by Scott Happ
In the U.S. mortgage market, most loans are sold to secondary market investors during or immediately following the origination process. Although elementary to some, this structural characteristic creates a series of functional requirements for lenders which are generally described as secondary marketing activities. They include investor selection, loan pricing, lock desk management, pipeline risk management, and committing. These processes are complicated and resource intensive, creating opportunities for lenders to deploy technology to improve operational efficiency, decision making, and competitive viability.
This multi-part blog series will describe why lenders must automate secondary marketing functions to grow in today’s hyper competitive environment, and how lenders can leverage Optimal Blue’s enterprise secondary marketing platform to improve these critical processes.First let's set the stage. Several applications are seamlessly integrated across the Optimal Blue platform, including a robust content management application, a product eligibility and pricing engine (PPE), a hedge analytics solution, and a digital whole loan trading system.
In Part 1 on the subject of secondary marketing automation, let's consider the following two areas where loan anomalies and accuracy are certain to play a role.1. Manage expanding content seamlessly
During the financial crisis that occurred over a decade ago, the number of mortgage buyers fell precipitously. Since that time, there has been a resurgence of investors, and today, there are more than 150 organizations actively buying loans. While most buyers are focused on the conforming market, buyers are increasingly adding programs that do not fit squarely into the definition of conforming conventional and governmental loans. A market for jumbo loans has re-emerged and there is currently an extraordinary amount of focus on programs for mortgage loans with expanded eligibility, first-time homebuyers, and low-to-moderate income borrowers. The resurgence of the non-conforming investor market is excellent news for originators because these programs provide additional opportunities to serve customers. However, managing an expanding set of content in real time with a high degree of accuracy requires automation.
Optimal Blue offers the most expansive array of investor content in the industry, supporting virtually every investor in the market. Investors cover the full spectrum of products and include an assortment of niche offerings such as state housing finance authority programs. Optimal Blue has developed a sophisticated, high capacity content management system that ingests product eligibility and pricing data in real time and has built automated processes to ensure the highest level of data quality. This means that lenders using Optimal Blue solutions are assured of having high quality product eligibility and pricing data available on demand, and can entirely dispense with the need to capture, manipulate, or review investor content.
2. Best execution is increasingly complex
Product eligibility and pricing have become exceptionally complex over the past decade as buyers have sought to more accurately price risk. In addition, there has been a proliferation of specialized products designed for market niches, like consumers with compromised credit or buyers looking to acquire unique properties. This has made the first step in any best execution analysis—matching borrowers with applicable loan programs—an increasingly complicated and therefore error-prone activity. To identify applicable products among a broad range of options and perform a best execution analysis in real time, an automated solution with advanced product matching capabilities is required.
Optimal Blue’s product eligibility and pricing engine uses an extensive set of product filters to identify applicable loans programs and then evaluates best execution pricing among eligible products. Product filters cover Affordable, HFA, and Rehab product, as well as those with expanded guidelines. To properly support the rapidly growing non-QM segment, Optimal Blue’s filters are highly granular, allowing for precise eligibility evaluations and pricing. When executing a search, loan officers receive a list of eligible loans according to best execution criteria and are provided with a summary of ineligible loans along with explanations. Pricing components, such as margin and compensation, can be displayed or hidden based on client preference. Optimal Blue’s product eligibility and pricing engine pairs industry-leading functionality with the broadest set of investor content, enabling lenders to instantly provide customers with the best possible loan options.
As pressure mounts to lower costs, improve margins, raise quality, reduce risk and sharpen decision making, automating the entire secondary marketing process—from content to commitment—is a proven path to success.