SPECIAL SECTION: MARKET UPDATES
Secondary Marketing 101: Factors Impacting Mortgage Pricing Dynamic between primary and secondary spread is playing out BY JASON LEE | SPECIAL TO NATIONAL MORTGAGE PROFESSIONAL
I
n my role as executive vice president and director of capital markets at Flagstar Bank, I’m responsible for all secondary marketing, including marketing of residential mortgage-backed securities, pricing, margin management, and loan delivery. I’ve been in the industry for 23 years, starting out in secondary marketing in the Detroit area right out of college and then working with several major lenders across the country— always in secondary marketing. I’ve learned a lot along the way that’s helped prepare me for the curve balls that come with the territory. With the uncertainty brought on by COVID-19, followed by the Federal Reserve’s jolt to the market for mortgagebacked securities, then the CARES Act and the confusion about forbearance, followed by the GSE pricing hits, I welcome the opportunity to provide some insight into the various factors that have affected Flagstar’s way of pricing in this topsy-turvy environment we’re operating in.
Jason Lee is executive vice president,
comes pre-packaged head of secondary marketing & capital market operations, for with costs for things Flagstar Bank. like loan counseling, loan modifications, servicing, and foreclosure, if it comes to that. As a lender, Flagstar looks for the sweet spot where we can continue to help our partners and our loan advisors and still make sure we’re protecting the bank. Here’s where our longevity in the industry, our liquidity as a bank, and our long history of focusing on relationships come into play.
SERVICING VALUATION
The value of servicing, which is the fee that an institution gets paid to administer a loan, also affects pricing. When a consumer makes a payment, the servicer processes the payment, applies it to the loan, tracks the loan and, if the FORBEARANCE loan is escrowed, pays the taxes and insurance. There is a First, forbearance is expensive. Right out of the box, fee built into a mortgage payment for this service. Fannie and Freddie bumped up the pricing on loans in The value of that fee is basically a forward cash flow, forbearance. We’re talking 500 to 700 basis points a loan. which investors purchase. A wild card here is the number That created a lot of heartburn and uncertainty about of years servicing is expected to be in effect. Investors future cash flow. put a value on the cash flow of X amount of years of that So, lenders tightened credit because of nervousness money coming in. around defaults and possible foreclosure issues down So, they might figure, let’s say, the average 30-year the line. Many lenders dropped products and increased mortgage is really around for six years. When there’s fear, minimum FICO scores and down-payment minimums for uncertainty, or if rates drop, and there’s a high propensity certain loans in order to forestall defaults. Forbearance for prepays or customers are incented to refinance to a lower rate, that cash flow could be disrupted. In the mortgage industry, we’re looking at a virtual Investors get nervous because of the high level of uncertainty around the assembly line for home loans. We have only so much
capacity to process loans. CONTINUED ON PAGE 39
26
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
