By Joe Bauer
Stay Ahead of the Higher-Rate Curve
develop a plan to deal with increasing rates and declining refinances
origination costs typically include: the
appraisal; the credit report; the loan-officer compensation; and the interest
on warehouse facilities.
Mortgage companies should benchmark these expenses against industry
standards, if possible. The costs should
be trailed back for 12 to 24 months to
identify and fix negative impacts. This
exercise can help achieve the right loan
pricing and target margins.
It is important to know the differences
among your producers and branches.
For example, mortgage originators who
generate less volume but a high-quality
or high-margin product often can have a
better impact on the company’s bottom
line than those producing high volumes
but sacrificing quality or margin.
Mortgage companies should evalu-
ate the loan quality and margin — along
integrate or link major business func-
tions and business processes within,
and across, companies into a solid and
high-performing business model. In ad-
dition, they should help employees by
managing logistics and driving the syn-
chronization of processes and activities
with and across marketing, sales, fi-
nance and information technology.
3. pull-through rates
The pull-through standard measures
the numbers of loans in the pipeline
that reach closing. Loans that don’t
close result in employees getting paid
to work on deals that don’t generate
revenue for the company. Improving
pull-through rates leads to a greater
efficiency and profitability.
Pull-through rates also can be analyzed at the referral-channel level
In the past few years, low interest rates have driven a wave of home refinances and created substantial
increases in loan volumes. For many
mortgage brokers and originators who
focused on refinances, profitability
hasn’t been a significant challenge.
As rates edged up this year, the volume of refinance deals has been hit,
however. This past August, refinance
applications were down 62 percent from
May, according to the Mortgage bankers
Association. refinances are expected to
continue on this downward trend.
As refinance pipelines shrink and
the winter season dampens purchase
volumes, mortgage brokers and originators should be prepared to act proactively to maintain their profitability.
Here are seven points to include in your
planning for a successful year.
To control costs properly, mortgage
companies can benefit from analyzing
where money is being spent and deter-
mining the cost of loan origination. The
investments, which ultimately leads to
better efficiency and more volume.
4. Warehouse borrowing
Having efficient backroom operations
can yield big returns, especially when it
comes to warehouse borrowing. For example, improving turn times by clearing
investor stipulations quickly can reduce
borrowing costs and generate liquidity
for your company. In addition, files that
clear the line quickly allow you to avoid
costly lock extensions with investors.
After a few profitable years, many
mortgage companies are flush with
Joe Bauer is a vice president at Fidelity bank
in Minneapolis. He is a key player in the
mortgage warehouse-funding sector, working
with both mortgage brokers and bankers to
navigate the constant changes in the market.
A Minnesota native, bauer attended brown
University and then earned his Master of
business Administration from the University
of St. Thomas in Minneapolis. reach him at
firstname.lastname@example.org or (952) 830-
7254. Visit fidelitybankmn.com.
« articles »
By harlow T. Spaan
Big or Small, Prepare for CFPB Audits
Make sure your operations meet regulatory requirements
settlement services, including mortgage origination.
This kind of punishment for rESPA
violations is a cautionary tale, but it isn’t
unique. A cursory Internet search returns
several cases of crackdowns on similar
violations. The significant implication
of this recent settlement by the CFPb is
that the bureau is examining small-scale
brokerage operations for issues that
could exploit consumers. The days of
counting on the small size of a business
to provide anonymity are gone.
In addition to rESPA violations, the
CFPb supervision and examination
manual identifies numerous areas of
audit concern. Two of these areas that
often are ignored by small and midsized
businesses are: compliance training and
compliance-training tracking. Here is
how the CFPb manual addresses these
In preparing to meet CFPb requirements,
mortgage originators should keep in
mind that having appropriate training
small to attract regulators’ attention.
Although large companies may appear
to be audited more frequently, particularly by the Consumer Financial Protection bureau (CFPb), size alone isn’t
enough to keep smaller players off the
radar of regulators.
In several notices, the CFPb has
The homebuilder also was prohibited
from engaging in future real estate
harlow T. Spaan is president of OnlineEd Inc., an
online provider of education for licensed profes-
sionals since 1999. He received his Juris Doctor
from Willamette University, and his experience
includes tax consulting, law practice, real estate
brokerage and investment real estate, as well as
founding a national home-inspection franchise.
Spaan has led OnlineEd from its inception to
becoming a leader in quality courses for the real
estate and mortgage industries. reach him at
programs helps them build an effective
compliance program. Staff should receive training that underscores and develops written policies and procedures.
In addition, all executives, including audit personnel, should receive enough
information to enable them to understand their responsibilities and obligations. brokerages also should include
requirements for conformation with federal laws, including prohibitions against
unlawful discrimination and fraudulent
practices. The CFPb manual lists these
three objectives for training programs:
1. compliance training is current,
complete, directed to appropriate individuals based on their roles, effective, and commensurate with the size
of the entity and nature and risks to
consumers presented by its activities.
2. Training is consistent with policies
and procedures and designed to reinforce those policies and procedures.
3. compliance professionals have access
to training that is necessary to ad-
minister a compliance program that
is appropriate for that supervised
entity and its business strategy and
To evaluate training-program compliance, CFPb examiners receive and review training records and interview
management and staff. As per CFPb
guidelines, examiners should follow nine steps that fully illustrate the
procedures — from requesting and
recovering training content, policies
and materials to drawing preliminary
conclusions about the strength, adequacy or weakness of training.
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continued on page 59 »