A Hidden Benefit of Your Warehouse Lending Relationship
Your credit arrangement will always take center stage in your relationship with your warehouse lender, but another benefit is standing in the wings, waiting to be pulled into the spotlight — industry expertise. Tapping into your warehouse lender’s knowledge and experience can have a significant impact on your mortgage bank. With the ability to observe your operation and numerous others, your warehouse lender has tried-and-tested advice on execution strategies, products, and processes. And, because it’s vital to their own success, they keep a finger on the pulse of the mortgage industry and developing trends.
You’ll find professionals such as Operations Managers, Business Development Managers, Analysts, and Relationship Managers willing to share their hard-earned expertise with you — free of charge.
Best execution strategies
It’s frequently a struggle to determine the best execution strategy. And once you’ve settled into a strategy, you may be hesitant to change. However, if you want to use every option to maximize profits, your execution strategy should be regularly reviewed and revised, if necessary. A discussion with your warehouse lender can help in this process. Together you can analyze your existing strategy and review adjustments.
The best efforts model is often considered a safe bet. You have the ability to lock in interest rates without the risk of pair-off fees. It works well with a single-investor pricing model. This is generally the pick for new operations. However, is this still the best strategy for your operation? Are you losing income? A lot can depend on how you manage your pipeline. An honest assessment from your warehouse lender can help you fine-tune your strategy or adopt a new one.
Another area where your lender’s expertise could be invaluable is in setting your strategy for bulk mortgage sales. Are you meeting the requirements? Have you experienced rejections? How can you avoid these situations?
As your volume increases, you may be considering a change from a best efforts strategy to selling mandatory to increase revenue. However, the best-efforts–mandatory spread doesn’t come without a cost. There are many considerations to be evaluated before this decision is made. Are you ready to manage the fall-out assumptions and the interest-rate risk from lock to commitment of loans at funding? How will you implement a hedging strategy? You can rely on your warehouse lender’s experience here to detail pros and cons when considering a change to your strategy.
If you decide to transition from a best efforts to mandatory approach, you’ll need to explore your options for hedging your pipeline. Again, use your warehouse lender as a resource to troubleshoot your strategy and help you implement an approach that will increase your income. They can also help you determine if you have the ability to manage the interest-rate risk on your own or if you will need help.
Because your warehouse lender works with numerous mortgage banks, they are an ideal resource for information on investors and different types of mortgage products. They can review your product mix with you and offer suggestions on additions that could improve your bottom line.
If agency loans make up the bulk of your fundings, you’ll naturally want to avoid any issues with the sale. Have you chosen the right execution option? If you regularly have borrowers with low or very low incomes, would you benefit from a bulk portfolio sale? Your warehouse lender can help you work through these issues and also offer insights into improving liquidity on these loans.
With improved lending standards, non-agency loans have made a comeback since the 2009 financial crisis. Should these loans be included in your product mix? What are the benefits? Is there demand for this type of loan in the market you serve? Give your warehouse lender a call to get their assessment of the demand and available products.
What about Non-Qualified Mortgage (Non-QM) opportunities? Today, a Non-QM loan does not mean high risk or subprime. In many cases, the borrower has a high FICO score, but simply doesn’t meet all the requirements associated with a QM loan. Does this present an opportunity for your operation? If your warehouse lender accepts Non-QM loans, in addition to helping you assess this opportunity, they can also provide you with the resources you’ll need to offer the product.
Internal Processes and Best practices
In addition to the external factors of execution strategies, investors, and products, your warehouse lender can help you assess your internal processes and establish some best practices. Frequently their Operations Manager will be the most familiar with your operation. Schedule a phone call to get their insights on the following:
- Quality Control
Although vendor lists are easily accessible online, you can also rely on your warehouse lender for recommendations. Because they also have an investment in the success of your operation, your warehouse lender will only recommend trusted vendors to provide high-quality service. Because they spend a significant amount of time talking to others in the mortgage industry, your warehouse lender is often the first to know whether a vendor is reliable or has a bad reputation.
Industry Markets and Trends
Keeping up with industry trends is key to any successful warehouse lending operation. Their representatives regularly attend national and regional Mortgage Bankers Association (MBA) conferences. Plus they have analysts who research market activity, monitor mortgage trends, and identify issues. They are an ideal point of contact for learning about movements in the market.
Interest rates are a fundamental component of your pricing strategy. It’s important to know whether rates are stagnant or trending up or down when making decisions about holding onto a mortgage. Because of the risk involved in aggregating mortgages, it’s beneficial to get the insights of an experienced warehouse lender before making a decision.
Mortgage product innovation is always a part of this business, and product features can also change over time in response to market conditions. When evaluating a new mortgage product or feature, it’s important to understand pricing and default risk. Your warehouse lender can provide valuable insight into new products. And with the benefit of years of hindsight, they can provide educated projections on the viability of new products in the current market.
When your warehouse lender has a national lending platform, they may be able to identify geographical areas where home sales are expanding or recognize under-served markets. This information can be a benefit to you when creating a marketing plan or expanding your operation.
Product Mix — Fixed vs ARM
Having the right product mix can be crucial to the profitability of your operation. This is especially true when it comes to fixed vs. ARM products. What is the demand for ARMs in the secondary market? Should you increase your product line to include more ARM products? What fixed-to-ARM ratios are other operations using? Your warehouse lender can provide answers to many of these questions.
Lenders need to be hyper-diligent when it comes to fraud in the mortgage market. Wire fraud, straw purchases, illegal property flipping, silent seconds, and equity skimming are some of the scams that can take a toll on your operation. Your warehouse lender can help you outline pre- and post-funding quality control programs that are vital to any fraud prevention strategy. They can also alert you of the latest scam making the rounds and specific activities that are indicative of fraud.
The contribution your warehouse lender can provide goes beyond simply providing capital.
In today’s mortgage market, it’s important for mortgage bankers to use every resource available to them. Don’t overlook your warehouse lender as a resource. They have a wealth of knowledge gained through working with numerous mortgage banks over many years. They know what works and what doesn’t — what situations to avoid and the subtle warning signs of a potential issue. Tap into the knowledge and expertise they have to offer.
To leverage the experience and expertise offered by the Axos Bank’s Warehouse Lending Program team, please call 1-888-764-7080 today.
A Hidden Benefit of Your Warehouse Lending Relationship
This blog post was published by Axos Bank on April 4, 2019 and last updated on April 5, 2019