Loan Hedging Company Links With Secondary Market Platform

Flatirons Capital Management, LLC (FCM), a Williamsburg, Virginia-based secondary market service provider that helps residential mortgage companies hedge their portfolios against interest-rate risk, and Resitrader, Inc., a Calabasas, California-based provider of whole loan mortgage trade management software, have announced a strategic partnership to offer customers a new bulk trade management tool.

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Under the terms of the deal, Flatirons’ FCM Risk Management system will be fully integrated with Resitrader’s mortgage loan trading platform, enabling clients of both firms to sell their loans through Resitrader’s platform while at the same time hedging their positions instantly. Clients of Flatirons can instantly offer their available loans for sale to investors bidding through Resitrader’s platform.

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FlatIrons Rapid Execution (“FIRE”) Trading System, newly powered by Resitrader, will be available to all clients of Flatirons as well as those not using the firm for hedging and secondary marketing services.

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“With bulk packages becoming a more vital method of selling loans, it was important for us to either develop our own system or partner with someone that had the technology already,” said Brent Buckmaster, executive vice president and partner at FCM. “Resitrader not only offers that ability, it has a best-in-class system that fits perfectly with the direction we are moving at FCM. The tools provided by FIRE combined with the integration of Resitrader into our risk management system put us at the head of the class.”

“We’re excited that Flatirons wants to apply technology that makes loan trading more efficient. They really understand what we’re trying to do,” said John Ardy, CEO of Resitrader. “We’re pleased to be part of the excellent customer service that Flatirons provides to their clients every day.”

OpenClose And MCT Streamline The Loan Sale And Purchase Advice Process

OpenClose an enterprise-class, multi-channel loan origination system (LOS) provider, announced that in conjunction with Mortgage Capital Trading, Inc. (MCT) it has developed a solution that normalizes and extracts a lender’s committed loan sale and purchase advice data to be uploaded directly into OpenClose’s LenderAssist LOS, thus eliminating significant manual intervention.  Depending on the number of loans that have been executed, time savings can be reduced from days to minutes.

“We use MCT as our secondary marketing advisory firm and OpenClose as our LOS provider. The solution they jointly developed empowers us with an invaluable tool to slash the amount of time it used to take us to rekey committed loan data and purchase advice information from Fannie Mae,” stated Dan Beam, senior vice president of capital markets at Firstrust Bank. “Given the number of trades we are doing in a particular week, the automation of this process can easily shave off what previously required dozens of man hours down to just minutes.”

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The solution works by MCT converting large committed loan sale reports or purchase advices into normalized datasets, which is then automatically transmitted to the lender for easy upload into OpenClose’s LenderAssist™ LOS.  All of this transpires with the simple click of a button.

“We want to do whatever we can to make our customers’ jobs as easy as possible and this new capability delivers a tremendous uptick in efficiency, saving secondary marketing departments inordinate amounts of time which in turn reduces costs,” says JP Kelly, president of OpenClose.  “Whether our mutual customers upload a few dozen loans at once or hundreds of loans, it takes a fraction of the time it used to.”

“MCT is committed to providing innovative solutions with our technology partners that enable work efficiencies and cost savings for our mutual clients. This interface delivers on that promise,” says Chris Anderson, chief administration officer at MCT.

MBA President Calls For Leadership

David H. Stevens, CMB, President and CEO of the Mortgage Bankers Association delivered the following remarks at the opening general session of MBA’s National Secondary Market Conference and Expo in New York City. Here’s what he prepared:

This conference marks the half-way point through our year. The MBA’s Secondary Markets Conference is a unique conference where top leadership in capital markets and those heading their company’s key business channels come together to learn, negotiate, and discover new opportunities. And while many of us are competitors, we also work together as friends and peers. And we meet together this year while seeing continued growth in the U.S. economy, an uncertain political future, and a confusing and fragile geopolitical environment that, like it or not, will affect each and every one of our businesses.

When we look at the business environment today, we see both opportunities and challenges. And now, more than ever, we need great leadership. Leadership in our industry, leadership for our nation, and world leadership that understands the fragility and interconnectedness that binds us together.

Leadership is about more than just seizing the opportunities. True leaders also take on the challenges. Oftentimes it’s about doing what’s right versus what’s easy. True leadership is standing with a unified message that is clear, rational and strategic, and then executing on it. Leadership involves taking risks – the willingness to step forward with progressive ideas and leave behind some of what you know.

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Leadership isn’t easy. We must know when to fight, but also when to stay the course. It’s been nearly 10 years since the financial crisis began. Since the crisis we have been confronted with thousands of pages of new laws and regulations that impact every part of our business. Add on to this new (and often unclear) interpretations of old rules and unique uses of existing laws like the civil war -era False Claims Act.

And while the simple fact is that today’s mortgage lending environment is the most conservative, safest we have ever seen, most lenders still feel like we are under attack. Add in a political atmosphere complete with broad brush accusations in political rhetoric that only perpetuate anger towards an industry that’s sole purpose is to provide real estate finance opportunities to qualified borrowers, and it can be tough not to want to fight back.

I’m here to tell you that we cannot let our frustration cloud our judgement, not when we’ve come so far and have led the discussion on so many critical policy issues.

Our leadership on these important issues has made a difference. For the past five years, we’ve been fighting the good fight to responsibly and sustainably provide access to credit and to help offer those opportunities for qualified borrowers.

