Mortgage origination and resale on the secondary market is a process that follows a set route, much like driving from one place to another. Like the roads across the country – which vary from rough, rutted dirt roads to the newest, paved super-highways – mortgage bankers utilize processes that range from manually working with paper, fax and phone to automated computer systems.
With the constriction of the housing market, lenders need to be re-examining how to maximize profitability moving forward. Some say information technology spending will decrease in the short term, while others say now is the time to re-invest in technology. The federal government is exploring ways to ease the economy, but there is still plenty of uncertainty in the financial markets for the next year or two.
According to the American Bankers Association's (ABA) Economic Advisory Committee, home sales will gradually improve this year. One way lenders can offset any downturn is to leave the dirt road and access the highway through the use of sophisticated mortgage technology solutions.
One of the easy-to-use technologies now on the market allows lenders to eliminate paper rate sheets and automate the management and searching of loan guidelines. In today's mortgage climate, with loan products changing daily, lenders need to be able to quickly find, price, originate and close loans with the most up-to-date, accurate loan guideline information. While the link to secondary market executives may not seem apparent, solid loan pairing of borrower and loan on the front end will result in a more attractive product on the secondary market.
Before going on any long trip, most travelers figure out where they are going and the best way to get there. For the mortgage lender, once a loan is closed, there are two options. Some lenders service the loan, making income on the interest accrued over the life of the loan. Other lenders resell loans on the secondary market, creating additional cash for further lending.
The easiest way to resell loans is to have mortgages underwritten that completely comply with investor guidelines, making it easy to bundle like mortgages. As a result, secondary marketing executives must show interest in origination technology that impacts a loan's marketability.
Perhaps the most important step in closing a loan is getting the emotional commitment from the borrower. This generally happens when the originator receives the loan application and commits it to a specific set of guidelines and loan program. Swiftly identifying an appropriate product for the borrower used to be a relatively simple process, but with the speed at which guidelines are changing today, this process has become complicated.
Further complicating loan origination steps are various investor guidelines with which lenders must comply. Carefully reviewing and comparing product guidelines from investor to investor for the thousands of loan products in existence is an originator's worst nightmare. This archaic process not only eats up valuable time, but it prevents originators from proactively seeking leads. Today, loan guidelines and eligibility technology give originators the tools to quickly search, evaluate and select loan products that are updated to the correct guidelines and pricing daily – speeding the process and increasing revenue through the use of technology.
Gone are the days when originators had to search through large, out-of-date investor guideline books – a process not much better than driving down a rocky dirt road. Today, there are affordable databases containing updated underwriting and qualifications for loan products on the market that consolidate the minutiae of the many sprawling mortgage products available with automated investor guidelines and present them in a streamlined fashion.
In such a competitive environment, this type of technology solution is crucial for lenders and their secondary market executives to succeed and retain a competitive advantage – turning that dirt road into a newly paved highway.
The right tools
San Francisco-based Parkside Lending offers a perfect example of what is involved here. The company needed a solution that could increase overall productivity, while providing daily updated investor guidelines. When the company began searching for underwriting and qualifications for a loan product database, it wanted a technology solution that could provide a tangible return on investment in addition to improving efficiency and accuracy. It selected a Web-based, searchable database that provided daily updates on guidelines.
According to Matthew J. Ostrander, CEO of Parkside Lending, ‘The formatted Web-based database exceeded my expectations in its ability to enhance our productivity as a company and for the better service to our customers.’
At the end of the day, all of the loans underwritten and conforming to the proper guidelines arrive ready for their trip to the secondary market.
Like any other technology purchase, there are features for mortgage bankers to consider when shopping for a product and pricing eligibility solution. Because of the barrage of rate sheets that enter the market each day, lenders should select a technology solution that has the ability to regularly monitor guideline updates throughout the day, therefore, maintaining accuracy. Not only is it a benefit to originators, a loan that adheres to accurate guidelines is better prepared for the secondary market.
It is certain that the mortgage industry will continue to evolve, and lenders will demand that their systems advance to account for the changes. As such, mortgage bankers should insist that the vendor partner they select have an intense focus on continual improvement of its technology solution. The more often the system is updated, the better-equipped lenders are to place borrowers in the right loan, close it and shop it on the secondary market.
Other features to look for in a system include an advanced search capability that enables an originator and all origination channels to quickly find the details on a desired loan product from any location in the nation. Because many originators work remotely, having a Web-based system that works from anywhere at any time is a real competitive advantage they should also consider.
Of course, having a system that is available 24/7 from any location is worthless if the data management is flawed. Ideally, the data is presented in a searchable format, with easy-to-use, detailed guidelines that simplify the lives of originators, processors, underwriters and secondary departments by instantly delivering the most up-to-date information.
Because every lender is different, the loan guideline database should also be customizable to accommodate various needs and scenarios. With today's lending environment moving in so many directions, solutions have to be scalable to handle not only retail, but also correspondent and wholesale business channels.
With the right guideline database, originators can accurately find and place loans for more borrowers by eliminating the time spent searching through rate sheets, which – paired with the option of selling the loan on the secondary market – increases the lender's profitability.
Simplifying this otherwise arduous process not only benefits the originator. Selling loans on the secondary market requires being able to offer the right bundle of loans to buyers. When less time is spent making sure closed loans fit the proper investor guidelines, more time can be spent building relationships with buyers and selling the loans.
Mortgage bankers stand to benefit from adopting a guideline database in several ways:
- Speeding the process of matching borrowers with loans complying with investor needs without forsaking accuracy;
- Insuring accuracy of the most updated product guideline;
- Increasing loan volume and revenue; and
- Boosting salability of loans.
The return on an investment for guideline technology can be significant, easily paying for itself in less time spent per loan and in cost savings on redundant staffing. Additionally, minimizing the need to sift through a lexicon of investor programs and rate sheets keeps originators more productive and yields better loans for the secondary market.
Having a Web-based system also enables originators to close loans from anywhere at any time, which is incredibly helpful in today's fast-paced e-commerce environment. Flexibility is also a key component of any advanced product and pricing engine, and lenders should ensure the system is customized to their requirements.
In the end, mortgage lenders should select a solution that can deliver the best product to match the needs of multiple departments within a lender, while doing it quickly and efficiently. The ability of loan guideline technologies to speed and simplify origination is an important and necessary tool for the lender and a loan's journey to the secondary market.
Lenders that are looking to save time, best serve borrowers and increase revenue through higher loan resell volume must consider guideline databases – it could be the edge needed to put them in front of their competitors.
Dan Thoms is senior vice president of sales and strategic initiatives for Eagan, Minn.-based AllRegs, an information provider to the mortgage lending industry. He can be reached at (800) 848-4904.