Sierra Pacific Mortgage



Correspondent Glossary of Terms

Allocated Line- This features an unconditional take out agreement between the investor and the warehouse bank. By entering into an unconditional take out agreement, the investor provides a guarantee to the warehouse lender to purchase all loans within a set number of days after funding, regardless of any issues discovered after closing a loan. The investor manages this risk by controlling the underwriting, doc prep, closing and funding of the loan.  Additionally, the investor must approve any lender for participation in its Allocated Line.

Bailee Letter- Bailee letter- Accompanies the original note in the collateral package sent by the warehouse bank to the investor. Requires the investor to hold the note in trust on behalf of the warehouse bank until the investor either purchases the loan (wiring funds pursuant to the wire instructions provided in the Bailee letter) or returns the note to the warehouse bank.

Best Efforts Mortgage Lock- When the sale of a mortgage in the secondary mortgage market requires that the seller, usually a mortgage originator, make a "best efforts" attempt to deliver the mortgage to the buyer. This type of trade exists to transfer the risk that a loan will not close from the originator to the secondary market. a loan lock where if the loan doesn’t close (or in cases of prior approval underwriting when the loan doesn’t get approved) there is no pair off fee. Pricing is generally lower than for a mandatory commitment. This is the commitment process that SPM is currently buying under.

Captive- Industry term used to describe a warehouse lender who is also a correspondent lender and doesn’t allow it’s correspondent customer to sell loans to other investors. (Flagstar and Florida Capital utilize practices similar to this)

Correspondent- An entity that typically sells the Mortgages it originates to other lenders. The Correspondent performs some or all, of the loan processing functions such as taking the Mortgage application; ordering credit reports, appraisals, and title reports; and verifying the Borrower's income and employment. The Mortgage is closed in the Correspondent's name and the Correspondent may or may not service the Mortgage.

Dry Closing- In dry closing states, the executed note is required to be returned to the warehouse bank before funds are wired.

Dwell Time- Number of days money is outstanding on the warehouse line before being purchased by the investor

Fidelity Bond- A fidelity bond is a form of insurance protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.

Flow Sale- The term to describe 1 loan at a time sale, (can be used for servicing transfers too) versus bulk sales where a pool of mortgages are sold together. Pricing can be better for a bulk but this is not always the case.

 

10/1/2013

Fulfillment Services- Prevalent in smaller Mini C's (net worth 50-250k) where the warehouse lender many times requires the use of a fulfillment service. Correspondents with a net worth over 250k may be required to use them as well depending on their financial strength and experience. Top lenders to the Mini C market require fulfillment services for their non-allocated lines. Goldome requires the use of Black, Mann and Graham). First Funding requires the use of (Pierson and Patterson). WLG, requires the use of (Robertson, Anschutz, Vetters). Remember, this is for non-allocated lines where the warehouse lender is seeking more control of the process for these smaller customers. However, in the allocated line process with Goldome SPM is will be the fulfillment process provider.

 

Haircut- The discount or less than committed price a warehouse bank will advance on a loan. This is reimbursed to lender at the time of purchase.

Hedging- Interest rate risk management practices of a secondary marketing department utilizes to manage the mortgage pipeline.

Leverage Ratio- Ratio warehouse lenders use to determine the amount of a warehouse line to give to a correspondent lender versus their net worth. Example: customer with a 1mm net worth 15:1-15mm line, 25:1-25mm line.

Mandatory- A loan lock where the loan must be delivered or face a pair off fee. Best efforts commitments convert to mandatory’s after the loan is approved and closed. (i.e., if it doesn’t get delivered to the investor who underwrote it they are subject to a pair off.)

Mortgagee Errors & Omissions/Mortgage Impairment- Provides insurance coverage to a financial institution for a loss to its “mortgage interest” (defined as interest in real property as security for a loan) caused by the lack, or inadequacy, of insurance for Required Perils. Required Perils are the perils against which the mortgage agreement requires the borrower to insure the collateral property. These perils are fire, flood, and other similar direct physical damage perils. These required perils are typically covered by homeowner’s insurance, fire and extended coverage insurance, and flood insurance policies.

Non-allocated line- A Non-Allocated Line is a traditional warehouse arrangement between a lender and warehouse bank. There is no contract between the investor and the warehouse bank in connection with a Non-Allocated Line. Under this arrangement, the lender is allowed to use the line to fund loans to be delivered to the investor of their choice (provided that investor has been approved as a take-out investor by the warehouse bank).

Pair off fee- The fee charged by investor in a mandatory commitment when a lock is broken. The amount is usually market movement plus a penalty.

 

Single File- Term used to describe 1 loan or flow sale.

 

Take out investor- A term used to describe a correspondent investor, in Mini C we are a takeout investor.

Warehouse Fee- Fee assigned for each loan funded on the line.

Warehouse Line- A short-term revolving line of credit provided to a mortgage banking company to fund the closing of mortgage loans from the closing table to sale in the secondary market. The warehouse lender utilizes the mortgage note as collateral for interim financing until the mortgage is sold and delivered to the permanent investor. Mortgage originators depend on the eventual sale of a loan to repay the warehouse lender.

Wet Closing- In wet closing states’, funds are required to be on hand at the settlement agents’ office at the time final documents are signed. Final document review by lender is required before authorization to release funds is given.

 

 

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