MBA has been the outsized voice, advancing a litany of important policy changes that are making a difference. Most importantly, this has been a team effort. Working with all our members, we’ve been successful because we have led with one voice on behalf of an entire industry that knows firsthand the challenges borrowers face today. This is much broader than the secondary market – I’m talking about the entire real estate finance system.

Imagine the impact on borrowers had we not led the efforts with Fannie Mae, Freddie Mac, and the FHFA for relief and clarity on rep and warrants and compensatory fees. We persistently negotiated the reforms to rep and warrants to clarify lenders’ obligations and reduce the need for undue overlays. The revisions to compensatory fees are also a positive step forward with properly structured incentives to deter poor servicer performance. The new timelines will reduce the severity of assessments in cases where the existing timelines do not accurately reflect the actual time it takes to foreclose. Finally, raising the de minimis exception should provide substantial compensatory fee relief to small and mid-size mortgage servicers.

Seven times now, we’ve beaten back attempts in Congress to divert guarantee fees, encouraging and reinforcing the belief that if any additional fees be placed on mortgages, then those should be used exclusively for real estate finance purposes.

For quite some time Fannie Mae and Freddie Mac (the GSES), while regulated and government sponsored, could set rules without coordinating with other regulators or obtaining public review and comment. Thanks to MBA’s relationship with FHFA and the GSEs, they now often seek public comment prior to setting new major polices, to the benefit of lenders and investors and most importantly, consumers.

Uncertainty around the future of the GSEs continues to paralyze investment in new or dormant securitization channels, but we have still made progress. Conservatorship was never intended to be permanent. That’s why, three years ago at this very conference, MBA called on FHFA to take non-legislative transition steps designed to modernize and advance the business operations of the GSEs.

Let’s be clear, our calls for GSE reform are to protect the critical role these two companies perform. Conservatorship with no capital and facing a political regime change poses a real threat to our mortgage system. We called for the creation of a single security for the two GSEs. We called for up-front risk share in order to level the playing field of competition and provide access to the market for lenders of all sizes. And we called for the common securitization platform to ensure data standardization, fungibility, and objectiveness.

Our call was answered by Director Watt and today the single security is in sight and the CSP is being built. This will help the housing finance market and we need to push aggressively to get it fully completed. We’re also moving forward on risk sharing that can bring meaningful private capital into the market to assume up-front credit risk.
The success we have had has not been limited just to the GSEs.

It was MBA and its members who fought for a safe harbor in the Ability to Repay/Qualified Mortgage rule. People told us we were crazy, that it would never happen. But we went in, armed with data and convincing arguments about how the safe harbor would benefit consumers and emerged with a rule that is working today to protect borrowers while still allowing lenders to extend reasonable amounts of credit.

Dodd-Frank required six federal regulators to finalize the Risk Retention/QRM rule which has significant implications for mortgage backed securities. Some groups called for a 10 percent downpayment for any mortgage to be considered a QRM, others called for even 30 percent. MBA led a coalition of stakeholders who argued that a downpayment requirement was unnecessary and that QRM should align with the QM. Again, many said it couldn’t be done, but we persevered using facts, backed up by data, and today QRM aligns with QM, and there is no downpayment requirement.

Every single one of these achievements has been accomplished because of your input and your leadership and our unity. Through industry participation, we are moving forward to refine the rules and establish a pathway toward a more vibrant mortgage market.

But we’ve also gone beyond policy, politics and rulemaking. At MBA we’re working with partner groups to achieve benefits for consumers, the industry, the mortgage market and the economy. We established MBA’s Opens Doors Foundation so we could support families in need and give back to the communities we work to build. We’re preparing for future changes in household demographics and through MBA Education we are helping develop a younger and more diverse workforce that more accurately reflects the customers you serve.

Operationally, at MBA we’ve created new outlets for our members’ voices and ideas such as the Independent Mortgage Bankers Executive Council, the Community Bank and Credit Union Network and the State Relations Initiative, all designed to make sure that MBA is getting the best input from its members.

MBA has grown louder, been more successful and more powerful because we’ve listened to our members. MBA simply provided you the platform. That’s how we have achieved so much, and the only way we can continue to be – united as one voice.

But our work isn’t finished yet. Leading amidst a transforming mortgage market is a marathon, not a sprint. We still have much left to do and we still need to stay together on these efforts. Many of our calls for key policy actions are being met, but I’m concerned some are moving at too slow a pace. Now that the major rules required under Dodd Frank are out and the implementation phase is over, the CFPB has moved on to other consumer issues. It’s our job to keep leading and pushing to refine the rules so qualified borrowers can have the opportunities they deserve.

First, we must modify some of the rules so that they work on their own. For example, QM has done a lot of good, but still falls short of being the long term solution. Under the current rule, the GSEs can purchase good, sustainable loans that meet their underwriting standards but failed to meet the QM standard of 43% DTI. This is because the QM “patch” provides a safe harbor exemption for these loans. If we had to underwrite loans solely based on the written QM rule without the patch, and the permanent exemption for the GNMA programs, credit would be much tighter.

Here’s the problem – the patch is only in effect as long as the GSEs remain in conservatorship or for seven years, whichever comes first. When the patch expires, or if GSE underwriting changes substantially, a whole segment of qualified potential borrowers will be frozen out of the market.

The QM rule needs to stand on its own two feet. It should not be a rule that essentially punts all credit decisions to two companies that are not even regulated by the same agency. More importantly, the rule should demand the same credit approval process for a borrower, regardless as to whether the loan is being sold to a GSE or a private investor, as long as all the other terms are the same.

