Why Bankers Don’t Disclose SRP - Part Two
Filed under: SRP, Warehouse Line Lending, YSP — admin @ 9:00 am
Continued from Tuesday … read part one here.
For the purposes of this blog, we won’t discuss the differences in flow, mandatory, or bulk sales and their relevance to determining SRP. We will stick to the fundamentals of “retail” comparison. If the argument is disclosure of SRP, it should be easier to focus on comparing those two types of transactions in their retail sense.
As a correspondent banker, the assumption by many brokers is that there is the same guarantee of income as on a brokered transaction. However, that is just not the case. Previously, we left the broker’s responsibility at the Final CTC Approval. This is actually where the banker’s responsibility really begins. Once they use their line to fund the loan, they usually have a window of 30-90 days to have a final investor purchase that loan from them. The warehouse line is a short term line of credit. The banker is required to pay the per diem cost of using that money until their investor purchases that loan.
The interesting part is that the SRP is really hypothetical until the loan is actually purchased. As a banker, you do not realize SRP income until it is a given loan is purchased and the banker has no guarantee that this will occur. In the current climate, innumerable bankers have gotten caught with loans on their lines committed to investors that are no longer in business or purchasing loans. To add further complexity, sometimes these loans where niche products that were only being purchased by one investor. To be plain spoken, when the investor buying the niche product went away so did the opportunity to sell and earn an SRP. Therefore, it is clear to see that the SRP is meaningless until the investor actually purchases the loan which makes it difficult to disclose in contrast to the YSP which is paid out at the table.
To illustrate further, let’s say a banker locks a loan and close it using ABC Investor’s guidelines. ABC Investor then up and decides to close its Correspondent Lending Purchasing Division? The banker’s SRP was based upon their registration with ABC investor. This registration represented a best estimate of the sales prices for the whole loan at a given note rate. However now that ABC Investor has closed, the registration now has no real value. The investor didn’t fund the loan, the banker’s warehouse line did. The banker still holds the loan which continues to accrue interest on the line. In addition the unpurchased loan also restricts the banker’s liquidity position to fund additional loans. The banker must now find another investor that can make the purchase. The registration with the new purchasing investor will carry a different SRP.
The lock/registration obtained by a banker, which would determine SRP, isn’t a commitment to purchase or fund a loan like the lock obtained by a broker. It is just a commitment to pay x amount on the day that they purchase the loan at x rate if after review the loan meets all their purchasing requirements.
As a broker, if a lender goes out of business, they just don’t fund the loan. The broker is then required to find another lender and has the opportunity to renegotiate the rate with the borrower if pricing changes. However, as a banker, the commitment to the borrower on the rate was set the day of closing and because you funded the loan, you own it… and cannot renegotiate pricing.
To sum it up, in the broker world if you have a Final CTC Approval and a lock you get paid at the table and for the most part your responsibility ends. The YSP is guaranteed and easily disclosed.
For the banker on the other hand, payment does not take place upon funding at the table. They get paid when the “whole” loan is sold and SRP is not guaranteed until the money is in the bank making it impractical to disclose with any kind of accuracy.
Stumble it!