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Client Testimonials
Access National Mortgage: A Capital Markets Cooperative Case Study
Issue
In 2003, Access National Mortgage, a subsidiary of Access National Bank, was experiencing a surge in refinance volume that presented a set of new challenges. At the time, Access National Bank held $250 million in assets, while the mortgage company was closing over $100 million a month in mortgages. The company was executing loans on a best-efforts delivery model to several secondary market investors, each of which had its own unique guidelines and requirements.
With approximately 700 loans per month in its pipeline, Access National Mortgage faced the challenge of originating and closing loans, getting them back, performing post-closing work and then shipping them off to one of multiple investors, all within a tight timeframe. From an operational standpoint, the company was beginning to suffer under the back-office stress of its best-efforts delivery model.
Solution
It became clear that in order to overcome these operational hurdles, Access National Mortgage would be much better served by moving to a mandatory execution model. Unfortunately, the company lacked the necessary resources and expertise to manage the policies, procedures and hedging necessary to achieve mandatory execution. The decision was made to partner with Capital Markets Cooperative (CMC) for its deep expertise in mandatory execution, demonstrated excellence and dedicated client services.
By shifting Access National Mortgage to a mandatory execution platform, CMC made it possible for the company to bring all loans from within a given time period into its shop, perform the necessary post-closing work and deliver them to the investors in bulk at one time. CMC also structured Access National Mortgage’s hedging strategies to meet the bank’s conservative management style – hedging was not looked to as a means of profit on its own, but rather as a margin protection device to protect the company from interest rate fluctuations in the market.
Results
Since aligning with CMC, Access National Mortgage has seen a distinct pricing advantage from mandatory execution – on the order of 40 basis points when the relationship began, to as high as 125 basis points in the recent past. The company has seen the operational efficiency of its back office increase exponentially as well.
In 2007, when Alt-A lending basically collapsed, Access National Mortgage found itself having to make crucial portfolio decisions in a matter of hours, rather than days. The key decisions made during that period – with the guidance of CMC – saved the bank hundreds of thousands of dollars in losses. Perhaps the greatest benefit has come from the working relationship with CMC itself. By aligning itself with the co-op, Access National Mortgage gained access to a staff with unmatched expertise and accessibility.
Carolina Bank: A Capital Markets Cooperative Case Study
Issue
As a locally owned community bank with a burgeoning wholesale lending division, Carolina Bank was acutely aware of the need to stay competitive in order to continue the growth it had enjoyed over the last several years. Not only was Carolina Bank facing competition from other banks but – more and more – it also found itself in direct competition with its own investor purchasers.
The deals the bank had been able to negotiate with certain investors – picking up additional basis points here and there – were not producing the margins necessary to allow Carolina Bank to price its products aggressively enough to compete effectively. It became clear the bank needed to take the next step to mandatory delivery and find a way to comprehensively increase its margins.
Unfortunately, Carolina Bank lacked the necessary staffing and secondary market expertise to make this transition on its own.
Solution
Signing with Capital Markets Cooperative (CMC), Carolina Bank was able to draw upon CMC’s broad secondary market expertise and dedicated staff of professionals to begin the process of moving toward mandatory delivery. At the same time, the “power of one” aspect of joining a cooperative would provide the bank with better deals on necessary services.
Every dollar saved being a dollar earned, Carolina Bank sought to increase its margins through lower costs, better execution and ultimately, through mandatory delivery. Its partnership with CMC made this goal possible.
Results
Even before they began their migration from best efforts to mandatory delivery, Carolina Bank began to experience substantial benefits from joining CMC. In addition to increasing its pricing margins on best efforts delivery, Carolina Bank immediately saw enough cost savings to justify the fees paid to CMC.
Through the power of its collective purchasing power, CMC has worked out cost saving deals with vendors covering all points of the lending process – from Fannie Mae’s Desktop Underwriter pricing, to fraud analysis, to flood certifications all the way to delivery of closing packages by shipping providers. With Carolina Bank doing roughly 400 loans a month, the savings on these services alone was enough to recoup CMC’s fee in a single month.
As it moves ahead with its plan to shift to a mandatory delivery platform in January 2010, thanks to CMC, Carolina Bank finds itself fully prepared to compete and reap the margin spreads that will come from that transition.
Cunningham & Company Mortgage Bankers: A Capital Markets Cooperative Case Study
Issue
An independent mortgage banking firm serving the North Carolina area for nearly two decades, Cunningham & Company understood that shifting from best efforts execution to mandatory delivery was key to increasing its revenue and helping to facilitate growth. In 2006, the firm was averaging approximately 150 loans per month in its origination pipeline and had performed the occasional mandatory execution, but lacked the internal resources and expertise to properly manage the hedging strategy necessary to make an overall shift from best efforts.
Outsourcing its secondary marketing functions seemed the best way forward for Cunningham & Company and there were any number of companies that could handle that functionality. What the firm really needed, was a partner that would bring substantial expertise in secondary market functions and help it maximize its potential revenue on every loan.
Solution
After surveying the options in the marketplace, it became clear that partnering with Capital Markets Cooperative (CMC) represented the best possible strategy. Not only did CMC have deep expertise in mandatory execution, demostrated excellence and dedicated client services, but CMC was also able to negotiate preferential pricing with investors.
Immediately, CMC worked with Cunningham & Company's executive amangement to develop a secondary marketing strategy and define the company's reisk parameters. CMC then built out the proper controls, policies and procedures to position the company for mandatory execution, establishing an interface for the real time electronic transfer of loan data between the two companies. In the way, CMC was able to help Cunningham & Company minimize the risk of any market movement throughout a given day.
In a short period of time Cunningham & Company was delivering loans on a mandatory basis and reaping the benefits of that shift.
Results
Since aligning with CMC, Cunningham & Company has seen a distinct pricing advantage from mandatory execution - on the order of 50 basis points per loan. Partly as a result of better execution and wider profit margins, the company was able to pursue its long-term strategy of establishing a wholesale channel and expanding its lending operations.
Cunningham & Company is now able to compete much more effectively with bank owned mortgage companies and the mandatory pricing power has allowed it to expand into new markets and make an instant presence.
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