In all fairness, the industry did ask for this temporary stipulation in order to give us time to feel the impacts of QM on the market. But now there are too many “what ifs” that could impact the real estate finance system. We need to lead now and demand modifications to the QM rule before we find ourselves reacting to outside events that might eliminate the patch altogether.

What if there is a new regime at the CFPB once the current director’s term ends that brings a different view about the rule and the use of the patch?

What happens when the Director of the FHFA turns over and a new director comes with different ideas of the role, scope, and size of the GSEs in the market?

What if conservatorship ends and triggers the end of the patch?

I could keep going, but you get the point: the patch is temporary, and the clock is ticking. Let’s proactively re-write the rule now in a thoughtful way rather than in a panic response to events out of our control. As we re-write the rule, we should take into account the lessons learned about access to credit. We must be mindful of the dynamics affecting approval for a new generation that is more diverse and less traditional than we have ever seen in this country.

Next, we must continue working with FHFA on the secondary market transition steps. Here’s why – the conversation on the future of the GSEs is still very much alive and now other voices are being added to ours. Consumer groups, economists, and members from Capitol Hill all recognize the need to solve the conservatorship question. The transition steps being taken now will prepare the market for any future state and help ensure a competitive marketplace for institutions of all sizes. So here’s where we’re at:

Progress is being made on both the CSP and single security.

The CSP is in development, with Freddie Mac scheduled to begin using it for its current single-class securities, or CSS, this year. They have a CEO and an employee base, and are making positive progress toward the release dates set by FHFA. However, we must continue to push for a faster implementation to ensure that these critical advances cannot be reversed. Additionally, the platform should be open to non-agency MBS so that long-term efforts for both private capital and GSE reform can take advantage of the benefits of its efficiency, data, and consistency. And third, the CSP, and CSS itself, must be truly independent. Moving the full function of securitization away from the respective companies to the CSP will bring integrity, scale, and standardization to the securitization market.

Similarly, progress on the single security needs to accelerate. Aligning the TBA markets for both GSEs in order to promote a single fungible instrument should result in a more liquid market for all participants. Investors will retain the option to stipulate the issuer they want, which should keep discipline in the process with respect to key policies that impact prepayment speeds and other performance variables. We have recently made significant progress in getting investor buy-in to the benefits of a common security and key details continue to be negotiated. However, according to the FHFA, the single security won’t be implemented for both GSEs until 2018, most likely after the current Director finishes his term. Now is not the time to slow down and we urge FHFA to maintain focus on a more aggressive timeline.

The institutional commitment of FHFA to complete this work could fade as key personnel move on. We need this completed under the current regime at FHFA.

And risk share is now a growing part of the GSE model. While today’s transactions are certainly helpful to dispersing risk from the GSEs, and ultimately the taxpayers, they risk unleveling the playing field and do not clearly provide a direct benefit to borrowers. Other forms of credit enhancement, including deep-cover MI and recourse need to be implemented with full transparency as to structure and execution. The upfront model of risk sharing is a common theme in almost all GSE reform proposals because of its inherent advantages in transparency and borrower benefits. While some have been able to take advantage of up-front risk sharing in recent quarters, we need to make it an accessible option available to all lenders who serve borrowers in the market. Expanding the up-front risk-sharing program is a priority.

As we continue working with FHFA on transition steps, MBA’s new Task Force for a Future Secondary Market will be developing a proposal that will address end-state models that can fulfill an affordable housing/duty to serve mission while reducing taxpayer risk. This is a member-driven task force led by MBA’s Chairman-Elect Rodrigo Lopez. The task force consists of MBA member companies representing a broad cross-section of the residential and multifamily real estate finance industries, including entities of varying sizes and business models. The task force anticipates a proposal by the end of the year and this will serve as MBA’s secondary market position and strategy going forward.

Finally, we will continue to fight for a federal housing policy coordinator. The industry needs a key housing policy expert at the most senior level in the next Administration to coordinate across federal regulators to ensure they meet, talk to each other, and consider the implications of the confusion and conflict created by uncoordinated overlaps in the rules. We need to work with the leading candidates of both parties to make housing a priority in the next Administration. America is facing a housing affordability crisis that is only getting worse. The next president will need to tackle this issue immediately upon taking office.

So I have laid out a series of issues. I started with what we accomplished, to demonstrate what we can do. I finished with a few that represent work left to be done.

To get that work done, to get those projects over the finish line, I need your help.

Collectively we must work to change the dialogue about mortgage finance in America. We all share the frustration with today’s political rhetoric that’s painting a safe lending environment in a bad light. So let’s work together to change this.

Mortgage lending is safer today than it has ever been, but is not operating at full capacity because the regulatory/enforcement environment is forcing lenders to lend defensively. Home prices are up, unemployment is down and we have reforms in place that make the market safer, as a whole, and more sustainable for consumers, the economy and our businesses. With low rates, safe and well-underwritten loan products and an improving job market and economy, borrowers who can qualify and want to buy a home should feel great making that decision, but they don’t.

When I think about the real estate market today, the one word I keep coming back to is opportunity. And this opportunity is built on a platform of protections, confidence, and skill sets that exist to make sure we build a positive future for America’s next homeowners under the umbrella of the safest system in the world. Because of this opportunity, now is the time for leadership and perseverance.

I understand the desires of many to just deal with the issues we have now, but if we don’t look ahead to see what is needed to meet the demands of those coming into the market now and over the next decade, we will end up sliding backward. We have to keep moving forward.

