How to originate a mortgage loan

how to originate a mortgage loan

Here in Arizona, at the Arizona Mortgage Lenders Association conference, it is clear that mortgage origination and pricing is a numbers game. Many are focused on how much more manpower it takes to close a loan now. (As a quick note, one question LO's and AE's sometimes ask their lock/pricing desk folks is, "Do you price based on competition, or based on what it actually costs us to produce a loan?") Does it cost more to process and close some loans versus others? STRATMOR just released some information that is helpful for this: a statistical analysis on the fulfillment costs of loans by purpose and type. It turns out that "fulfillment costs", which include processing, underwriting, and closing (no discount points or post-closing costs), show a significant difference by loan type and purpose.

Specifically, fulfillment costs for purchase loans ($1,700) were about $950 higher per loan than refinance loans ($718), and fulfillment costs for FHA/VA loans ($1,500) were $300 higher per loan than non-government loans ($1,200). Matt Lind with STRATMOR observed, "The results demonstrate the striking differences in fulfillment costs as a function of either loan purpose or loan type. In particular, the $300 fulfillment cost difference between government and non-government loans is contrary to the prevailing view held by many lenders that the cost differences involved are currently small. These results should be helpful to lenders trying to compare their back office performance to other lenders; determining margins by loan type; and for pricing." (If you'd like the results, or to see other loan-related statistics, contact Matt at Matt.Lind@Stratmorgroup .com.)

And companies are continuing their search for personnel. Mission Hills Mortgage Bankers continues to grow and is seeking underwriters for its Orange County Headquarters. MHMB, which has been around 42 years in the retail sector, has future plans for aggressive expansion throughout the western United States. This position would be responsible for the regional underwriting of loans from several production offices. Experience requirements include a minimum of five years Conventional underwriting experience. FHA Direct Endorsement and VA SAR certifications are a plus. Interested parties may forward resumes to dolivieri@mhmb .com.

Also in California, Mountain West Financial has an immediate opening for a Regional Production Manager in Northern California. Primary responsibilities include, among other things, building the retail and wholesale production for MWF's fulfillment center in Sacramento, maintaining pricing margins, and working with Operations to ensure the origination of high quality production. Founded in 1990, MWF is headquartered in Redlands, is FNMA, FHLMC, and GNMA approved, retains a majority of its servicing rights, and is increasing its footprint in California and contiguous states. Resumes should be sent to Michael Delehanty at michaeld@mwfinc .com.

The move down in rates has capital markets and lock desks everywhere dusting off their renegotiation policies. Tina Reid-Freeman with MIAC spread the word to clients, "For all clients that are selling at least 20% of your production servicing released, I am concerned that the historically wide levels of best-efforts-to-mandatory spreads, combined with high industry volume, may result in a contraction in investor pricing over the course of the month of June. Please consider reducing your MTM gain accruals for month-end may, to reflect a more conservative valuation. 25 basis points on all unsold servicing-released product would clearly be appropriate at this point. And consider placing additional forward mandatory trades, in lieu of TBA MBS coverage, with your servicing released investors. This may include Assignment of Trades or Direct trades in excess of the closed loan inventory you currently have on hand, to provide some protection to the servicing value in the pipeline. Please revisit your handling of renegotiation requests and make sure all personnel understand that renegotiations are a loss mitigation exercise. EVERY renegotiation is a cost to your bottom line. If you must provide a concession to save a deal. 125% in rate is typically enough to satisfy a borrower even if the market rally has been significantly more." Thank you Tina.

The number of companies, mortgages, and individual loan officers (MLOs) licensed through the National Mortgage Licensing System (NMLS) continues to increase due, NMLS said mainly to continued transitioning of a few state agencies into the system. The number of licenses held by companies increased by 12% between the first quarter of 2011 and the first quarter of 2012 while licenses held by MLOs increased by 13%. For specific numbers, NMLS reports that at the end of the first quarter there were 31,686 licenses held by 15,883 companies, 17,721 licensed branches holding 28,460 licenses, and 207,187 licenses issued 105,595 individuals. There were 119 companies and 3120 individuals who reported they held both active state licenses and federal registration. But year-over-year comparisons this year are not appropriate as the first two quarters of 2011 had high activity due to companies coming into compliance with new state laws.

Still, the numbers are mildly interesting: 88% of licensed companies engage in first mortgage loan brokering. 73% offer second mortgages and 46% write home equity loans. First mortgage lending is offered by 22% of licensed companies and second mortgage lending by 16%. And over 3,600, or 23%, also have a non-mortgage related business. A large majority of both companies and MLOs

are licensed to operate in only one state.

