By Luana Slettedahl, Principal, BlackFin Group
The third article in our GSE series addresses the benefits of when your team moves to a GSE loan model.
Let’s paint a scenario. Your firm is not approved to do business with either Fannie Mae or Freddie Mac and has not explored the benefits of being aligned with the GSE’s, everything seems to be running fine. So, why change?
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If you’re working with Correspondent Aggregators, this moves your firm to being 100% dependent on the pricing, underwriting philosophy, credit overlays, quality control, repurchase process and loan servicing operation.
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If you’re a Bank or Credit Union your infrastructure is self-designed for loan programs that are held as investment, resulting in a long-term financial strategy that may put pressure on the balance sheet and impact liquidity when markets turn.
If your team is a Direct Seller with the GSE’s, then your customer can have more options offered to them in the home financing process. This will impact loan production volume and future income streams. Sounds like a “great win” – so why wouldn’t you at least evaluate how to move forward in being approved as a Seller/Servicer with either Fannie Mae or Freddie Mac?
Additionally, Home Affordability is under great pressure in today’s market. A factor not always spoken about in Strategic Planning is that each of the GSE’s have an area of focus which is captured in the “Duty to Serve” initiative. This falls under the guidance of the Federal Housing Finance Agency which supports a sustainable commitment to meet affordable housing challenges whether it be in single-family, rental, or rural areas. So, if you are not on board with understanding and knowing more about this initiative and are dependent on the programs and risk tolerance levels that a Correspondent Aggregator chooses to offer – then your firm will be limited to reach customers in this market.
Let’s all agree that if your firm’s Loan Options, Pricing and Underwriting is not on its “A GAME” in today’s market – you have closed the door with the customer from the very first point of contact.
At BlackFin, we have noticed that lenders are not always aware of and have access to:
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Loan program features as designed by the GSE’s.
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Capital Market Options: Being able to sell to the GSE’s direct under their cash window, or issue a Mortgage-Backed Security can enhance financial decisions and income streams.
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The ability to run “best execution” models between each of the GSE’s based upon specific loan program and underwriting criteria. Improved income and gain on sale exists!
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Loan Level Pricing Adjustors are based upon each of the GSE’s pricing grids. Your firm now “owns” how it publishes pricing to the customer and removes additional pricing overlays away from what the Correspondent Aggregators pricing model may state.
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Lower interest rates can be offered to the customer, the result of pricing enhancements for borrowers in low to moderate income levels, or loan balance pricing improvements.
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Ability to utilize Automated Underwriting Systems with both firms. The AUS engines have different rules which could impact borrower approvals at time of loan application. Most likely, your firm is using one AUS System – is that the case?
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Promote and market loan programs with a 3% Down Payment - Fannie Mae’s loan program is HomeReady and Freddie Mac’s loan program is Home Possible.
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Access to enhanced loan programs offered by Housing and Finance Agencies. HFA’s look for a firm to be GSE approved and offer Down Payment Assistance programs where the DPA can be under a second mortgage structure. This moves the loan away from a 3% DPA, a BIG BENEFIT. How many of your borrowers wish they had access to this type of financing?
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Underwriting and Credit Overlays are based upon GSE Guidelines. Ask yourself, when was the last time you got a phone call about a credit issue that didn’t make sense? It was probably due to an overlay that was from the Correspondent Aggregator’s risk philosophy, or interpretation of the GSE Guide’s.
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Quality Control is managed by your firm – this provides an earlier source on what is working or not. When mitigating the risk associated with the manufacturing process of the loan, the closer you are to knowing what the risk is in the process, you can address and remedy the risk by a change in process. What a great win to build a risk management framework that mitigates future loan repurchase requests.
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Loan Servicing Service Levels can vary from firm to firm. If your firm chooses to move to a GSE model the opportunity to continue with the relationship with the customer and make loan servicing income that goes to your bottom line for the life of the loan exists. Additionally, you do have the option of selling under a service-retained or service-released structure.
Our goal with this series of GSE articles is to help generate a different level of awareness and knowledge that will create Strategic Planning value. While I was leading a Capital Markets team at a nationwide homebuilder, affiliate mortgage company, I learned that having a multitude of options created the highest customer benefits and loan production volume. Clearly a win/win. This is the same destiny you can create for your firm. Options are like gold nuggets in your business planning.
BlackFin’s GSE Readiness Assessment can guide your firm in preparing you for the future.
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. In conjunction with her understanding 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