Leadership is what we do together. We energize together with the biggest loudest voice in the market. We demand clarity and fairness for all participants, and we advocate for thoughtful and common sense solutions that will help support a sustainable market for the long term.

About The Author

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at

New Solution Aims To Reduce The Cost Of Origination And Investor Due Diligence

Overture Technologies and ATS Secured have launched the Settlement Coordinator Workstation, a platform which addresses originators’ and investors’ unsustainable high cost to originate and buy loans. The solution combines the industry’s leading independent automated loan underwriting system with tools to conduct compliance checks, coordinate loan settlement, distribute loan proceeds and secure loan data integrity.

“We are committed to helping our customers profitably transfer credit risk at scale,” said Kim Thompson, EVP, Overture Technologies. “The Settlement Coordinator Workstation is an innovative solution that eliminates redundant operations between originators and the buyers of their loans to ensure loan purchase, avoid assignee compliance liability under TRID and automate secondary market operations – all at a cost and speed the market demands.”

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Overture and ATS created the Settlement Coordinator Workstation to address credit and regulatory compliance of loans before the loan closes – the stage in which defects can be most effectively eliminated. The solution leverages Overture’s Bid application, the only technology that enables investors to underwrite, price, onboard, and surveil mortgage assets on a single platform. ATS Secured enables the coordination of settlement services and the distribution of loan proceeds all on one secure and auditable processing platform.

The Settlement Coordinator Workstation provides invaluable tools to settlement coordinators, who are charged with providing critical due diligence and coordination functions in accordance with investor guidelines and policies to ensure loan purchase and efficient delivery of the loan asset to the investor.

“We think expansion of the use of settlement coordinators is key to more efficient interaction between originators and investors,” Thompson continued. “Today, multiple, redundant reviews, conducted pre- and post-closing, have driven the cost to originate and buy a loan to over $9,000. That’s unnecessary, unsustainable and has done nothing to provide the certainty of purchase that originators need,” she said. “By offering this solution, we’ll enable more service providers to perform settlement coordination functions, including those who are already involved at this stage.”

Overture’s Eligibility Findings Report, offered as part of the Settlement Coordinator Workstation, details the data and documentation requirements for investor loan purchase, similar to the reports originators receive on Freddie Mac and Fannie Mae loans. Once the originator submits this information on the platform, the investor reviews the loan and if acceptable, locks down the data for accurate assessment of compliance and generation of settlement documents. Then, using ATS’ functionality, settlement coordinators can arrange eClosings, electronic recording of collateral documents and disburse loan funds.

“We are energized by the opportunity to work with Overture to bring this innovative new solution to market,” said Wes Miller, CEO of ATS Secured. “Our focus has been on creating a platform that enables the transparent collaboration and interaction TRID requires at settlement – from disclosure to disbursement. So this opportunity to partner with Overture to address this acute industry need was a natural fit for us.”

Streamlining Secondary Marketing

LendingQB, a SaaS LOS solutions provider for the mortgage lending industry, announced that it has completed an enhanced interface to Mortgage Capital Trading (MCT), a recognized industry leader in capital markets management and advisory services. The enhanced interface automatically updates investor commitments performed by MCT directly into the LendingQB LOS, saving lenders time and increasing their operational profitability.

In 2013, LendingQB first released an interface to MCT’s HALO-Link, which automatically transferred loan pricing and pipeline data from the LendingQB LOS to MCT in order to improve the accuracy of hedge positions. Today, the two companies completed an enhancement to the HALO-Link interface that adds the capability for MCT to update the LendingQB LOS in real-time with key investor information, such as confirmation number, confirmation price and expiration date. The result is a comprehensive and efficient secondary marketing process that provides pricing and hedge risk transparency throughout the mortgage loan life cycle.

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“The enhanced HALO-Link interface with LendingQB is groundbreaking because we can now interact with our clients seamlessly in both directions,” said Chris Anderson, chief administrative officer at MCT. “On the hedge side, LendingQB gives us visibility into a lender’s pipeline so that we know exactly how much coverage they need to have. On the commitment side, we can push investor data right into LendingQB, saving hours of labor and ensuring complete accuracy on loan delivery.”

A key component of the LendingQB LOS solution is their Universal Decision Engine (UDE), an automated underwriting and pricing engine that manages the entire secondary marketing process from initial pricing through capital markets. Combining the technology of LendingQB’s UDE with MCT’s services provides lenders with a powerful and comprehensive solution that:

  • Accurately qualifies borrowers for loan products using raw credit report data and robust investor guidelines
  • Accurately prices loans with automatic calculation of investor and custom pricing adjustments
  • Delivers loan pipeline data in real-time to MCT for timely and efficient pipeline hedging
  • Uploads investor commitment data to LendingQB for timely and efficient delivery of loan commitments

Open Mortgage, a lender based in Austin, Texas, was selected as the first mortgage lender to use the enhanced interface and noted a significant improvement to their secondary marketing. “The total solution provided by MCT and LendingQB is more than just a time saver,” said Nick Whitten, senior director of secondary marketing at Open Mortgage. “I now have one system that simplifies all of my secondary marketing tasks from rate lock to investor delivery. The real benefit for me is that MCT and LendingQB have come up with an extremely efficient process that makes my locks safer and more profitable. It has a tangible impact that is felt throughout all of Open Mortgage.”

“We are very pleased to have a partner like MCT,” said Binh Dang, president of LendingQB. “They share our vision of making lenders more profitable by focusing on processes instead of just the end result. It’s through this type of authentic collaboration that we’re able to create solutions that have a lasting and powerful impact on lenders.”

