Streamline Your Document Processes with Pipeline Safety Management Systems for Mortgage

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Now, 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. Now somebody will say, "Well, the servicers need to refinance all these underwater mortgages. We need to refinance all the underwater mortgages." And, somebody, -- in order to refinance a mortgage, has to bring money to a settlement table. That's this funding process. And servicers haven't done that, they may have no procedures in place, they may not know how to do that. So 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 this is -- I think that one of the ways in which policymakers can be pretty stupid when they try to design new processes for the mortgage industry is that 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. You can't go to settlement and have the mortgage company not deliver a check. That's a process of actually getting funds for the mortgage. And the pipeline management function is, what I alluded to this earlier, that, -- at some point, -- the borrower wants a commitment, you know. "This is going to be my rate, these are going to be my points," and so on. "I need to know what my mortgage is." 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. You can take out an option -- or an actual commitment, but the lender -- has to get some something that says -- that they'll actually have money to bring to the settlement table. But -- somewhere along the way, there could be fallout, there could be fallout, the loan could be denied. You make the commitment, perhaps, before you've assembled all the loan file. And, as you assemble the loan file, you find out more. This borrower really doesn't qualify, so we have to deny the loan, or the borrower walks away. So the borrower says, "Hmm, you know? I don't really want to buy that house." Or, "Yes, I want a loan, but I think I want from somebody else." "You know, rates have fallen and I'm not interested in that loan anymore." So those are the sources of fallout, and so pipeline management refers to -- basically dealing with fallout. That is, -- 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 obtained an optional commitment. So it's kind of somebody else's problem. So an optional commitment would mean the lender just says, "Nope." "Guess what, 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. Or they do a get a firm commitment and then they have to -- then they have to work their way out of that firm commitment if there's fallout. So that's a pipeline management function. It's actually a financially somewhat difficult function because it's hard to predict -- when the fallout will occur, and, also, there's a tendency for fallout to occur when you least want it. That is, interest rates have declined a little bit, and 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. But 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 -- that is going on in the background in the mortgage process.