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all right continuing our tour of the mortgage process we're going to talk about funding and pipeline management the reason I spend time on things like this is that these are the sorts of things that people who enact policies and expect them to work tend to forget about you know so somebody will say well the servicers need to refinance all these underwater mortgages we need to we need to refinance all the underwater mortgages and somebody in order to refinance mortgage has to bring money to a settlement table uh that's this you know funding process and servicers haven't done that they may have no procedures in place they may not know how to do that they so they they don't have a funding and pipeline management process and you assume that they've got it when you tell them that they're supposed to refinance people's underwater mortgages so sorry for the rant but um this this is I I think that one of the ways in which policy makers can be pretty stupid when they uh try to design new processes for the mortgage Industries they kind of forget what the old processes are where they're done how they're done why they're important so the thing about funding and pipeline management that's important is at some point money has to make it to the settlement table uh you can't go to settlement and have the mortgage company not deliver a check um so um that's a process of actually bring getting funds for the mortgage um the and the pipeline management function is what I alluded to this earlier that you know at some point the borrower wants a commitment you know this is going to be my rate these are going to be my points so on you know I need need to know what my mortgage is um sometime later comes settlement and in the middle there could come Fallout so it's at this commitment point that the lender really has to get some reliable source of funds so he has to uh you can you can take out an option or a uh or an actual commitment but the lender has to get some uh something that says that they that they'll have uh they'll actually have money to bring to the settlement table um but uh somewhere along the way there could be Fallout there could be Fallout the loan could be denied you know you in the proc you you make the commitment perhaps before you've assembled all the loan file and as you assemble the loan file you find out oh this borrower really doesn't qualify so we have to deny the loan or the borrower walks away so the borrower says you know I don't really want to buy that house or yes I want a loan but I think I want it from somebody else you know I you know rates of fall and I'm not interested in that loan anymore so um yeah so those are the sources of Fallout and so pipeline management refers to dealing with basically dealing with Fallout that is when the um when the lender the mortgage originator obtains a source of funds that they intend to use at settlement and then they have to deal with Fallout now some of these things maybe they obtain an optional commitment so it's kind of somebody else's problem you so an optional commitment would mean the lender just says NOP guess what we're not uh we I don't need that money presumably they have to pay some kind of fee to get that commitment or to get out of it um or they get do a get a firm commitment and then they have to uh then they have to get work their way out of that firm commitment if there's Fallout so that's a pipeline management function uh it's actually a financially somewhat difficult function because it's hard to predict uh you know when when the Fallout will occur and also there's a tendency for Fallout to occur when you least want it that is uh interest rates have declined a little bit and uh you would love to sell that loan you could maybe sell it at a slightly higher profit than what you thought when you made your commitment uh but you get that's exactly when you get hit with Fallout so it's kind of a tricky interesting problem and it's just something to be aware of uh that that that is going on in the background in the uh mortgage process