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How Correspondent lenders can win in the margin compression war

$1.63 trillion, the latest industry forecast for originations in 2019 from the Mortgage Bankers Association. There’s still a lot of activity in the market, so stop looking at it as if it’s going to dry up.

Instead, change your perspective and ask yourself, “Are you giving an extra 20% this year and maximizing your effort behind the scenes to scoop up the millions of dollars out there in the market?”

There’s no question that there’s a shift in tide compared to the last few years, but look at it as an opportunity. While everyone else is pulling back, lean in to maximize your growth. Small victories can make all the difference to get your piece of that $1.63 trillion pie. Here are three areas that can lift you up and steadily help you build your margins to conquer the market.

Triple Check Your End Pricing to Avoid LLPA Leakage

Check for loan-level price adjustment leakage. You need to look out for your bottom line with each and every loan. Begin by reviewing your purchase advice to ensure that your purchase price and margin captured are the same as what you expected when you decided to originate the loan. You can pick up margin by achieving your planned margin.

What to watch out for:

  • Avoid extension fees. Watch out for extensions fees as they add up quickly and eat into margins, changing what you thought your margins would be.
  • Fact-check your files. These are small details that can hold up the process. Triple check that sections like the FICO score and property type are accurately filled in.

Build Your Margins with Government Loans

Don’t underestimate government loans. This is a key product that can help you build your profits since they tend to have higher margins; including VA and FHA loans, and even 203k or manufactured home loans. The secret is making sure your cost to produce is low. To do this, watch your pull-through rate.

What to watch out for:

  • Check for overlays. By partnering with the right investor who doesn’t have overlays that kill your loans, your pull-through rate will be higher! If not, you risk taking all that time and effort to produce the loan, and it’s doesn’t close.

 Pick a Partner Who Lightens Your Load

Does your investor streamline the process so you can be more efficient? Are you or your post-closing team spending time and energy on clearing conditions or making sure the process was done correctly? If you are overcompensating for your investor not properly doing their job, it’s time to talk to your investor or consider a new one. Does your investor offer technology that minimizes your efforts? Time is money and that cuts into margins.

What to watch out for:

  • Does your investor offer technology to speed up the process? The best investors deliver and offer bulk registration, downloadable purchase advice in Excel, proper notifications and fast purchase times. These features can make all the difference to your margins and are helpful to look for in an investor. Don’t settle for less when these game-changing features exist.

I call the above small victories, but they’re really big wins. Loan by loan pricing scrutiny, to delivering your government portfolio in light speed, to picking a partner with industry leading technology can give you that extra boost on your margins this year. There’s plenty of pie out there for you, you just need to savor every bite.

 


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October 23, 2018