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MCT Whitepaper: Optimizing Your Best Execution Loan Sale Analysis

In any market scenario, it is crucial for lenders to analyze best execution options to maximize profitability when selling loans in the secondary market.

Determining what execution is most efficient and profitable will have a big impact on the bottom line. This whitepaper reviews several key considerations to apply a strategic best execution analysis.

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Best execution (BEX) analysis is a critical area of profitability for mortgage lenders, and determining your strategy and goals when managing your pipeline will provide a blueprint for how and where to sell loans. Considerations like cash flow, market movement, and available execution options are key to outlining the ideal plan for a strong and profitable best execution analysis.

About the Whitepaper:

In this whitepaper, we will provide an overview of key considerations to include in a BEX analysis. We will also provide insight and recommendations for improving profitability in your best execution analysis.

Topics Include:

  1. Determining your Company Strategy
  2. Delivery Options
  3. Servicing – Retain or Release Decisions
  4. Non-Price Considerations
  5. Summary of your Best Execution Analysis

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Featured Whitepaper Excerpts:

Determining your company strategy is the first step to performing your best execution analysis. Considerations like cash flow, investor options, delivery options, operations and processes can all be optimized once you have a clear idea of your company strategy.

DETERMINING YOUR COMPANY STRATEGY

Understanding your capital position and goals within your organization will be the first step in outlining a successful best execution strategy. For example, if your organization is in need of cash flow, you may decide to release servicing for a period of time for additional revenue. Additionally, the relationships and options available to you have a major impact on your best execution strategy. The more execution options you have, such as servicing and investor approvals, the greater the ability to adjust your strategy to your needs.

DELIVERY OPTIONS IN YOUR BEST EXECUTION ANALYSIS

Two primary factors that will consistently differentiate pricing are delivery period and certainty of delivery. You will get paid a premium for a shorter delivery period as compared to a longer one. Additionally, the certainty of delivery will also have a big impact on your best execution analysis. The delivery options we’ll review are best efforts and mandatory loan sale delivery.

  • Best Efforts Delivery – Sellers deliver specific loan collateral to an investor within the specified time period using their “best effort”. If the loan does not close, the seller has no financial responsibility to the investor. Therefore it is not necessary to hedge the committed loans. The best efforts delivery method also does not require hedging your pipeline, whereas mandatory loan sale delivery does.
  • Mandatory Loan Sale Delivery – The seller is required to deliver the loan collateral in a specific time period and under certain conditions. If it is not delivered, the seller is required to pay for any market costs incurred by the investor. Because of this, it is necessary to properly hedge your positions. Learn more about mandatory loan sale delivery or hedging your mortgage pipeline.

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