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Strategies for Managing Through Tough Times – Part 1

In the second session of the day at IMN’s Mortgage Servicing Rights Forum executives from lending companies talked about their MSR and lending strategies coming off last year’s low origination environment.

Cutting costs to protect the bottom line was a natural strategy. But because several had already moved to a variable cost model a lot of the processing and other costs went away naturally. The other common thread was that they all turned to data, in different ways, to better manage their business. Aaron Samples, CEO of First Guaranty Mortgage Corp, commented “We have become very discipline in terms of how we measure business. We have gotten granular as we measure all the way down to loan officer production and account production and the volumes we were doing relative to costs. We want to be disciplined but we want to be opportunistic as well. Our plan is to lay out the plan that we implemented in 2018.”

Chris Mayer, CEO, Longbridge Financial; Kevin Brungardt, CEO Roundpoint Mortgage Servicing Corp, Aaron Samples, CEO First Guaranty Mortgage Corp; Lee Smith, EVP/COO Flagstar Bank.

“We didn’t chase the prize or do irrational things” said Lee Smith, EVP and COO of Flagstar Bank.  We focused on loan performance to make sure we have good targets in terms of volume and profitability, we wanted to make sure we had producers that were producing. Finally, in terms of positioning us for where we are right now, we were fairly successful with our teams and LO’s in 2019. Certain teams from other companies were disenchanted and we were successful in bringing some performing teams on board.”

For Roundpoint Mortgage Servicing Corp the rise in interest rates last year caused a lot of operating and liquidity needs for their counterparties. To address this last year they started having regular  conferences with them. As Kevin Brungardt, the CEO, said “ As a result of that experience we started building out dashboards with metrics including products and funding, default metrics, prepaid risk and counterparty risks. As a liquidity provider though, you have to be thoughtful. If you cut off liquidity you, in a sense, accelerate counter-party risk. We only do business  with counterparties that have lived through a full cycle.”

The reverse mortgage business took many of the same hits are the overall mortgage business last year, but for different reasons. Rates weren’t the issue; their borrowers aren’t very rate sensitive. In October 2017 the U.S. Department of Housing and Urban Development, which oversees the HECM program, issued changes to strop the programs perceived drain on the Federal Housing Administration’s Mutual Mortgage Insurance Fund. These changes altered the underwriting criteria, limiting the amount of equity a borrow could access and making it harder to qualify. Consequently, they significantly reduced the volume for reverse mortgage lenders like Longbridge Financial. “We focused on efficiency in originating and built out the wholesale business and worked with people who were relatively new to reverse mortgages.” Said CEO Chris Mayer. “We actually saw growth over the last 12 months. People are moving away from government programs. We have one proprietary program and are rolling out more. We, and the industry, were tied to the FHA and we are now breaking out of that.”

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