About The Author

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at

Are Your Hedging Skills (Or Lack Thereof) Leaving Money On The Table?


Greg-CrosbySecondary mortgage market professional are always under pressure. They are faced with a multitude of difficult tasks including managing the pipeline, guarding against losses and trying to exploit profit opportunities where none seem to exist. All the while, they’re facing fierce competition and managing scarce or dwindling resources. One thing most realize is that they’re foregoing proven profit opportunities because they’re not actively involved in efficient pipeline hedging activities.

To add to the pressure, few practical options exist for pipeline managers beyond leaving their money on the table, and that is to ‘farm out’ the process. The process of having a third party handle the pipeline not only requires them to relinquish control of their pipeline management, it is expensive. Additionally, the ‘black box’ approach provides results that provide no more insight or understanding of the process than they have now.

While most executives want to engage in pipeline hedging, they often cite a lack of experience, practice and knowledge of techniques as their reason for not doing so. Additionally, they mention their desire to expand their understanding of what these practices entail, the level of complexity and the resource commitment required to succeed. Some under- or overestimate the difficulty of staring and maintaining a hedging program and some find that even with the capable software tools that are available, the learning curve and resource commitment will outweigh the benefit.

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However, there is a new option that pipeline managers can exploit in order to increase profits. It is one that combines advanced technology and education with a business mentoring approach to pipeline management. This option not only helps managers enhance their skills and advance their understanding of the process, it helps them make informed decisions going forward and, most importantly, it allows them to remain in control of their pipeline.

Finding a comprehensive program on specific areas such as hedging and related secondary practices takes research in and of itself. It is imperative that pipeline managers find the right program. A few tips are offered as to what to look for in a mentoring program. This general outline will help managers in their search in order to maximize the results and impact on their operation.

First, the providers of these programs must have the right mix of expertise and experience in the industry. They must have a firm grasp of proven processes as well as knowledge of the essential technology to help educate and as well as execute best secondary marketing risk practices.

The program should offer a stair-step approach that builds up the skill level that best suits the individual as well as the organization. For example, the program should provide course tracks for managers to become more proficient as traders, as well as tracks that help establish a more comprehensive enterprise approach to pricing, hedging and market execution.

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Offerings should include tailored courses to high-level executives such as the CEO, CFO or President who want to understand more about how their organization is managing its secondary marketing risk. These course tracks also help offer a measure of protection for secondary operations when managers leave or retire.

These programs should be tailored to the varying levels of experience each individual within an organization possesses, including beginner, intermediate and advanced.

For example, beginner-level mentoring might include the important differences between hedging and fulfilling forward commitments, as well as key drivers of a mark to market and also how to compute a hedge ratio and set a hedge position.

For intermediate-level mentoring, something in the realm of determining the cost of existing closing ratio factors, calculating the most cost effective pull-through curve and tips on how to better interpret market position exposure report. This level would also include actual trading simulations as well.

Advanced-level mentoring and training should have students crafting risk and pricing policies that work hand in hand to minimize negative fluctuations in earnings, maximize the profit realized from pricing, hedging and best execution activities. Their training should include enterprise-wide simulations that result in a best-practices manual for their entire organization.

The takeaways from these types of educational programs are many. For the individuals at the beginning levels of the business and for other important indirect stakeholders, these programs increase practical abilities and theoretical understanding of the mortgage pipeline risk management discipline and how it integrates into the overarching mortgage banking profit management process.

When these programs have been completed, the secondary manager should then be empowered to effectively conduct mortgage pipeline risk management activities and to clearly plan, communicate, execute and coordinate risk management activities in concert with pricing, best execution selection and mortgage pool delivery activities.

They should reach a level of acumen needed to craft a solid, comprehensive risk management policy that benefits from insights into how models, reporting and market analysis impact risk exposure. The policy will embrace management’s ability to utilize models and feedback to optimize performance while limiting risk. They should also become adept at coordinating outcomes with best execution, pooling and pricing activities, to the degree that the combined operating performance of the organization will reflect favorably when compared to its peers.

These types of education programs work best when comprehensive technology is employed to help secondary manager and their organizations. The best type of technology is software that is comprehensive and provides a high-level of clarity and transparency as opposed to a ‘black-box’ system where the ability for user to see how results were derived doesn’t exist. The software should provide multiple hedging approaches allowing managers to view exposure in different contexts as well as the flexibility to view market exposure from a vantage point that fits their risk policy guidelines.

The software should offer an all-encompassing view to the risk manager of where all of their key position components are explained including loans, products, trades, pipeline hedges, fallout, net gain/loss, impact if rates rise, impact if rates fall. Additionally, the software should offer hedge decision tools that include interactive “What If” tools that allows managers to see the result on their pipelines when differing approach are employed before executing a plan.

And finally, the software should have the necessary reporting tools that allow managers to convey their derived strategies to other stakeholders within their operation.

Secondary managers can achieve their goals of maximizing profits, expanding their understanding and achieving better control of their pipelines by taking advantage of comprehensive programs that offer technology, education and business mentoring. By employing these, they can craft an effective hedging policy and better manage their operation. The results are likely to produce better returns and a more advantageous position in the marketplace.

