In the world of mortgage loans, a mortgage pipeline plays a critical role. Since it refers to loans that are yet to be approved but have their interest rates locked in, this pipeline can either help or challenge lenders with interest rate fluctuations that take place after the fact.
While working as a mortgage lender or banker, your mortgage pipeline can make or break the viability of your operations. If you don’t manage your risk or fail to leverage available opportunities, your business can run into losses and issues that could have been prevented with some forethought.
To help you navigate the tricky waters of this financial mechanism, here are 4 things to know about handling a mortgage pipeline.
1. You Have to Be Aware of Your Risk
As mentioned above, any loans in the mortgage pipelines are unapproved. But they have their mortgage interest rates locked in due to a borrower agreement.
Between the time that it takes to approve these loans, any changes in the interest rate become the lender’s responsibility to bear. This means that even when the market’s interest rate increases, your commitment as a lender will apply to the lower interest rates that were locked in beforehand.
This can expose you to various risks and force you to take on expenses that would otherwise be avoidable. To make sure that you steer clear of these risks, make it a point to monitor ongoing transactions and related activities on a consistent basis.
2. You Need to Find Ways to Prevent Losses
Regardless of the amount of loans you have in your mortgage pipeline, you need to have active measures in place to prevent losses from interest rate fluctuations or non-fulfilled loans. By learning how to choose a mortgage advisor, you can easily achieve this feat through experienced professionals with a specific skill set.
These mortgage advisors can help you hedge your pipeline for optimal risk-management and increased profitability. By using detailed analysis, projected estimations, and targeted transactions, these professionals can help you reduce your risks and handle your ongoing commitments.
Following the advice of these professionals can go a long way towards helping you prevent your losses.
3. You Should Leverage the Latest Technology
Whether you are trying to hedge your pipeline with minimal intervention or detailed consultation with a hedge advisor, it’s important to leverage the latest technology. This provides you with a certain precision that doesn’t come from manual analysis.
Similar to borrowers finding a good real estate agent to fulfill their demands, lenders can start discovering mortgage advisors to cater to their needs. Contact an advisor who is familiar with all necessary tech tools of the field who can help you with accurate research and projected outcomes. Tech tools allow you to complete these steps as swiftly as possible, helping you to streamline your mortgage pipeline.
4. You Have to Consider Different Avenues
When you are trying to manage the risks and leverage the benefits of loans with locked interest rates, you need to remember that the borrower is in no obligation to accept the loan even after you fulfill your commitment.
Recall that borrowers are not obligated to accept your offer. In many cases, they can change their mind up until the last minute. If a borrower refuses to move forward with your mortgage offer, it can cause you to face pipeline fallout and bring you face to face with major risks.
By making sure that you are considering these possibilities, you can protect your ongoing operations through different avenues. For instance, you can tap into to-be-announced (TBA) mortgage-backed securities (MBS) to minimize your risks. At first glance, this is not so different from using a rainy day fund as an individual. But this process comes with various intricacies. With that being said, it still works in your favor.
Keeping these factors in mind lets you handle your mortgage pipeline with minimal issues. Most importantly, it will help you increase your profit while keeping risks at bay.