing released and it takes a business model shift to retain servicing. In the short term, retaining servicing eliminates the servicing release premium gained when selling servicing retained. A company must look at how much liquidity they are willing to invest to offer competitive pricing when retaining servicing. In addition, if the investor requires payments scheduled/scheduled, there must be a reserve established to pay the investor if the borrower becomes delinquent. If a company is going to service loans internally, the company must establish a servicing department with experienced employees to ensure payments are collected, deposited and sent to the investor in a timely manner. If a company is using a sub servicer, partnering with the right sub servicer for the company’s business model is key. When using a sub servicer (as with any third party vendor), the Company must establish controls to monitor the activities of the sub servicer.
Is your company ready for the application process?
A mortgage company should review the Agency application and ensure every items required is completed before starting the application process. With many mortgage banks applying for Agency approval, the turntimes are currently extended and ensuring the application is 100% completed, helps to expedite the approval process. A few hangups we’ve heard are net worth minimums not met, outdated, inadequate or missing policies and procedures, and having experienced personal on staff to handle servicing and/or delivery execution. For example, most mortgage banks selling serving retained do not have a Quality Assurance Policy to monitor sub servicers, or have an experienced employee to manage the servicing function. Other inadequacies we hear center around Quality Control Plans, Quality Control Reports, and Borrower Delinquency Polices and Procedures.
Clear vision on what to do after approval
After a company is approved to sell to the Agencies, then what? Many companies we’ve visited recently who have gotten their Agency approval, are stuck in limbo and either don’t have a plan to start selling to the Agencies, are gun shy about selling direct or don’t have the experience to make the shift. Having a clear vision before submitting the application helps to get ready once the approval is received.
If you’d like assistance in the business adaptation, application process or plan after approval, we can help. We’re currently assisting clients in all three of the phases of selling directly to the Agencies.
Cameron Watts, CMB
C. M. "Corky" Watts, CMB