The intent of the following article is to document and demonstrate methods that mortgage industry investors use to track and report mortgage loan Early Payoff a.k.a. Churning, Prepayment or Borrower Runoff statistics for loans in their servicing portfolio.
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In the Mortgage Industry, Early Payoff a.k.a. as “churning”, “prepayment” or “borrower runoff” is the process whereby borrowers refinance their current mortgage for a better offer with a different lender. Surprisingly, many mortgage industry investors are unaware how much early payoffs are costing them, despite the fact that the practice has increased at an alarming rate. Most investors are much more focused on gaining new business – a process that demands the promotion of more early payoff mortgage loan products.
Early Payoffs represent an increasingly expensive challenge to lenders, as most investors will require their sellers to repay any premiums for loans with an early payoff. Investors have a break-even point, typically 180 to 360 days, for costs associated with the acquisition and servicing of a new loan. Loans that payoff or refinance to a different investor prior to this break-even point is a loss for the investor. Technology advances have made it easier for investors to identify sellers and borrowers engaging in a high percentage of early payoff practices.
The “Reporting Early Payoff Statistics” section of this article details steps for creating a report that an investor might use to track and report a seller’s early payoff statistics. A high percentage of early payoffs from a single seller could represent a significant risk to the investor. The Sample Early Payoff 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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