*Preparation Breeds Success*
**By Don Brown**
***The wrestling coach in high school always told us that “luck is what happens when preparation meets opportunity.” That maxim applies just as strongly to secondary marketing as it did back then on the mats.
****Whether a company is looking to make the transition from a best effort to a mandatory style of committing or is implementing a more sophistication platform for automating their loan allocation process, it pays to take the time to prepare well.
****For companies making the transition to mandatory commitments, it is important to build the foundation before getting started. At our company, we have developed a detailed process for nurturing organizations through this evolutionary stage in their business. This process touches focuses on all levels of the organization and addresses both internal and external factors.
****The bedrock of future success lies in ensuring that the company has translated its business philosophy into a sound body of policies and procedures. The board of directors or company leadership must have a clear understanding of the goals and boundaries of the secondary marketing strategy. What does success look like? Who is authorized to do what? What are the fail safe indicators for halting and reviewing the strategy? All of these are important questions to be thought through.
****At an operational level, the company must consider how it will handle extensions, lock changes and renegotiations. Addressing these issues in advance not only sets a clear tone for the origination staff but also enables strong coordination with your pull-through strategy when hedging.
****With the foundation in place, companies must focus on ensuring that they have the proper relationships with investors, warehouse lenders and broker/dealers. Often these relationships are a matter of clear and steady communication and reporting to ensure your partners that you are managing your business from a position of strength. Preparing these protocols in advance will pay dividends going forward.
****And then there is data. We often tell our clients that good data makes good hedging and we want to instill this in their everyday practice. We stress taking the time to make sure that the protocol for transferring data from their PPE and database of record to the secondary marketing platform is clear and as automated as possible. More importantly, however, is ensuring that the secondary marketing system is interpreting the data correctly. If you can identify process and data errors at the beginning of the process, you can save pain and lost profit later.
****Finally, thorough training should not be overlooked. Ensuring a clear understanding of how the hedging process can demystify a process that often is infused with mystery. We like to have our new clients visit our offices to meet the individuals they will be working with. By taking them away from the day to day distractions of the loan production process, we can help them focus understanding the reporting and system functionality that they will be using to help boost profits moving forward.
****The same philosophy applies to a company that is experienced with selling mandatory but transitioning to a new system. Making sure that they understand how to map in their investor pricing structures and price caps appropriately will pave the way to more efficient loan allocation decisions.
****From time to time we run into companies that look at current spreads and delay the transition to the mandatory strategy. In many such cases, when the opportunity arises in the form of wider spreads, they are unable to react fast enough to get a mandatory strategy in place. The reality is that if you take the time to prepare and make the transitions, you will be prepared to take advantage of the favorable market conditions when they arise.
****Preparation is the central theme. Whether it is holding the hand of a client crossing over to a mandatory platform or enabling a company to boost profitability by using an automated best execution and loan allocation platform, there is no substitute for preparing thoroughly so that when opportunity calls, answering the bell is secondary nature.
Don Brown is the Co-President and founder of Secondary Interactive, bringing more than 20 years of business and legal experience to the company. Don pioneered SI’s risk management practice with a vision for leveraging technology to make mortgage and business processes more efficient and more profitable. Don is a frequent speaker at industry event on subjects ranging from hedging strategy, best execution and loan allocation practice, servicing retention strategies and increasing secondary marketing operational efficiency.