About The Author


Gregory Crosby serves as president of PowerSeller Solutions LLC. When he first joined Associated Software Consultants in 1997, he brought his risk management and best execution systems to help complete the PowerSeller Secondary Marketing Software Suite.
Greg graduated from the University of Oklahoma with a degree in Accounting & Economics, and was a CPA. Since 1981, he has been involved in a variety of endeavors including secondary marketing, financial, internal control and performance auditing, constructing and designing financial conduits, software development, commodity trading, securities portfolio management, and formulating risk assessment systems.
Greg has served as a chief financial officer, with both commercial banks and investment securities brokerage firms, led financial research and trading for a commodity trading pool operator and has served as an adviser and board member to companies ranging from service providers and product distributors to financial conduits.

The LOS That Succeeds

As competition in the LOS space heats up, the LOS that does more will ultimately succeed. For example, OpenClose, an enterprise-class end-to-end loan origination system provider, announced that lenders are successfully using the secondary marketing component of its LOS, LenderAssist, to deliver greater insight and control for secondary marketing departments.

Starting at the point of origination, LenderAssist enables secondary marketing personnel to view real-time pricing, adjustments, locks and more all from a single screen for the retail, wholesale and correspondent lending channels.  When changes occur with a loan, secondary has access to the exact same audit screen that underwriters do.  This allows for continuous audits, ensuring that all information is correct, compliant, and loans are sold for the greatest profit.

“The degree of transparency that our secondary marketing features provide lowers risk, increases profitability and leads to greater investor confidence,” says JP Kelly, president at OpenClose.  “Our clients report that the visibility they capture in a single screen view creates newfound efficiencies to manage the secondary marketing process.  We completely remove guesswork and communication hold ups.”

With the click of a button, users are able to view loan-level detail and side-by-side comparisons. Relevant information for a loan can be simultaneously viewed and compared in real-time, down to the details of borrower-critical lock information, making sure that it’s compliant between the underwriting and secondary departments.

In addition, detailed custom reports can easily be built by clients using the OC Optics module, which includes dashboard-level reporting for all aspects of secondary marketing in any given time period.

The 100 percent browser-based LenderAssist LOS includes origination, processing, underwriting, closing, funding, secondary marketing, accounting, reporting through post-closing and interim servicing.  Residential loans are seamlessly processed through the entire workflow, continuously checking for compliance and any changes that affect QM/ATR requirements.

About The Author


Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at

Interesting New Technology Offerings

As we strive to keep you up to date on the latest technology, we keep an eye out for new products hitting the market. Just yesterday I was told that Optimal Blue, a cloud-based provider of enterprise level pricing, point-of-sale, compliance and secondary marketing automation services for the mortgage industry, demonstrated innovative new services that will address compliance in Fair Lending and empower lenders with real-time market pricing intelligence.

The 3rd Annual Optimal Blue Client Conference was buzzing with anticipation over adding the patent-pending real-time lock monitoring functionality, incorporating the “Equivalent Rate” feature, to their Optimal Blue Advantage real-time Fair Lending solution. When applied to a mortgage lender’s locked pipeline, the Equivalent Rate calculations immediately highlight any loans that may not have been priced equally. “Our clients can greatly reduce the chance for rate disparity and pricing discrimination,” said Tammy Butler, Director, Fair Lending and Compliance. “They need this now more than ever!”

Also introduced was Optimal Blue Insight, a real-time pricing analysis service. “Our customers can now benchmark pricing against their peers at the local market level,” said James Rowe, Managing Director, Data and Analytics. “We provide actual retail lender pricing – not survey responses – from the leading product and pricing engine in the mortgage industry.”

About The Author


Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at

Who Will Fill The Gap?

You Can Download This Entire Article As A PDF HERE

rsz_barbara-perinobecky-walzakRule 20 took effect after a specified event or period of time, to enable borrowers with less income to make the initial, smaller loan payments. Some qualified borrowers according to whether they could afford to pay the lower initial rate, rather than the higher rate that took effect later, expanding the number of borrowers who could qualify for the loans. Some lenders deliberately issued loans that made economic sense for borrowers only if the borrowers could refinance the loan within a few years to retain the teaser rate, or sell the home to cover the loan costs. Some lenders also issued loans that depended upon the mortgaged home to increase in value over time, and cover the loan costs if the borrower defaulted.

Still another risky practice engaged in by some lenders was to ignore signs of loan fraud and to issue and securitize loans suspected of containing fraudulent borrower information. These practices were used to qualify borrowers for larger loans than they could have otherwise obtained. When borrowers took out larger loans, the mortgage broker typically profited from higher fees and commissions; the lender profited from higher fees and a better price for the loan on the secondary market; and Wall Street firms profited from a larger revenue stream to support bigger pools of mortgage backed securities. The securitization of higher risk loans led to increased profits, but also injected greater risks into U.S. mortgage markets.

Some U.S. lenders, like Washington Mutual and Countrywide, made wholesale shifts in their loan programs, reducing their sale of low risk, 30-year, fixed rate mortgages and increasing their sale of higher risk loans. 21 Because higher risk loans required borrowers to pay higher fees and a higher rate of interest, they produced greater initial profits for lenders than lower risk loans. In addition, Wall Street firms were willing to pay more for the higher risk loans, because once securitized, the AAA securities relying on those loans typically paid investors a higher rate of return than other AAA investments, due to the higher risk involved.

