What’s That Loan Worth, Anyway?

18 May, 2021

Cue the trumpets and fanfare, secondary marketers. Slice the cake and raise champagne flutes with your auditors. It’s a new day in the world of correspondent lending, and it’s time to commemorate the occasion.

Perhaps we’re all just looking for an excuse to celebrate these days, but on the heels of Black Knight’s recent pricing and committing API announcement, it feels timely and warranted. Beyond the benefits of bulk bid and commitment automation, the technology facilitates access to daily, loan-level price indications for correspondent sellers.

Accessing daily pipeline marks has been a pain point for years, and sellers continue to struggle with this issue without a comprehensive alternative in sight. When quarter- or year-end reporting creeps up, secondary marketing managers often find themselves scrambling to accurately price the loans in their pipelines and even butting heads with their accounting and auditing teams over pricing methodology. It’s a difficult process to begin with, and additional complexities such as bulk pay-ups make it even more challenging to assign a loan value that will pass audit muster.

Less than a decade ago, things were a bit simpler. Buyers generally supplied pricing workbooks with their formulas, and without ambiguity, sellers could price loans in their pipeline. As the industry evolved, though, bulk bids became the new standard. While this shift brought plenty of advantages – higher pricing, efficient loan sale processes, and opportunities for new correspondents to enter the arena, to name a few – it became more difficult for sellers to pinpoint loan values on a daily basis. This lack of price discovery brings a host of challenges: difficulty in creating profit margin strategies, limited ability to quantify hedge cost, and, of course, more challenging conversations with auditors and accountants.

Since the introduction of Compass Analytics’ buy-side bid automation in 2015, and Resitrader’s groundbreaking loan sale automation shortly thereafter, Black Knight’s solutions have been on the forefront of pricing innovation. These products have helped automate the bulk bid process and revolutionize real-time transactions, but since that time, it’s become clear that sellers need an answer to the tedious, manual challenge of price discovery.

Enter Black Knight, once again channeling its know-how and innovative capabilities to address an industry need with technology. This new API solves the problem by connecting correspondent lending systems with those of investors, so loans can automatically be run through an investor’s pricing model each day – similar to the value provided with investor workbooks of years past. Even better, now sellers can receive the best of both worlds – the detailed, improved pricing of a bulk bid along with the consistent, transparent discovery that comes with observing daily pricing marks. With more automation, accuracy and scale, this milestone in price discovery is a win for everyone involved.

So, rejoice, secondary marketing professionals, auditors and senior leaders alike! With the power of one innovative API, loans can be automatically and appropriately valued, with a great degree of pricing transparency. There’s no need to scrutinize pricing models or wonder how your pipeline is impacting your balance sheet – the information is clear-cut and ready for period-end reporting.

In an industry that’s evolving quickly, Black Knight continues to advance the way mortgage assets are valued. If you’re a correspondent lender, my advice is simple – don’t fall behind on this one. Accurate, accessible pricing is too important not to get right. Take a moment to celebrate this pricing and automation breakthrough and get to work implementing it tomorrow.

The content in this article is intended for general informational purposes only and is not intended to provide legal and/or professional advice to any individual or entity. We urge you to consult with your legal and professional advisors before taking any action based on information appearing in this blog post.