Addressing the non-quantifiable costs when selling a loan on the secondary market
This article was produced in partnership with Mortgage Capital Trading (MCT)
Karen Surca, of Mortgage Professional America, sat down with David Ring, senior marketing manager with Mortgage Capital Trading (MCT), to discuss the topic of its whitepaper entitled ‘Non-Price Considerations in Your Best Execution Analysis’ concerning the hidden costs for lenders that may arise when selling a mortgage loan in the secondary market.
There are signs from the Federal Reserve to indicate that despite a continued robust housing market overall, mortgage volume may be slowing down slightly compared to the lightning-speed pace of the last few years.
Borrowers still face, however, a limited housing inventory, often battle stiff competition with multiple offers on a single property and are sometimes forced to obtain financing based on offers with no contingencies. With continued mortgage traction, the business of processing loans has been forced to be both speedy and to demonstrate efficiency.
Keeping in mind the evolving lending environment, mortgage lenders need to be cognizant that any degree of volume slowdown may compress the margin of profitability for lenders. This should be worked into the expense sheet when calculating any quantifiable costs. Once the loan has closed, the business of selling that loan on the secondary market becomes paramount.
Keeping costs as low as possible when selling to investors is also in the lender’s best interest. Although the quantifiable costs can be tracked and pricing is, for the most part, transparent, the extra costs that also come into play when selling a loan should be included to set the stage for optimal pricing considerations for lenders.
Factoring in these hard-to-calculate costs into a lender’s best execution analysis is the primary focus of a whitepaper authored jointly by Mortgage Capital Trading Inc (MCT) and Freddie Mac entitled “Non-Price Considerations in Your Best Execution Analysis.”
MCT, a capital markets advisory firm with a focus on providing advice-based services and technology, partnered with valuable input from Freddie Mac, to compile relevant information pertaining to the hidden costs associated with lenders when partnering with new investors on the secondary market.
“If you have the right set of investors, you’re more than likely to get a better price if they are all bidding on the same loan. This is easily quantifiable,” David Ring (pictured), senior marketing manager, Mortgage Capital Trading, stated.
“What this whitepaper is addressing, however, is those considerations in your best execution analysis that are harder to quantify. We are attempting to help put a number around some of these often-overlooked business processes,” he added.
When a lender is analyzing the varied expenses associated with considering a potential buyer and is buckling down to go over the pluses and minuses on their balance sheet, Ring pointed out that there are often overlooked costs that must be weighed into the financial equation.
“Something to consider is if you foresee a small pricing increase by selling to a new investor, but it is going to take your team substantial effort and months of work to get approved by that investor, then maybe there isn’t enough juice to squeeze there,” Ring explained.
Main considerations when weighing pricing
The whitepaper’s goal, Ring described, is to help take the guesswork out of determining those elusive costs when pricing loans on the secondary market. Specifically, a few target areas are highlighted to help focus on the best cost practices for lenders.
“One of them is hidden costs of new investor approvals. Maybe I need to adopt new technology to sell to that investor, or maybe I need a new staff member to sell to that investor,” Ring said.
Another area for lenders to be cognizant of, Ring pointed out, is the operational efficiencies when choosing a new buyer.
“If I have to adopt new technology or train somebody to hire to use that technology, or maybe they [the investor] don’t have the automation in place that my team is using and it takes somebody on my staff an extra five hours a week to sell to that investor, then maybe the pickup on that loan sale doesn’t add up to the manpower it might take,” Ring elaborated.
The whitepaper also points toward the importance of a lender getting approved by a new investor. Ring provided an example to help illustrate the importance of this key area.
“When bidding out five different investors on the loan, one person might have a better price, but it might take that person two hours to actually send back a bid on that loan,” Ring described.
“If I have to sit and wait versus all the other investors who might have already sent in their bids, maybe it is not worth it because I know that the operational practices of the investor are not dialed in.”
Adding up the costs
By providing a 360-degree view of a lender’s best execution analysis, Ring explained that the whitepaper is positioned to avoid lenders being left in the dark when it comes to some of the hidden costs involved in selling loans on the secondary market.
“We can give a better price perspective on price considerations to give a more holistic approach on the best execution analysis,” Ring concluded.
David Ring is an experienced marketing professional with years of marketing experience in inbound marketing, advertising, lead generation, email marketing, CRM software, Salesforce and more. He has a track record of creating successful marketing campaigns that drive website traffic, foot traffic, and sales. David has also played a vital role in new product campaigns, having successfully launched dozens of product campaigns in his career. He also has a strong ability to manage a team to ensure company KPIs are delivered.
David also has experience setting up tracking for each marketing channel that enables his team to prove the effectiveness of each channel. This has helped his team pivot their strategy to improve the effectiveness of their budgets.