As a result, investors were willing to pay more, and mortgaged backed securities relying on higher risk loans typically fetched a better price than those relying on lower risk loans. Lenders also incurred little risk from issuing the higher risk loans, since they quickly sold the loans and kept the risk off their books. After 2000, the number of high-risk loans increased rapidly, from about $125 billion in dollar value or 12% of all U.S. loan originations in 2000, to about $1 trillion in dollar value or 34% of all loan originations in 2006. 22 Altogether from 2000 to 2007, U.S. lenders originated about 14.5 million high-risk loans. 23 The majority of those loans, 59%, were used to refinance

Ever since the take-over of Fannie Mae and Freddie Mac by the federal government, speculation about what will eventually happen to them has been rampant. While any active legislative issues were put on hold until the impact of the crisis lessened, there continued to exist an underlying knowledge that these entities were contributors to the crisis and that this issue remained unaddressed. In fact the Senate Permanent Subcommittee report on the financial crisis included the agencies in their general condemnation. Their conclusions were based on the fact that both Fannie Mae and Freddie Mac purchased large quantities of high-risk loans which created a secondary market for them, thus encouraging their growth and proliferation.

Recently legislators have begun to initiate bills that would address the “Fannie/Freddie” problem. The most widely discussed bill is one in which these agencies would be replaced with an entity not unlike the Federal Insurance Deposit Corporation (FDIC). This new agency, titled the Federal Mortgage Insurance Corporation (FMIC) would collect premiums from industry participants while taking on the role of “industry safeguard.” This entity would collect a 10% premium from lenders for loans originated and in the event of another drastic delinquency upswing, would protect the federal government by covering losses through the premiums collected. This legislation is supported by many, including legislators and private industry, but opposed by others, some of whom have large amounts of stock in both Fannie Mae and Freddie Mac. But while all this wrangling goes on in the halls of Congress and the back rooms of Wall Street, the reality is that this discussion has missed the mark on much of the central control functions that are inculcated into the fiber of what Fannie Mae and Freddie Mac are and what they do for the industry as a whole.

These agencies, along with HUD, have become the backbone of the industry. They provide not only a secondary market source, but have developed and maintained areas that are integral to the overall reliability and consistency of the industry. One of the immediate areas that comes to mind is Credit Policy and the associated underwriting guidelines. These agencies were the first to create a uniform approach to underwriting. The credit risk management foundation they introduced is still the basic source from which all guidelines flourish. Even during the days when individual companies were introducing their own guidelines, the fundamental methodology was based on these original practices. It was not uncommon to find company guidelines that included directives to source Fannie/Freddie Guides if the company guidelines were insufficient to answer questions. For underwriting managers intimately familiar with the agency guidelines, reviewing new lenders programs often disclosed that these were “just Fannie and Freddie guidelines repackaged.” As such there was no need to re-train specific underwriters for specific conduits or to isolate an underwriter’s knowledge base so as to eliminate the chance that guidelines would be accidently used for the wrong loan.

Also of extreme value to the industry was the ability of these entities to update the guidelines to reflect credit criteria relevant to what was going on in the industry. As credit risk direction changed, the guidelines followed and provided a sense of stability that everyone from loan officers to investors came to rely on. This stability has also provided a foundation as to what constitutes credit risk and promulgates a uniformity in loan underwriting that could not have been developed or sustained if the industry had to rely on direction from competing mortgage lenders.

Of course, underwriting guidelines are only one tip to this iceberg. Another area that is not readily acknowledged is the uniformity in documentation provided by the agencies. The 1003, Uniform Loan Application is seldom given any thought these days. It is just the accepted document for use when collecting and evaluating the applicant’s information for underwriting purposes. Yet everyone, even HUD, uses this form. Without this effort on the part of Fannie Mae and Freddie Mac would we still have numerous application forms that are unique to specific products or individualized by different lenders?

And of course, it is not just the application. Almost every standard form used in the underwriting and closing process is stamped as a Fannie Mae/Freddie Mac Uniform document. When states make changes to the requirements of legal documents or when the application has to collect more information for HMDA purposes, individual lenders do not have to take on the burden of making these changes since everyone acknowledges that this falls within the boundaries of Fannie and Freddie.

With all the talk from the regulators about ensuring lenders have a solid control environment in place, it has to be recognized that Fannie Mae and Freddie Mac were the first to hold their seller/servicers responsible. Because they established standards by which they would approve their clients, lenders who began conducting third and fourth party lending activities had a model from which to formulate their own requirements. As these origination sources grew, investors began to examine not only the approval process, but the ongoing monitoring of the approved lenders and actions taken to address issues found; just like Fannie Mae and Freddie Mac.

The establishment of the Quality Control function was first introduced by Fannie Mae in 1985 and Freddie Mac and HUD were soon to follow. These requirements have been used since then to establish a review program for not just sellers/servicers but the requirements have trickled down to those selling to conduits as well.

Of course Fannie Mae and Freddie Mac have generated a lot of contentious issues as well, including a belief that there was a fair amount of bias toward certain sellers which resulted in inequitable pricing and ultimately a competitive advantage or disadvantage. And while their approach to many of the internal operations of a mortgage operation were industry standards they repeatedly failed to permit lenders to develop their own approach or ideas on how most of the operations should be developed and managed. Overall, most would say that the good balanced out the bad and these agencies ultimately generated a unique approach to housing finance that was the envy of other countries.

So, if Fannie Mae and Freddie Mac go away, what will happen to this sense of continuity and stability? Will lenders take advantage of the lapse in credit risk guidance to create individual standards that will be absent the boundaries the agencies have established as sound underwriting? Will there be any uniformity in the approach to evaluating this risk? Will borrowers and lenders alike be left to find situational based guidelines that are developed only for a very unique set of circumstances? Or will the focus of the individually developed guidelines be biased on the risk/reward returns that each individual banking institution seeks.

