Centralized Lock Desks Serve as a Gate Keeper. Source of Revenue

This was the half time scene in Miami last night at Super Bowl XLIV...

I am sure many watchers were thinking:  Why The Who? 

Maybe some of us in our 60s and 70s need to be “put out to pasture” or start “whittling wood” on the front porch.  However, as a boomer, I was inspired to see these guys still rocking and rolling.  I enjoyed the music and hope they keep playing.  Peter Townsend will go down as one of most brilliant musical writers of all time. 

That’s enough about The Who and dating myself.  Lets’ talk about secondary market and locking loans.

One of the areas we review during our FOCIS-plus Studies is whether a company has a centralized lock process.  Centralizing the lock function means all lock requests and confirmations are managed by a “gate keeper” in the secondary market department. 

Sometimes this “gate keeper” might be a company’s technology that receives lock requests from loan officers and automatically generates a lock confirmation.  Some companies use a 3rd party vendor such as Optimal Blue as its pricing engine which integrates with mortgage banking point of sale software.  This approach works especially well for companies that macro-hedge (use mandatory pricing, bulk, AOT...not best effort).  If single loan best efforts are being used, someone in secondary will manually review the lock request before locking a loan with an investor.

For companies that don’t have technology to support the lock function and aren’t macro hedging, the “gate keeper” will be a lock desk coordinator who receives lock requests from loan officers or processors via email or fax.  This is a manual process: the commitment desk coordinator reviews lock requests to ensure the loan attributes meet specific investor guidelines, after that the desk can generate its secondary market margin before locking with an investor. Among many other roles and responsibilities, this employee also validates that the company receives the expected gain on sales from investors when the purchase advice is posted.

In the past year, we’ve still seen a few companies allow their loan officers to lock directly with investors.  Investors today allow their correspondent customers to manage secondary market activities and margins from their web sites.  These webs sites generate a “private label” online rate sheet or pricing engine for loan officers working for correspondents.   Loan officers can view product guidelines, price loans and lock directly with investors.  Many companies that use this approach may not even know there is a lock until it is submitted for underwriting or funding.  Because data is stored with each individual investor, there is little centralized reporting on secondary market activities. 

We believe this is a dangerous process that can lead to revenue leakage and poor pull through with investors not to mention product guideline violations and a higher chance of loan repurchase demands.  All of these can be costly to an operation.

It is important that mortgage bankers generate revenue from secondary market activity.  The secondary market area is a key and necessary revenue source for mortgage bankers.  Centralizing the lock function will help ensure secondary market can generate those revenues.