The intent of the following article is to document and demonstrate methods that correspondent lending investors use to track and report seller production Mortgage Loan Pull-through statistics for risk management and performance monitoring purposes.

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Seller Mortgage Loan Pull-through Overview

In an effort to offer more loan products and remain competitive in today's expanded marketplace both the bank and mortgage brokers participate in correspondent or wholesale lending programs. Correspondent and wholesale lenders refer to the banks and mortgage brokers that sell them loans by many names - Originators, Brokers, Lenders, Sellers or Correspondents. For the purpose of this article the banks and mortgage companies that originate the loans are "Sellers" and the correspondent or wholesale lenders that fund or buy the loan from the seller are "Investors".

Sellers, based on investors' guidelines, make a lending decision and fund the mortgage loan using their own money, the investor's money or a warehouse line of credit. This dynamic works great for the borrower. The borrower is dealing with the seller who will close the loan, and the seller is able to shop the mortgage around thereby obtaining the borrower a lower interest rate. Once the loan has closed, it is sold to the investor at a previously negotiated price on a "Mandatory" or "Best Effort" delivery commitment basis.
  • A "Mandatory" delivery commitment is a loan sales agreement in which a seller commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the institution fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a "pair-off" fee, based on then-current market prices, to the investor to compensate the investor for the shortfall.
  • A "Best Efforts" delivery commitment is a loan sales agreement in which a seller commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor. The seller makes his best effort to deliver the loan to the investor prior to the commitment expiration date. Failure to deliver the loan may or may not result in a "pair-off" fee.
A seller's pull-through rate is a percentage that measures the dollar volume of loans that a seller delivers versus the dollar volume of loans committed for delivery. Typically, for the purposes of reporting seller mortgage loan pull-through statistics, investors are primarily concerned with loans that are committed under a "Best Effort" delivery program that do not result in a "pair-off" fee.

The following represents a simple Pull-through Calculation.

Best Effort Delivery Commitments = $1,250,000
Actual Best Effort Delivery = $675,000
Pull-through Percentage = $675,00/$1,250,000 = 54.00%

The "Reporting Mortgage Loan Pull-through Statistics" section of this article details steps for creating a report that an investor may use to track and report seller pull-through statistics by loan program type. A seller with a low pull-through percentage could represent a significant risk to the investor. The Sample Seller Mortgage Loan Pull-through Report in this article can be used as a model for a stand alone seller pull-through report or incorporated into a comprehensive Seller Scorecard report.

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