5 Things to Know About Mandatory Loan Sale

Whenever a mortgage banker wants to sell their loans on the secondary market, they are often presented with the best efforts mortgage lock. But the alternative loan sale method through a mandatory mortgage lock is also highly recommended by many financial experts.

But before you can move forward with a mandatory loan sale, it is important to learn the basics of this mechanism. This ensures that you are aware of the fundamentals of mandatory mortgage lock and all that it brings to the table.

To help you through the process, here are 5 things you need to know about mandatory loan sales.

1. It Delivers Increased Profits

Mortgage lenders are popular among potential homebuyers for delivering the utmost accessibility to dream home listings. But even as they issue loan after loan, they have to move mountains in order to make significant profits. If you have been working as a mortgage banker for a while, you may identify with this completely.

That’s where learning about the mandatory loan delivery system meaning can pay off. Since the mandatory mortgage lock offers more profits than best efforts mortgage lock, it can prove to be a more viable approach for your operations.

2. It Carries a Stipulation for a Pair-off Fee

Apart from profits, the mandatory loan sale stands out due to its conditional pair-off fee. In order to reap the rewards of this loan mechanism, the seller has to agree that they would either deliver the loan to the buyer on time or be subjected to a pair-off fee.

These conditions are simple enough, but they are still critical to know about due to their influence on the overall transaction. This is especially true after the post-lockdown real estate boost noticed in many areas that gives you plenty of opportunities to initiate mandatory loan sales.

3. It Requires You to Establish Risk-Management

With higher revenues, come higher risks. This is especially true in the case of a mandatory mortgage lock, which bears increased profits against the condition of potential pair-off fee. Whether you are lending to first-time homebuyers or those looking for mortgage refinancing, you need to effectively manage your risk when selling loans in the secondary market.

Making mandatory commitments exclusively on completed loans and hedging your pipeline with to-be-announced (TBA) mortgage-backed securities are great ways to prevent negative outcomes. By keeping all the information on these policies organized in cloud-based storage that’s accessible to everyone on your team, you can stay on top of which mortgages to leverage as a mandatory loan sale. Make sure to give the team a run-down on how your online document storage system works and where to find the info they need.

4. It Delivers Better Profits Among Increased Competition

A mandatory loan sale already brings increased profits to the table as compared to a best efforts mortgage lock. But you can drive up this profitability even further. By default, these loans can provide you with better pricing if more than one investor is vying for them in the secondary mortgage market.

Similar to how homebuyers looking for a mansion still want discounted pricing, investors in the secondary market do not turn away from a good deal. If you offer your mandatory loan sale as a lucrative offer to multiple investors, you can increase your chances of getting higher pricing.

5. It Asks for Careful Planning

Making a mandatory loan sale is more about planning than following a whim. You need to ensure that you are crafting your moves at least a few months ahead of their execution. Whether you are making digital mind maps or writing everything out on paper, taking some time to strategize goes a long way.

Keeping this in mind, make sure to study your existing loans as well as your pipeline closely. Balance the pros and cons of mandatory loan sales against them, and only move forward after minimizing your risks. This makes sure that you are getting the most out of mandatory mortgage locks.

By making notes of these aspects, you can easily benefit from your mandatory loan sales. This helps you make higher profits on your loans while steering clear of possible risks.

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