The intent of the following article is to provide an overview of mortgage industry loan funding and demonstrate methods that mortgage industry investors use to track and report mortgage loan funding quality statistics for their sellers.
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Sellers, based on investors’ guidelines, make a lending decision and fund the mortgage loan. The lender may use their own money, a warehouse line of credit or an investor’s money to fund the loan. A lender’s efficiency at funding a loan is quantifiable and has a direct impact on their investor’s profit margin in the funding and servicing of the loan.
Specifically, in cases where an investor’s money is used to fund the loan the investor’s profitability is directly impacted by a seller’s funding quality and is measured in per loan origination and service costs. The less an investor spends on origination (sales, marketing and funding) and servicing (setup and maintenance) the more profitable they are. As a result, sellers that correctly register and deliver loans are more profitable for an investor because of the lower loan funding, setup and maintenance costs.
In determining a seller’s funding quality, investors will track and report statistics for loans delivered for purchase by the seller. Examples of values that an investor might track and report are:
- Average Number of Days to Cure. When a loan package is delivered for funding by a seller it may be missing documents that are required to fund the loan. Typically, a processor from the investors funding department will notify the seller that required documentation is missing and enter the details of the missing documentation into a funding tracking database. The “Number of Days to Cure” is the number of days from when the seller is notified until the seller delivers the missing documentation to the investor. A loan in this state is referred to as being on exception. The loan cannot be funded until all of the exceptions are cleared. The “Average Number of Days to Cure” is the Weighted Average for all loans with a “Number of Days to Cure” value for the reporting period.
- No Exceptions Percentage. This is the percentage of loans that are funded for a seller, in the reporting period, without any reported exceptions. This is also known as the “First Time Approval Rate Percentage”.
- Suspended Percentage. The “Suspended Percentage” is the percentage of loans for which the seller cannot, or chooses not to, deliver the required documentation within the required time frame to fund the loan.
- Rejected Percentage. The “Rejected Percentage” is the percentage of loans for which the investor determines that the loan does not meet requirements for funding.
The “Reporting Funding Quality Statistics” section of this article details steps for creating a report that an investor might use to track and report funding quality statistics for loans that a seller has delivered to the investor. A seller with a high percentage of funding quality issues could warrant a caution or corrective action letter from the investor. The Sample Seller Funding Quality Report in this article can be used as a model for a stand alone report or incorporated into a comprehensive Seller Scorecard report.
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