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Correspondent-investor relationships revolve around price, new survey shows

National Mortgage Professional
Mar 24, 2014

Correspondent-investor relationships revolve around price, new survey showsCampbell CommunicationsCorrespondent lending, Alt-A/Jumbo loans, underwriting investors

When correspondent lenders select a secondary market investor, the most important factor by far is price. Second is a broad range of loan programs for their customers, particularly for nonconforming mortgages.
These are some of the major findings of a new survey conducted by Campbell Communications, a Washington, D.C.-based research firm. The survey report, titled "Investor Strategies in the Correspondent Market: How Correspondent Lenders View Investor Relationships," was released in late May.
Among the topics covered in the new survey are: reasons why correspondents use private firm investors instead of selling prime conforming mortgages directly to Fannie Mae and Freddie Mac; the number of investors used by the typical correspondent; reasons why correspondents try a new investor; and whether correspondent lenders prefer to get their warehouse lines from an investor or another third party.
The survey was conducted in April and the responses of more than 10 percent of the nation's estimated 3,000 correspondent lenders were analyzed. The response rate provided an error margin of five percent and a confidence level of 95 percent. The survey was sponsored by Inside Mortgage Finance," a leading industry newsletter.
The demographics of survey respondents covered several distinct categories of correspondent lenders, including independent mortgage companies, community banks, regional banks and super-regional banks. The survey also segregated respondents by annual correspondent production, including a substantial number of lenders with more than $1 billion in annual correspondent production.

"The respondent demographics allow us to segment the correspondent lending market by one of the most natural variables—size," noted Tom Popik, principal of Geosegment Systems and designer of the survey instrument. "Based on the survey results, we now know that smaller correspondents are less price-sensitive and that large correspondents are much more price sensitive. This segmentation gives investor sales forces the opportunity to modify their sales message, depending on the size of the account. For smaller accounts, the data says that emphasizing the breadth of product line, combined with acceptable pricing, might be the most effective sales message, while the best message at large accounts could be excellent pricing combined with ease of loan delivery."

The survey also asked lenders to rate their satisfaction with specific investors on 39 factors, covering areas such as pricing adjustments, account executive service, turn times, delegating underwriting, loan delivery requirements, scenario desks and loan buybacks.

"While price is certainly the most important factor in correspondent-investor relationships," said John Campbell, president of Campbell Communications, "the survey results also contain insights about other services investors can use to differentiate themselves. For example, for prime conforming investors, correspondents are most satisfied in their ability to determine and lock pricing online. For alt-A/jumbo investors, correspondents are most satisfied with a 'broad range of loan programs.'"

Survey respondents were very satisfied with automated underwriting provided by prime conforming investors, rating it 7.93 out of a possible 10. In contrast, respondents were much less satisfied with automated underwriting provided by alt-A/jumbo investors, rating it only 6.27.
The survey highlighted why many correspondents prefer investors other than Fannie Mae and Freddie Mac, even for prime conforming loans—better pricing and Servicing Released Premiums (SRPs), for the most part. However, a "best efforts" delivery option was also a significant factor for many correspondent lenders in selecting an investor over Fannie or Freddie, with 36 percent of depository institutions and 22 percent of independent mortgage companies selecting this as "also very important."
For alt-A/jumbo loans, correspondents maintain a wide variety of reasons why they prefer selling closed mortgages to an investor instead of simply brokering loans for a wholesale lender. While "better pricing and margins" was rated most important, "more control of underwriting" was the second most important factor.

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Mar 24, 2014