Wholesale lender 360 Mortgage Group has been dropping overlays on the conforming loan products it sources from mortgage brokers and at press time planned to ship the bulk of its production to the agencies rather than correspondent purchasers.
The Austin, Texas-based company made the decision to change its secondary market strategy because of a number of players reducing their presence in that channel, or as in the case of Bank of America, exiting it completely, said company president Mark Greco.
Because that market has shrunk so drastically, there is no other choice but to deliver directly to the agencies, he said.
But 360 Mortgage is not the only company making such a secondary marketing shift. Fairway Independent Mortgage of Sun Prairie, Wis., also is moving more of its product to the agencies. But, explained Dan Cutaia, president of capital markets and risk management, the company does not see the agency/correspondent choice as an either or strategy.
It is a hedge to what is happening in the correspondent channel, he said, and it is also an opportunity to start servicing mortgage loans and bringing Fairway to the next level in the mortgage business.
This is a move Fairway would have made anyway, but maybe not as soon. “It is the next logical step in our development,” Cutaia said, and gives the firm “another arrow in our quiver.”
As part of the changes at 360 Mortgage, mortgage brokers will be able to use their Fannie Mae Desktop Underwriter findings for their loan submissions.
What necessitated those overlays in the first place, Greco said, is that because his company was selling to multiple outlets, it had to take the most conservative approach in underwriting. This ensures a loan is salable to all of the partners 360 Mortgage was dealing with.
“What that meant for our customers is that we had probably the toughest set of guidelines in the industry. Now that we are delivering directly in to the agencies, we're taking that risk,” he said, noting that 360 Mortgage probably has a little bit more of an appetite for that risk than the firms it sold to. This is a result of Fannie Mae tightening up on its guidelines in the past few years since the start of its crisis and that gives his company comfort in the creditworthiness of the borrower and a property, Greco added.
Furthermore, 360 Mortgage's published guidelines note that the company's underwriters have the ability to use their discretion in approving a loan. “There is always the human factor that we want to maintain in our production and we want our underwriters to have ability to look at a file and if there is something that they just don't feel good about, either question it or make a decision that is appropriate for the company,” Greco said.
Part of the reason why it delivered to B of A and other correspondents in the first place was price considerations and as competition dwindles, those are going away. Another factor for the change in secondary market strategy is the ability to turn its warehouse line quicker. Fewer correspondent lenders means there are longer turn times and thus loans are staying on the line longer, he said.
The third issue involved in the change is that 360 Mortgage will be keeping more of the mortgage servicing rights on its own production.
Since it became a Fannie Mae approved seller/servicer during 2010, it has been delivering 15% of its production to the government-sponsored enterprise. With today's market conditions, “it makes a great deal of sense” to have a larger servicing platform, said Greco. So the company plans to sell between 80% and 90% of its production to the agencies and retain the servicing rights.
“We like the servicing model,” he said, adding that right now the company uses a private-label subservicer. It was looking to ease into the servicing business, but the changes in the secondary market accelerated those plans.
Its mortgage brokers have responded well to the change, Greco said. Its customer base is very loyal and come to the company because of its service levels and personal relationships not just with sales staff but also with the back office staff as well.
The company is unique in this business, he said, because it feels there is more risk in the retail channel than in wholesale. It selects mortgage brokers to work with who understand what the company is looking to do in the market.
Greco said 360 Mortgage believes that the third-party origination channel is strong and it is looking forward to 2012 being a great year for the company.
