Keeping in touch with past-due customers essential for brokers, says lender
Outside of brokers who have in-house lending, maintaining good relationships with outside lenders is critical to long-term success.
Much of this success is built on the relationship between the broker and the lender and on how smoothly the loan process moves from origination to closing.
However, the relationship between the two doesn’t stop once a loan is closed. One industry executive reminds brokers to monitor those loans after closing, especially if there are delinquency issues.
Alan Tiongson (pictured top), VP of secondary markets and asset management at Constructive Capital, said staying on top of customers is important, especially when borrowers are at risk of early payment default.
“An early payment default is any borrower who falls delinquent on any of the first three due payments on the loan following origination,” Tiongson told Mortgage Professional America. “Or, when we sell the loan to a counterparty of ours, an investor, it covers the first three payments that are due after that.
“That's what I'm trying to harp on to sales and to the brokers that we cannot let these loans slip. Or if they are slipping or at risk, and we're getting to the end of the month, I need to know what's going on.”
Needing an explanation
Tiongson said one of the most head-scratching cases is when borrowers close a cash-out loan, only to miss payments almost immediately.
“It doesn't make sense when we just closed a loan a month and a half ago, we cashed out the borrower $40,000 at closing, and then the ACH bounces on the first month the payment is due,” Tiongson said. “That opens up like a wider conversation that I want to have with the broker, like, ‘where did this borrower come from? What did they do with the money?’”
While Tiongson said he’s not blaming the broker for a borrower missing payments right out of the gate, he does want to have that conversation to try to understand how someone could become delinquent almost immediately.
“Obviously, the brokers don't have absolute control over what the borrower is going to do with that cash out,” he said. “Borrowers can say one thing and do another. So sometimes that is the case, but at least I have that explanation. I want to know that nothing was misrepresented on the application, because any borrower who's defaulting that early on after origination is going to make me ask more questions.
“Especially with a counterparty, and I’ve got to protect that relationship and make sure that I have a solid explanation for what's going on and why this borrower is even defaulting in the first place. We are providing reporting for brokers on a monthly basis on how they're performing, as well as loans that we're trying to collect on.”
Another reason the broker is important in the conversation is that a borrower might not pick up a collection call from a lender or servicer. However, if they want to keep that relationship strong with their broker, they will likely take the call.
“The brokers have the relationship with the borrower,” Tiongson said. “They might not pick up for me, they might not pick up for the servicer, but they know who the broker was that closed that loan in the first place. So chances are we'll lean on them if, as an absolute worst-case scenario, I can't get anywhere with the borrower.”
Keeping a strong relationship
While loans do go delinquent sometimes through no fault of a broker, Tiongson said, if a broker is constantly having loans go bad, they simply won’t do business with them anymore.
“There are some brokers that have given us 15 loans, and 13 of them have defaulted,” he said. “Now that's kind of an easy case where we cannot take more loans from these guys, and we've got to cut off that relationship. So that is another part of my job, and my team's job is reviewing brokers and their performance, their delinquency percentages.”
Not only are they trying to find patterns of delinquency among brokers and customers, but they are also looking for them in certain geographic regions. The National Private Lenders Association (NPLA) has reported issues over the last year in Baltimore and Philadelphia.
“We try to take that data, extrapolate it in a way where we can make it useful if we need to tighten guidelines, if we need to tighten up restrictions in certain cities, states, property types,” he said. “We can tell a lot from those analytics just by looking at the delinquency data and getting a feel for what these brokers are bringing us, what type of borrowers are bringing us, FICO scores, LTVs, and we can try to navigate that way.
“Historically, we’ve taken more of a hands-on approach, and it's resulted in having a much lower delinquency percentage than what our competition is doing.”
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