A year ago, during this time, most, if not all, third-party developers (TPOs) significantly cut their offerings due to the COVID-19 crisis. Even larger lenders have scaled back – at least initially – in response to the pandemic. At the time, no one knew where the US housing market was heading.
Today, the pandemic is almost in the rearview mirror; there are more jobs than people to fill; builders cannot build houses fast enough; and the procurement market is still boiling. As we get closer to the third quarter of 2021, there is the smell of inflation and the Fed rumbling over rate tightening sooner rather than later, but there are still a lot of stocks wobbling and the economy just bursting open. These times of uncertainty and controversial ideas are ideal times for TPOs to seek referrals from their business partners.
Flagstar Bankwhich started in wholesale business Almost 35 years ago, she was uniquely positioned to help OST uncover opportunities and overcome challenges. To learn more, MortgageOrb recently interviewed John Gibson, Senior Vice President of TPO Lending at Flagstar.
Q: Now that the economic impact of the pandemic is waning, how is Flagstar helping its OSTs navigate these changes and capitalize on this recent wave of growth?
Gibson: We are in the throes of a procurement market, but there is a housing shortage, exacerbated by supply chain problems with things like lumber builders to build. This creates a domino effect when housing construction slows down, which in turn affects the labor market. I recently saw a report that more than 25,000 workers have been laid off in the construction sector. And I think it has a lot to do with supply chain disruption.
Yet interest rates remain low. A recent Black Knight report found that about 50% of mortgages outstanding today can benefit from refinancing, and homeowners can save up to 50 basis points. So there are still opportunities in the refinancing market.
At Flagstar we spend a lot of time strategizing with our business partners and introducing them to the market – where it has been and where it is going. We’re trying to dispel the narrative that the window has closed for low interest rates. This is not what is happening in the market.
Q: Where does Flagstar see the strongest growth opportunities for its OST partners for the remainder of this year?
Gibson: One word purchase. Last year was a record year, but it was dominated by Refis cars. Today, our business partners are focused on shopping, and we’re here to help them develop a shopping strategy and connect – if they haven’t already – with their referral network.
Another opportunity for our business partners is the personal / business growth of brokers in the respective non-delegated space. Flagstar has years of experience helping brokers make this transition. We can support them with warehouse lines and we have done this with hundreds of clients over the years. We are the third largest warehouse provider in the country, which is why we have a track record of helping our partners with a best-in-class warehouse team.
We also have a built-in support system through our account managers who are well versed in four channels: broker, correspondent, non-delegated, delegated and bulk. I think we will see many brokers move to correspondent lending as we emerge from the pandemic – this is a natural progression in their growth.
Q: How is the transition to work without correspondence at Flagstar going?
Gibson: Flagstar acts as a trusted advisor to the broker. Our AEs have been on average for about 13 years. All this knowledge and experience is a great resource for brokers making the transition.
In addition, our warehouse representatives will guide brokers through the credit line approval process and offer ongoing training. And all this is not in captivity. Loans do not have to go to Flagstar initially, but we are still willing to provide funding and act as the lender for the transaction.
Q: What about the regional dimension of opportunity? Do you provide support and advice that suits your brokers in specific regions?
Gibson: First, our AEs are outside the AE – they are regional. Some companies have moved to a centralized model and this works well for them. Our offerings in the local market, supporting our slogan “We are where you are”. Our AEs are in the local community. Their children play baseball and soccer with the children of their business partners. They know the community, its people and pride because they live in the community.
Second, in terms of operations, the pandemic has opened up access to recruiting. For many companies, before the pandemic, closers had to physically drive up to a corporate facility. Ultimately, the area from which people could be pulled out was limited to a radius around their headquarters or location of operations. But the pandemic has moved everyone to remote jobs, which has allowed companies like Flagstar to hire closers without geographic restrictions.
Third, we have always had remote underwriters. So now we have our AE and operations staff supporting our business partners both internationally and domestically in their local market.
Q: In what other ways do you support your OSTs?
GibsonA: I know this is not the case for all wholesale lenders, but we at Flagstar think the process works best when the business partners talk to our operations staff. For example, when a broker can call an underwriter, it saves a lot of returns and makes the process more efficient. And with Flagstar, the broker calls someone in their backyard who knows and has guaranteed loans in that community in some cases for 20 years.
In terms of buying, we offer an expedited broker closure. If you are eligible for the accelerated program, not only can you schedule your own closure, but you can also get your own documents from our system. This is something that is not the norm in the market. We suggest this because we realized that for purchase transactions – where there is probably the highest level of urgency – our business partners benefit from having more control over the process.
Q: Have you made any changes to your food stack in response to the pandemic’s retreat?
Gibson: We recently returned to a full line of products designed to prepare for a pandemic. When the pandemic broke out, we made risk-based decisions deliberately and either dropped some proposals or overlaid on them. All lenders managed risk through their own lens, but risk management was in hot button in the industry. Last month we went back to all product suggestions, all guidelines. Any overlays we had, like higher FICO scores or reserve requirements, are now canceled.
Construction lending is an area that I think will be of great importance for our business partners in the future, especially on the broker side, where we are one of the few lenders operating in this area.
Another advantage for our business partners is Flagstar’s offer of large loans. We compete with Wells Fargo, JPMorgan Chase and Bank of America – all the big guys – with a giant product that is attractive in terms of both price and benchmarks. Our business partners love it and are close to offering it as a delegated UW product.
And as a bank that has honed its securitization capabilities, Flagstar can serve as a reference point for correspondents who violate GSE restrictions on transactions involving a non-owner occupied / second home. Work with Flagstar and there is no need to reduce the disbursement of these loans. In fact, Flagstar was the first to carry out ownerless securitization in the market after the pandemic. Since then, we have carried out a second securitization, as well as three securitizations of large proposals.
Q: Does the bank have any new features and capabilities in terms of technology platforms and toolkits?
Gibson: Our LOS system, Loantrac, is proprietary, which means we are in complete control of all the improvements we make to it over time. And almost every improvement we make is the result of feedback from our business partners. They say, “Can you change this part?” We say, “We are in this.”
We are working to improve Loantrac to provide our correspondents with access to our system to create their own credit scores and closing documents. This will increase efficiency and speed up the purchase of loans from their warehouse lines. We will commission it by the fourth quarter of this year.
We also continue to invest in the platforms our business partners run on. For example, we are part of ARIVE, BrokersUnited and Calyx All-in on the broker side and we are evaluating additional investments. In terms of correspondents, we are part of Ellie Mae Connect.
We also recently rolled out DIY disclosure for our brokers and we have a utilization rate of around 75%.
Last but not least, we are in the pilot phase with several of our eClose hybrid brokers. This is what the industry has been talking about forever, but the pandemic has accelerated this process. We are moving forward at full speed to go through the pilot project and hand it over to our business partners.
Q: Apart from technical improvements, what are the other strengths of Flagstar in terms of supporting its TPO partners?
Gibson: This year, we launched a monthly article series called FLEX, in which an industry expert takes 45 minutes to share how our partners can improve their performance. For example, in July, Barry Habib of MBS Highway will host a session on what our partners should do today to secure their business tomorrow. The FLEX series is just one example of our commitment to educating and advising our business partners.