While the final determination of what will become of these entities is still far off, the industry cannot afford to sit on its laurels and wait for that to happen. The ultimate fate of Fannie Mae and Freddie Mac will be the result of political aggrandizing and its outcome will be decided by those whose weight and control is greater than any of ours. However, what is important is that regardless of what happens legislatively or politically, the industry must be ready to assume some of the burdens that have previously been the prerogative of these agencies. We need to start thinking of how we will handle that burden and not wait until we are face to face with the problem. So to start the dialogue here are some ideas.

One idea may be to have an independent company take on the responsibility of all standard documents under the direction of the secondary market or whatever entity emerges from the political battle. This company would be the provider of the model forms and would take the responsibility of making changes as required. This company would be viewed as a resource to lenders, servicers and software developers alike.

The Mortgage Bankers Association needs to take on a larger role in establishing guidelines and directives to the industry. As the one unifying source of mortgage information and interaction with lenders from independents, retail banks, community banks and credit unions, this seems the appropriate place for this work to occur. As they have already established a “Risk Management” support staff and along with this infrastructure the move could be made rather seamlessly.

While the industry has a strong presence around quality control, we still have to define what quality actually is to this industry. Since Fannie Mae and Freddie Mac were concerned about the quality of loans that were sold to them, there was a gap when loans did fall under their purview. The industry needs to take on this task and tie the concept of quality to firm standards that could be used to measure lenders equally. Included in this could be some measure of the impact of creating loans that don’t follow guidelines; something like a lender score to go along with the borrower score that could be part of a risk-based pricing scenario.

These are just a few thoughts around what we might need to handle the functions for maintaining the inner workings of the industry’s infrastructure and making sure they continue. There are probably many more really good ideas that we need to consider. However one thing is for sure. What we don’t need is another federal bureaucracy running the industry. Those that do exist have demonstrated over and over again that they cannot keep up with the industry needs as it changes and grows; that they cannot handle change and in a rapidly changing environment such as mortgage lending. Relying solely on them would be tantamount to reversing mortgage lending back to the 19th century.

But what if we don’t take these steps? Are there lenders, bankers or others who would want to see that happen? Unfortunately there are. These are the players that don’t want anything to change because the way it is now is good for them. They are afraid of change. One example is the numerous quality control firms that conduct loan file reviews today. None of them do the work the same and the results are all different. There is no common determination of issues or standards and they compete only on price. The same can be said of most of the functions that are currently imbedded in the existing agency structures.

Franklin Roosevelt one said, “The only thing we have to fear is fear itself.” Many times fear causes people to become immobile, hesitant to make changes. However if we recognize that things are going to change and actively put in place a means and method for change we will all benefit. Our fear is not that Fannie Mae and Freddie Mac will go away, but who will take charge if and when they do. It is time that the industry begins to recognize the risk associated with how it will continue to develop and enhance what we do to the benefit of all companies and stakeholders in mortgage lending.

About The Author


Rebecca Walzak is a 32 year veteran and Industry Expert on Operational Risk Management and Organizational Control. She is a leader in developing Operational and Control automated assessments for lenders, rating agencies and investors. Walzak has expert knowledge in all areas of the mortgage industry including production, servicing and secondary.
Barbara Perino is a Certified Professional Co-Active Coach guiding her clients who are executive leaders and their staff. Barbara has been trained through The Coach Training Institute (CTI) located in San Rafael, CA. She completed a Coaching Certification Program through CTI and the International Coaching Federation (ICF). Prior to becoming a coach, Barbara was a 16-year veteran of the residential mortgage industry.

Creative Alliances Form

Changing market conditions have caused many to think outside of the box. As a result, some very creative partnerships are forming. For example, Wingspan Portfolio Advisors has forged a permanent partnership with the residential mortgage secondary market, and it is one made more important by the increased influence of regulatory concerns, according to Wingspan CEO and President Steven Horne. Here’s why:

“In years past, our industry segment was mainly involved in handling defaulted loans and performing other special servicing functions for lenders and servicers,” Horne says. “These days, we do many more things for the industry, and there are comparatively few companies in our business that can compete at the higher level required in terms of capabilities and financial strength,” he notes. “This had led to a new alliance with the secondary market, one that I believe is permanent by virtue of adding value for investors.”

Horne explains that investors, particularly those in the private sector, want two things as they look at bringing their capital back to the mortgage industry: yields and security. While low interest rates are keeping yields down to levels that have left investors unimpressed, mortgage investments are safer and more secure than at virtually any time in the past.

“In addition to greater scrutiny at loan creation, today’s loans have several servicing layers to support the process and add protections that weren’t there during the mortgage crisis,” Horne observes. “And that’s where our business comes in. Our high-touch approach and default servicing expertise provide a very strong wall of defense for investors, and we are paid for success, keeping incentives aligned and costs low,” says Horne. “The secondary market now has us as a powerful ally, knowing that servicers are completely supported if problems arise and making mortgage investments safer than ever.”

Wingspan Portfolio Advisors grew substantially in 2013 through the acquisition of servicing and customer service facilities from JPMorgan Chase and other purchases that brought them to more than 2,000 employees in Texas, California, Colorado, Louisiana and Florida, and vastly expanded their capabilities. “Companies like ours must be licensed everywhere, be fully compliant with all regulators, and possess great legal expertise as well as extensive technology and financial resources. Additionally, we provide outsourcing in multiple areas and consulting services across most lending and servicing functions,” Horne says. “The regulatory era that is upon us has created a ‘New Normal’ for our business, and we have become permanently partnered with lenders, servicers and investors for the benefit of all in the industry.”

About The Author


Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at