Re-emergence Of Correspondent Lending
Amid depressed demand, a rising interest rate environment, and an unclear housing market outlook, mortgage lenders continue to seek new growth opportunities. The exodus of big banks from the correspondent lending business has opened the door for smaller institutions to step in and fill an unmet need. In a bid to offer more loan products and stay competitive in the marketplace, many mid-tier lenders are participating in correspondent lending programs.
The Current Market
Major loan buyers such as Bank of America and Ally Financial have pulled out of the correspondent lending channel, creating liquidity issues for loan originators. Although the reasons for exiting the correspondent lending business vary, many experts believe that big lenders and mortgage banks do not want the contingent liability issues with third parties or inflated balance sheets from servicing loans originated by others.
As a result, servicing values have decreased, which has diminished returns for correspondent lenders also burdened with costs related to file reviews, purchase delays, and so forth.
Market Response & Opportunities
The current turmoil in the correspondent lending market has resulted in uncertainty for billions of dollars of correspondent lending liquidity. However, while existing lenders are retrenching, an entirely new group of correspondent lenders are emerging. These new entrants are innovative, numerous, and are redefining and segmenting the market.
In the wake of these changes, there are plenty of opportunities for industry players. Consider the following:
-According to Inside Mortgage Finance, correspondents comprised of 30.9 percent of new mortgage originations and generated an estimated $119 billion in new production in the first quarter of 2012. Further, wholesale correspondent programs were a major component in mortgage originations during early 2012.
-American Banker reports that Federal Home Loan banks are increasingly buying home loans from their member banks and selling them to Fannie Mae, making up for players such as Bank of America that exited the corresponding lending business.
The retrenchment of large players has not diminished the industrys demand for correspondent lending. Small to mid-sized players in the correspondent channel are setting the stage for a private secondary market revival. However, the emerging correspondent lending landscape is different and in order to take advantage of it, independent mortgage bankers have to adopt a different approach for their correspondent relationships.
To be a contender in the correspondent market, players should consider the following:
-The technological infrastructure required to enable automation.
-Staff expertise to ensure effective communication within the enterprise and with correspondents.
-Sufficient reporting capabilities to make effective business decisions as the channel evolves.
Moving Ahead
Todays correspondent lenders are taking a proactive approach. The symbiotic relationship between the correspondent lending community and independent mortgage bankers will only grow as new ideas, products, and partnerships are introduced by both parties. Moreover, the successful implementation of technology is an important step toward achieving the new normal as automated technological processes reduce the cost and hours currently consumed by manual processes.
The re-emergence of the correspondent channel is looming, but its success will be driven by innovative approaches in a dynamic environment. Correspondent lenders are known to have greater tolerance for risks. However, the new era of increased regulatory concerns requires careful monitoring. It is thus imperative that correspondent lenders increase loan quality and streamline productivity while keeping costs under control.
The Current Market
Major loan buyers such as Bank of America and Ally Financial have pulled out of the correspondent lending channel, creating liquidity issues for loan originators. Although the reasons for exiting the correspondent lending business vary, many experts believe that big lenders and mortgage banks do not want the contingent liability issues with third parties or inflated balance sheets from servicing loans originated by others.
As a result, servicing values have decreased, which has diminished returns for correspondent lenders also burdened with costs related to file reviews, purchase delays, and so forth.
Market Response & Opportunities
The current turmoil in the correspondent lending market has resulted in uncertainty for billions of dollars of correspondent lending liquidity. However, while existing lenders are retrenching, an entirely new group of correspondent lenders are emerging. These new entrants are innovative, numerous, and are redefining and segmenting the market.
In the wake of these changes, there are plenty of opportunities for industry players. Consider the following:
-According to Inside Mortgage Finance, correspondents comprised of 30.9 percent of new mortgage originations and generated an estimated $119 billion in new production in the first quarter of 2012. Further, wholesale correspondent programs were a major component in mortgage originations during early 2012.
-American Banker reports that Federal Home Loan banks are increasingly buying home loans from their member banks and selling them to Fannie Mae, making up for players such as Bank of America that exited the corresponding lending business.
The retrenchment of large players has not diminished the industrys demand for correspondent lending. Small to mid-sized players in the correspondent channel are setting the stage for a private secondary market revival. However, the emerging correspondent lending landscape is different and in order to take advantage of it, independent mortgage bankers have to adopt a different approach for their correspondent relationships.
To be a contender in the correspondent market, players should consider the following:
-The technological infrastructure required to enable automation.
-Staff expertise to ensure effective communication within the enterprise and with correspondents.
-Sufficient reporting capabilities to make effective business decisions as the channel evolves.
Moving Ahead
Todays correspondent lenders are taking a proactive approach. The symbiotic relationship between the correspondent lending community and independent mortgage bankers will only grow as new ideas, products, and partnerships are introduced by both parties. Moreover, the successful implementation of technology is an important step toward achieving the new normal as automated technological processes reduce the cost and hours currently consumed by manual processes.
The re-emergence of the correspondent channel is looming, but its success will be driven by innovative approaches in a dynamic environment. Correspondent lenders are known to have greater tolerance for risks. However, the new era of increased regulatory concerns requires careful monitoring. It is thus imperative that correspondent lenders increase loan quality and streamline productivity while keeping costs under control.
