Tuesday, September 28, 2010

What I Don't Know, Scares Me!!!

Both children and adults will often talk about things they're most scared of. Whether it be clowns or monsters, flying or growing old, most people know what they're scared of as this emotion is typically rooted in some kind of perceived danger.

In the business world, and especially in the mortgage banking industry, it's what I don't know that scares me the most. How is this so? It's quite simple actually, I see danger in what I don't know. That is the real scary stuff.

-Do you really know if your core business channels are being run in an efficient manner?
-Do you know where rates will be next month, next quarter, next year?
-Do you know how your sales force will react to whatever pricing and commissions adjustments are put in place starting 1/1/11?
-Do you know how these new pricing policies will affect your margins and overall revenue?
-Do you fully understand your hedging platform?
-Do you have accurate LOS reporting?

I can go on and on here.

If being TRULY honest with themselves, I think most business owners and management would have to answer no to most, if not all of the above questions. Think about how scary this is...and what's even scarier? I don't think these are topics on anyone's radar - most are too focused on originations. How many are in the dark and don't even know it? Some know what they don't know and have concern. I think that those who don't know what they don't know are in the worst position of all.

Scarier than the Boogie Monster if you ask me!

It's tough to look at yourself in the mirror and ask the hard questions, especially when rates are low and volume is up. To be on top you always need to assess yourself and your business, always looking for areas which could use improvement and additional focus. If you truly want to maximize your potential and reduce your risk and exposure - turn the lights on and ask yourself those tough questions.

Wednesday, September 22, 2010

Fall is here..but what will the rates do

What a summer in the mortgage space! Despite all the gloom and doom about the economy rates managed to stay low and only get lower in a seemingly never ending game of limbo...How low can they go? low 4's, high 3's? Wow what a ride!

Now that autumn is officially here, can we expect a fall? Or more like a fall from this refinance boom high that we are all on. Many originators I have spoken with have been on cloud nine as the rates have remained low and the closings have rolled in. I even saw some walking the Mercedes parking lot..Oh how quickly we forget how quickly it can all change.

My thoughts are not that the end of the world is near...I just think we all need to stay focused and remain calm. Ride the wave, but do not drown in it. We must all prepare for what we will do when the wave settles down and the rates creep back up....Don't get lost in the haze!

My old high school lacrosse coach used to say if you fail to prepare you prepare to fail.
Thank you.. Mr Hoffman, you are definitely right with that one!

Friday, September 17, 2010

Careful With Those Coupons!!!

Since I come from a Secondary and Capital Markets background, I'm always thinking about risk and exposure mortgage bankers take on a daily basis. The larger concern is that most do not even realize they have this exposure until it's too late.

For those bankers who hedge their locked pipelines, I can't help but ask whether you run what I call the RONCO model of "Set it, and forget it." Trust me, you don't want an analogy made between an infomercials, no matter how successful, and a philosophy of your capital markets department. How careful are your with your coupons?

Mortgage rates continue their volatility and it's important to understand how market swings effect your hedge coverage and the coupons you use. For 30 ye fixed product, both 3.5% and 5% coupons are currently fringe coupons - this means that trading can be inefficient and illiquid.

I don't care how smart you are, nobody knows what the future will hold for mortgage rates. We're living through historic times here and we're seeing unprecedented regulation and a few big players are controlling most, if not the entire market. Nothing would surprise me. My point here is that outliers can be dangerous, especially in a volatile market where rates and coupons could be "here today, gone tomorrow."

Don't take on unnecessary exposure. Ask yourself, who's got my back? Who's watching my coupons?

Tuesday, September 14, 2010

1/1/11 Is Just Around the Corner

With the Summer behind us, the industry has another few weeks before the holiday season hits and business slows...before you know it, January here we come!

I know it may seem to be dated news by now but what the heck happened to all the yapping and stress relating to the regulations on originator compensation slated for 1/1/11? I can't help thinking that this announcement received immediate response, mostly from top originators and some managers and owners. Once the headlines disappeared, so did their stress, and back to business. With rates at all time lows, why focus on regulation 5 months out.

The headlines will be back. I'm no Nostradamus but come late November-December this will be a hot topic once again. If originators want to keep their heads down and think of nothing but origination's until the end of Q4, that's fine - but owners and managers better put their thinking caps on sooner rather than later.

Comp plans, rate sheets and business models will all be given an "Extreme Makeover" but unlike the ABC show, this will certainly take more than 7 days from start to finish and not everyone is going to fall in love with the final product. Top originators (and others) will have concern over whether this business is still right for them - this is always dangerous as top originators must always keep their head in the game. Bottom line here is these updates will pose significant questions for bankers and may dramatically affect their P&Ls.

Start thinking now, before it's too late.

Wednesday, September 1, 2010

Rates Keep Dropping, Now What?

Ok, so we all know each week that rates will continue to drop and like clockwork, we reach another "all time low." But now what?

What's your renegotiation policy? Investors have these policies in place to ensure volume levels when rates quickly drop. The goal is to maintain volume and a portion of margins. I'm shocked when speaking to owners, secondary and capital markets managers and sales, to find out how many firms have let's just just say "a loose" policy or no policy at all. This is extremely dangerous and the unfortunate part is that most don't even realize the exposure the firm is taking.

It doesn't matter if you're delivering best efforts, mandatory, or AOT.
BE firms - You're not tricking anyone when you cancel a BE lock and just take a new position with another investor. Large lenders are doing their homework and are sending out invoices to firms which never delivered a BE lock but still closed the file and sent it elsewhere. That's right, pair-offs on BE locks. They take a while, could be 6-12months, but the bills do come.

Mandatory/AOT firms - If you don't have a sound policy you've essentially got some big holes in your pocket. Oh, and it's not enough to have the sound policy, you have to actually follow it!

Lastly, aside from the renegotiation topic, EPOs and CRM Campaigns should be hot topics in times like this as well. If they're not, you may be taking on some risk and missing out on great opportunities!!!