Mortgage Industry Seller Performance Monitoring OverviewPrior to the current period of low mortgage loan interest rates and the refinance boom that started in the early nineties the primary focus of a mortgage lending investor organization was increasing loan production numbers. The prevailing philosophy being that all production was good and though some thought was put into the quality of production it wasn't reflected in the commissions that were paid to Account Executives or the volume incentives that were paid to sellers.
Organizational hierarchy further enforced this concept. Lending Operations and Risk Managers were often direct subordinates to the Sales and Production Managers. However, with the advent of the subprime market crash, resulting refinance market and large number of originators, products and sheer volume in the mortgage marketplace there is a noticeable shift in the production philosophy. Specifically, investors are more concerned with the quality and performance of their production and sellers.
The period of low interest rates in the mortgage industry prior to the collapse of the mortgage market starting in late 2006 created record loan volumes in the form of new purchases, refinances and Home Equity Lines of Credits (HELOCs). This period was highly profitable for sellers and the investors that ultimately purchase the mortgage servicing rights. However, for the investor, there resulted a high level of volatility and servicing portfolio risk associated with these large production volumes. Specifically, investors experience an elevated servicing portfolio risk due to poor quality and performing loans, predatory lending regulations, seller churning and simple borrower runoff.
One method of managing servicing portfolio and seller risk is the implementation of a seller and servicing portfolio performance monitoring program. A properly implemented performance monitoring program identifies portfolio risk and identifies sellers that are a high risk to the investor organization. The intent of the information that follows in this article is to identify a means for managing mortgage industry seller risk; however, the principles outlined can be applied to managing the quality of a servicing portfolio, bulk trade deals, account executives or sales regions.
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