The Worry List, Correspondent Lending Edition
Happy New Year to you. Here’s hoping that the changes in our industry likely to take place in 2013 will bring you opportunity and success.
We’ve discussed here, from time to time, my “Worry List,” a checklist of threats, risks and changes that my clients need to keep an eye on and prepare for. Today, I’m offering up my specialized Worry List for correspondent lenders. Or, more accurately, my Worry Checklist–things we should all be doing now to deal with the potential for a market dip…
You wake up every morning feeling wonderful and thankful that your mortgage business is going great guns. Indeed, the end of 2012 gave us quite an unexpected spike in originations. You have never made so much money and you believe that things will go on forever.
Unfortunately, it’s time to change that thinking.
You’ve just made a mistake. Rather than celebrating, you should be meeting with your top management people and trusted advisors to develop strategies for the next dip. Many predict an uneven recovery. Unfortunately, we’re not out of the woods yet.
Where to start? – How about starting with the following:
How strong are the companies to which we are selling our production?
What are their net worths?
How much cash do they have?
What kind of volume are they doing each month?
How many warehouse lines do they have?
What is the total of their warehouse lines?
Are they reselling or issuing securities?
If they resell, to whom do they resell?
What are their compare scores/ratios?
What is the status of their buybacks?
How often do they securitize?
Have they had any delays in funding loans?
What are their turn times to fund your production?
If interest rates go up, which will slow down the re-fi business (in fact, many predict re-fi’s will decline this year anyway) what do we need to do to stay profitable?
Will we need to offer new products? If so, what are they?
Will we need new distribution methods? If so, what are they?
Is our quality control up to par so that we can avert buybacks and backlogs?
Should we be relying on third party providers so we can “trim down” in case of a slowdown?
If required capital levels go up dramatically, how do we get more money into the company?
Do we have ample insurance to protect us in the event of internal or external fraud?
Should we sell our business now while the environment is profitable? Should we bring in a partner so that we don’t have all our eggs in one basket?
Should we be doing more investigation on our banking clients?
Trees don’t grow through the clouds. Enjoy the spike we’ve been experiencing. But it never hurts to prepare for a rainy day.