THIS MORNINGS QUICK LOOK
- TOUR DE MTG FINANCE – MSR Profits and Losses
- PRODUCT HIGHLIGHT – Freddie Vs Fannie
- MARKETING – Selling The Right Way
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Tour De Mortgage Finance Learn Something New Everyday About Your Industry
MSR PROFITS & LOSSES
Monday I covered what an MSR is and how everyone gets paid and Tuesday I explained how lenders value these MSRs. Today is my final article on MSRs and will explain how lenders can increase or decrease their financials based on what markets are doing.
Early loan payoffs as well as any loan that does not stay on our books impacts lenders pockets pretty heavily. That is why you see early loan payoff fees as well as lenders trying to protect their pipeline from other lenders as well as loan officers refinancing their borrowers : )
It is an entire secondary system of profits and revenues. Each lender has a score card the same as you do that shows our servicing history and how long we keep loans on the books for our investors compared to other lenders. It is a fairly big deal and one we rarely talk about because honestly most of you do not care. But I think it is important to understand as part of the industry.
Flagstar currently services 1.4 Million loans for a total of 360 Billion dollars in loans. Some of these we also sub-service which means everything looks like Flagstar owns the servicing rights but in reality someone else does and we service the loans for them. This would be a lesser fee but when we do this we do not have the same capital requirements needed as every loan we service we must have a certain amount of capital in reserves to cover for losses.
But for todays article lets assume we are getting the .25% of interest from these 360 Billion in loans. That means we are taking in .0025 / 12 x 360B = 75 Million dollars per month in servicing revenue. Rest assured it cost a lot to service 1.4M loans so that is not profit. That is revenue.
It is next to impossible to value what our entire servicing portfolio is valued at because each individual loan has it’s own estimated longevity before it will be paid off.
For example, many if not all lenders send out there quarterly results showing their net income. Some lenders who do not have fabulous numbers to report may show a large profit when in reality they did not actually make that much if any money. What they did was write up there MSR values but how do they do that?
It is quite simple. The total value of a servicers MSRs is based on the # of loans they have x the estimated longevity it will be on the books x the servicing fee. Loans from 2020 and 2021 that are being serviced this year caused a large increase in income and to balance sheets for lenders 1st, 2nd and 3rd quarter this year. Why? Well, as rates increased the likelihood of borrowers paying off their loans decreased which means the length of time servicers will make servicing income has increased and because the value of an individual loan increased the total value of MSRs increased on the balance sheet which leads to a higher profit.
Now vice versa, what about the loans that have originated over the last 3 months. If we put them at a 60 month servicing timeline it is highly unlikely going to make it that long if rates decline. So the loans originated and serviced this past year as rates go down the value of those servicing values decrease because you will likely be refinancing them as soon as it is feasible.
Bottom line is a lot of the reported profits for lenders this year was in servicing values. Go google your favorite lender and type Q2 or Q3 Financials with there name if publicly traded. Then look to see how much of it was due to increase in fair value of MSRs and you will find a rather large number in that spot.
Pretty cool huh. Now you know.
Product & Guideline Highlight Knowledge That Gives You An Edge Over Your Competition
FREDDIE VS FANNIE
I love knowing what Fannie does vs what Freddie allows. Knowing these differences and having quick access to them is a key to being successful in your business.
Attached you are going to find a very detailed listing of the differences between Fannie and Freddie listed by topics and then it gives the differences in the guidelines.
My suggestion is to download this document and keep it on your desktop to use as a quick reference guide.
As always, I suggest that you double check before committing to a loan and make sure any documents you have are dated so you know the as of date for the guidelines. This is recent so you are good for a little bit but the agencies have constant small changes to their guidelines.
CLICK LINK TO DOWNLOAD DOCUMENT
Jackism of the Day Truths and Thoughts that make you go hmmm
SELLING THE RIGHT WAY
I love selling, I love prospecting, I love doing what I do and have done for a very long time. But being identified as a salesman usually comes along with some of the bad experiences people have had with sales people. Hence the reason not one of you have a title with sales in your signature. HA! Look at mine below. I am VP of Sales. I guess one of us does : )
Selling is not actually about trying to sell someone on anything. Selling is about having a person that wants to do something they have decided they want to do and then our role is to help them achieve what they themselves set out to do.
Selling is not about getting anything for yourself. Selling is about giving yourself to someone who has a need. Think about it like this. When you are helping someone achieve their goal you are giving your time, your attention to what they need, your counsel with all the knowledge and experience you have and your desire to see them succeed in what they want to accomplish. You are giving a lot whenever you work with a client.
The traditional concept of sales is to have a process and pipeline system that brings someone from being introduced to you to the final sale. It is based on you being in complete control of the sales cycle. The issue is that people do not want to be controlled and likewise most people do not want to control other people. Control is a tough process to pull off consistently.
What if the sales process looked more like you create something that you have which others find value in, you then interact with that person and you impact their life in a positive way by giving them yourself, you then begin to continue to impact others beyond this one individual and you build a network of folks who find value in what you have, you are real and genuine and truly are after what is best for the person and you stay open to both yours and their options to a great solution that fits their needs. No agenda, but just doing what is right.
What truly makes sales people great at sales is that they are genuinely engaged and truly care about the person that is trying to achieve something for themselves and they add value by being part of the process. It is about doing the right thing and adding good will to every situation.
The best way to have great people skills is to be a real person to your clients. If you genuinely care about others first and their end results then you can be a great sales person. If you can understand humanity then you can understand sales.
Stop “Making” a living at sales as that means you are just getting by and start changing lives by adding value which will not only enrich the lives of those you serve but it will enrich yours as well.
The goal is not to make a living. The goal is to live a great life.
This information I learned from one of my favorite books. It is called the Go Giver and a follow up book is Go Givers Sell More. Read the Go Giver first though. You won’t regret it.
