As published in Scotsman Guide's Residential Edition, June 2006.
Many mortgage lenders view third-party originators (TPOs) -- or wholesale accounts -- as a double-edged sword. As TPOs, mortgage brokers should understand how lenders view them and what concerns lenders have about their relationships.
When a lender looks at its TPO relationships, it can see that they are a valuable growth venue. Many, however, also view these relationships as a dangerous endeavor. Successful mortgage lenders understand that if they approach the relationship with professional skepticism and they use necessary quality-control tools to minimize risks, TPOs are an indispensable part of the production mix.
The pros of TPOs
On the positive side, loan-origination costs from TPOs are significantly lower for lenders. This is because the loans typically already have been processed, and a significant part of the lead work is completed before reaching the lender. Sophisticated TPOs also may have performed some underwriting of the loan files.
At this point, the key to properly control risks is in the lender's own underwriting and quality-control functions. For a prompt and clean sale, the lender must carefully underwrite each file, clearly identify all conditions and ensure that the file, before closing, meets the criteria established by the takeout investor.
For a lender's business collaboration with its TPO partners to thrive, its account executives should visit each account at least twice a month and visit with top producers weekly. This requires close monitoring on the part of the lender because account executives may fall back on their success and not be as aggressive as they should be to increase business.
Ultimately, account executives' knowledge and follow-through will be the key ingredients to their success with TPOs. Understanding the available loan products and what will facilitate loan approval is of paramount importance.
The second part of the success lies with account executives seeing their files through to closing. If there are conditions, lenders should walk them through, inquire about delays and pursue a response from the broker as to where the required documents are. The goal for both parties is to get the file closed.
On the other hand, many lenders are concerned about their lack of control of origination and processing.
If lenders are unfamiliar with a particular loan officer, they may be afraid that the loan officer may not apply the same standards for accuracy and fraud prevention as they would.
The issue is magnified because TPOs are paid at the closing table. If a lender decides to close a loan with pending conditions to be cleared, it often has given up its leverage.
For many lenders, the litmus test takes place when a loan cannot be sold or when the investor asks the lender to repurchase the loan. Lenders generally consider the probabilities that the TPO will step in and help. The lender expects the TPO to honor its commitment and repurchase the loan. At the least, the lender will expect the TPO to try to help clear conditions, if any.
Most lenders ask their TPO partners to complete agreements within which the TPOs accept responsibility and commit to make the lender whole. This ensures that the lender does not face a loss when problems arise. These broker packages must be implemented before the relationship begins for the lender to collect from the TPO.
It is also important to establish that any losses associated with the lender-TPO relationship will be equally borne by the lender's account executive. Financial accountability on both sides is vital to ensure account executives pay close attention to the relationship.
Manuel V. Sicre is
the president and CEO of BlueTrust Capital LLC in Miami. Blue-Trust is a startup mortgage lender that received its charter in March 2005 and specializes in the underserved Hispanic market. Sicre has 31 years of experience in the banking industry and can be reached at (786) 206-6600 or firstname.lastname@example.org.