April 1, 2024
By Luana Slettedahl, Principal at BlackFin Group
Welcome to my continuing series about the benefits of doing business with the GSE’s – Fannie Mae and Freddie Mac.
This article will focus on missed opportunities in Capital Markets execution that impact loan production volume and ROI. I have found in my career that a sense of “mystery” surfaces when the topic of Capital Markets, otherwise referred to as Secondary Marketing comes up. It is easy to be intimidated by the multiple dynamics, risk, and knowledge that is associated within a Capital Markets team. I encourage you to look at Capital Markets as you would no other part of the mortgage lending operation. Each department has a role, key workflows, policies, and procedures that make it effective, and let’s admit that all these departments are managing risk in one form or another.
I recall the push – pull pressure that exists between Loan Production and Capital Markets, having led a Capital Markets team for nearly twenty years. At the end of the day, collaboration between these units, plus the Underwriting Team led to a better all-in company that served our customer base with many loan programs and pricing options. Homeownership opportunities, customer service levels, production volume, and profitability all improved!
So, let’s talk about some items that will impact your Capital Markets team in being the best in class when working with the GSE’s:
Benefits of GSE Pricing:
o MBS Liquidity and Execution
o MBS Specified Pool Pricing
o Best-Execution between MBS and Whole Loan Pricing
o Servicing Retained
o Servicing Released
Liquidity:
o Issue an MBS and sell in the open broker/dealer market – immediate earnings on sale of the MBS occurs.
o Issue an MBS and hold in portfolio – creates sale liquidity and future options for proactive and timely balance sheet decision making.
Whole Loan Execution:
o Assorted delivery dates
o Assorted delivery options – mandatory or best efforts
o Improved pricing for various loan balance ranges
o Improved pricing for low to moderate income levels
Loan Program Diversity:
o Fixed Rate
o ARMS
o First-time homebuyer, with enhancements for low to moderate income levels
Credit / Pricing Overlays:
o Established by the GSE’s
o Not subject to a third-party firms pricing approach
o Not subject to a third-party firms pricing margin’s
Underwriting:
o Utilization of DU or LPA for AUS approvals
o Not subject to a third-party firm’s underwriting rules / interpretation
o Enhanced decision making
o Better customer service
Technology:
o Access to state-of-the art technology applications
o Improved efficiencies / reduced cost
o Improves overall loan quality
o Reduces long-term repurchase risk
Having led a nationwide training effort in 2019 in collaboration with Fannie Mae and the National Counsel of State Housing Agencies regarding Risk Based Pricing, I have experienced the results and awareness that can be developed in this area.
It is my hope that the above information prompts a question or two regarding your firm’s existing framework in this area. Exploring changes that can be made within the Capital Markets area of your firm can result in taking your organization to the next level. I encourage you to not fall into the mindset of “it’s not broken” – and look to this conversation as a positive opportunity.
BlackFin Group is ready to discuss with you our services for a Business Assessment and identify ways in which to optimize your Capital Markets efforts.
Luana Slettedahl is a Principal Consultant with BlackFin Group in the Mortgage Strategy Practice. Luana brings forty years of diversified experience in Capital Markets, Mortgage Servicing Rights, GSE and Ginnie Mae relationship management and Seller / Servicer requirements. Her understanding of how to successfully do business with the GSE’s and Ginnie Mae, has made her a significant asset to her clients. For more information contact info@blackfin-group.com