Like every good mortgage lender, you strive to improve the profitability of your business. You measure the normal costs incurred in your loan sale pipeline − but have you set up your profitability model to incorporate the hidden costs that you may not typically evaluate?

Including hidden costs in your model positions you to withstand uncertain times characterized by market volatility.

You can look at these costs as current, or costs that are more obvious and easier to calculate, like hedging and overhead; and potential, or costs that are harder to anticipate and are often omitted from the profitability equation, like selling to a new investor.

How can you quantify these costs so you can improve your computation of best execution and subsequent loan sale profitability?

Freddie Mac and MCT partnered to develop "Non-Price Considerations in Your Best Execution Analysis," a white paper that helps you quantify the costs of selling loans on the secondary market. The paper covers the steps in reviewing potential or hidden costs to ensure you’re maintaining optimal performance:

  • Operational efficiencies to consider when choosing a buyer − The first step in reviewing the potential or hidden costs of your best execution analysis is the review of your operational processes and the technology you use to price, commit and deliver those loans.
  • Identifying hidden costs of new investor approvals – Including technology, staffing requirements, set up costs etc.
  • Seller relationship and optimizing loan sale processes − Will a new investor offer you a better price? How do customer service and additional value add come into play?

The white paper examines the considerations for operational efficiencies and the economic impact of those operational efficiencies, as well as the importance of your relationship with your buyers contributing to your profitability. Indeed, buyer relationships became increasingly important as capacity issues affected certain buyers during the market volatility of 2020, which was exacerbated by the pandemic.