Connecting Point Of Sale To Markets
Enhances Pipeline Management
With things moving faster in the issuance of real-time rate lock commitments
to borrowers, positions need to accurately reflect that information on
an intra-day basis.
By Jordan Brown
The technology brought forth in automated underwriting, electronic
documentation and investor delivery creates the ability for mortgage lenders
to connect with their business partners and investors.
This connection has implications for managing pipeline positioning, market
branding and developing new product lines.
But are pipeline managers ready to connect the point of sale with the
capital markets?
In order to do so, it is necessary to make an investment in technology
that involves each origination channel.
The first step in the process is point of sale communication from loan
officer, loan broker or telemarketing unit to the origination system.
While origination system connectivity is required, the areas of significant
profit maximization to a lender are in electronically connecting their
underwriting/program guidelines to evaluate, qualify and price a mortgage
loan. This is a key component.
Pricing without credit and underwriting is simply an indication of a potential
rate commitment to a borrower and lacks the ability to capture a “live”
lock opportunity with a borrower.
By capturing a rate lock at the point of sale, a loan broker or a borrower
provides the technological building blocks that create an electronic origination
process. Beyond pricing and locking, the incorporation of agency/investor
underwriting engines makes this a lockable price that reflects the approval
of the end investor with any applicable adjustment.
Real time risk-based decision
So, in a matter of minutes, it is now possible to give a borrower, broker
or loan agent the capability to go online to an internal or external Web
site. There they can type in some key property and borrower information
- a lot less than a 1003 application - and get a real-time risk-based
decision that has hit an agency/investor underwriting engine.
The results of the underwriting can be immediately reflected in the price
to the borrower that is customized by a set of business rules.
Given this technology landscape, B2B and B2C Web sites are one avenue
of entry to pricing, origination and underwriting engines on the back-end
that support the process. The important point here is that it is critical
to support/enable (retail, correspondent and wholesale) business lines
as the primary source of business with the same technology platform that
can leverage the benefits of streamlining the decisioning process.
So whether consumer-direct, broker-originated or through a retail loan
officer, a lender can develop an organizational platform with various
points of origination entry (e.g. laptop for the loan officer, Web site
for a consumer, B2B Web site for the broker, B2B Web site for the correspondent).
The technology landscape creates the path to capture new business through
custom branding and affinity marketing yet requires a slightly different
way of managing pipeline risk.
Ability to capture new business
While the technology landscape has given rise to some very exciting changes
in the mortgage industry, the bottom line is the lender’s capability
to capture new business and/or increase profitability of existing business
channels.
While the consumer direct model offers a low-cost entry point for a borrower
to introduce products and services, most B2C business channels for mortgage
lenders represent a fraction of total originations. From a consumer-assisted
perspective, however, this is an area where Web sites can be used to lead
a broker, loan officer or consumer through a series of questions that
hit the platform engines (underwriting, pricing, etc.) and provide the
ability to pre-approve a borrower in minutes.
The ability to capture new business is enhanced by the technology, since
the real-time approval will less likely result in a consumer switching.
This is really no different than other consumer behavioral models outside
the mortgage industry. In a grocery store, eye-level shelf space is sought
and won by the mostly likely candidates for purchase. Similarly, the mortgage
originator in the consumer-assisted transactions needs to be at eye level
with the broker or the borrower so they know to go to a site and the deal
will get done.
A second level opportunity then presents itself once the technology platform
is in place for linking points of sale to the technology backbone of a
mortgage originator. New entrants to the business who have deep financial
relationships with potential borrowers can increase production.
Department stores, credit card companies, life insurance companies, and
realtors all have relationships with potential borrowers and in some cases,
existing financial relationships. A department store that offers home
improvement products may be a very good source of business.
By placing a computer kiosk inside the store with a B2B connection to
a Web site that offers a second or home equity line of credit immediately
could secure consumers as they are considering remodeling their kitchen.
The technology can leverage name recognition and bricks and mortar site
locations of non-traditional mortgage partners which brings business to
the table. In essence, the secondary marketing manager of the future may
have to manage each business partner channel differently with customized
pricing and product eligibility rules.
With affinity marketing, a very real prospect for the masses in the near
future, this will have a direct organization impact driven by the opportunity
to develop new sources of business.
Secondary marketing in a cyberworld
The advent of electronic origination and loan locking via a multitude
of business channels, all connecting through the web, certainly has had
an impact on the management of mortgage pipeline risk.
The first and most critical element in the data collection process is
that Secondary Marketing sets up the business rules in the pricing and
validation engine. These rules are set so that at the point of sale the
loan lock information has been validated to fit a program and the underwriting
parameters of an ultimate investor. Data validation at the point of sale
should mean that loan information reflected in the secondary marketing
position is accurate.
The ability to gather clean, validated lock information from the point
of sale is the first benefit to the secondary marketing department.
With things moving faster than ever before in the issuance of real-time
rate lock commitments to borrowers, positions need to accurately reflect
that information on an intra-day basis. The information time lags that
are often seen today between application and pipeline inventory management
are no longer a stumbling block. In an interactive world, the secondary
manager can immediately understand all sources of production and the velocity
of locks on intra-day basis.
With real-time inventory management possible using the technology now
available, managing the sources of production becomes a pivotal issue.
B2B and B2C Web sites mean that we must now identify, qualify and capture
the impact of fallout.
Some astute managers may want to leverage fallout information into the
pricing model so that the various sources of business are priced appropriately
to reflect the hedge cost differential by channel. This is one area where
an information feedback loop can help secondary manage the profitability
of business channels.
With the ability to price by loan-level characteristics and to manage
business channels in part through pricing, the maintenance and development
of business pricing rules can be a production strategy. This is tied directly
to the capital markets as the appetite for specified pool product has
grown.
Specific investor purchase
A technology link between capital markets players and pipeline information
can help identify loans for specific investor purchase at a pay-up over
TBA pricing. While pay-ups can range from a few basis points to 10 basis
points in the market, this is a considerable technology advantage that
can directly tie the capital markets down to the point of sale resulting
in maximizing the profit potential of your pool formation and delivery.
The application of an electronic services platform in that real-time delivery
of rate lock commitments means that the secondary department has to manage
the pipeline to respond to shifts in the lock in a dynamic, multi-channel
environment. In a non-traditional model, the secondary department can
now drive right to the point of sale pricing in real-time and ensure a
much higher level of data integrity.
Electronic pricing, validation and application underwriting establishes
a delivery mechanism to the point of sale. The point of sale applications
may vary considerably depending on the business channel. In almost all
cases, the electronic transaction platform for an organization can extend
to the point of sale like branches on a tree. From a capital markets perspective,
loan level risk-based pricing can create an information feedback loop
to monitor, price and manage loan production from different channels.
The complexity of an electronic marketplace can also lead to significant
profit strategies to build new business channels and establish production
incentives.
The investment and adoption of a technology platform will provide the
ability to flexibly adapt to market changes and new production opportunities
which are driven by the ability of the capital markets to price mortgage
loans.
Jordan Brown is senior vice president of sales
responsible for the development and management of sales strategies at
Tuttle Decision Systems Inc.. He can be reached at the company’s
Jacksonville office: 904-296-1377.
This article was previously published in the March 2000 Issue of Secondary
Marketing Executive.