Most of those companies need funding, and yesterday I mentioned some warehouse news related to ViewPoint Bank (no change expected). Another warehouse bank - Torrey Pines Bank - announced its warehouse balances were up over 30% in May. Tim McAvenia observed, "Acquisition speed from the large national aggregators remains good and many of the newer investors are providing impressive acquisition times, however many medium sized mortgage bankers are delivering more business directly to the agencies in bulk. Warehouse lenders have generally tightened guidelines, particularly around bulge allowances and current ratio. When confronting capacity issues, cash is king - we provide warehouse lines up to $30 million for agency and jumbo originations. Strong guarantors and a $1 million tangible net worth are required for approval. Torrey Pines Bank also offers bridge loans, HELOC's, residential and commercial construction loans, commercial and multifamily real estate loans, SBA 504, revolving lines of credit, equipment financing, HOA loans, and letters of credit. (For more information, please contact Tim McAvenia, VP Warehouse and Specialty Lending, at tmcavenia@torreypinesbank .com - and no, this is not a paid ad.)

Last week I mentioned some reasons, statistics, and strategies on loans that had been rejected (kicked) by investors. and received a couple notes. Matt Maurer from MountainView Capital wrote, "MountainView Capital assists with approximately 10 pools a week of investor kicked loans and so far this year, has assisted nearly 50 different originators find a home for their investor kicked loans. Some recent investor kick reasons include RESPA cures past 30 days, aggregator seasoning restrictions related to the time it takes to cure conditions, FICO overlays, property type overlays, unsupported/declining property values, condo project documentation, and failed FHA bond loans." (If you'd like to contact Matt with questions, he can be reached at mmaurer@mvcg .com.)

And Brian Cerise with Steel Mountain Capital wrote, "The talk of agency buybacks is becoming very real. I have seen more inquiries for these seasoned, performing loans in May than the rest of 2012 combined. I don't know that I would call it a trend, but the 'Tier 1' aggregators seem to be picking on appraisals again lately. Declining value is still an issue in many areas, and particularly for condos. FHA Streamlines and VA IRRLs can be a great product for originators and borrowers alike, but when defects occur they can be very expensive. An uninsured loan which is more than likely underwater, and without income/credit qualification, has little appeal to any investor - I would definitely recommend and additional layer of QC prior to funding these loans. Lastly, when it comes to scratch and dent loans, unless you have the liquidity and ability to properly service these loans for the long term; it is generally in your best interest to sell them ASAP. A good pay history alone does not have the positive impact on price that it once did. (Steel Mountain Capital is a principal buyer and holder of whole loans, including a great deal of unsalable or "scratch & dent" loans. If you'd like to reach Brian, his e-mail is bcerise@steelmc .com.)

Turning to the markets, news an agreement was reached on a financial rescue of Spain's banks was met with "relief" on world markets. German Finance Minister Wolfgang Schaeuble said Spain is making good progress toward putting its economy on a solid footing and even "the biggest Spanish banks are stable." I am no expert in international economics, but I remain unconvinced that anything is "over" in Europe. This Spain development doesn't solve all the European woes by any means - there is still a critical election to come in Greece (June 17) while EU officials need to demonstrate some progress towards fiscal and banking unity when they hold a summit June 28-29.

Regardless, that is what is nudging stocks and bonds this morning, along with some positive news on May economic growth from China this weekend. China may be a country growing faster than many feared - remember the surprise rate cut from last week was seen as a sign that growth was slowing more than Beijing was projecting.

While currencies and country's futures are debated in Europe, second-tier economic news continues to come out here in the U.S. There is zip today. Tomorrow we'll have some import and export price data, and then on Wednesday we'll hear about Retail Sales and the Producer Price Index. Thursday includes Jobless Claims and the Consumer Price Index, and then we finish off the week with Industrial Production and Capacity Utilization. With all that we find our 10-yr nearly unchanged at 1.64% and agency MBS prices nearly unchanged as well.

The 5 toughest questions for men. (Part 2 of 5; guaranteed to get me into hot water, but I will gladly print the opposing view if someone sends it to me. I think they came from Dave Barry.)

1. What are you thinking about? (Yesterday)

2. Do you love me?

3. Do I look fat?

4. Do you think she is prettier than me?

5. What would you do if I died?

Question # 2: Do you love me?


Category: Credit

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