Secondary Marketing

1

• Secondary Marketing
• Risk Management
• Albert Gabri, MBA

2
Risk Management

• Credit Risk
• Market Risk
• Interest Rate Risk
• Legal Compliance Risk
• Operational Risk

3
Mortgage Banking Cycle
4
Operational Risk

• Second most prominent cause of losses
• Breakdown in execution, delivery, and process
  management

5
Operational Risk

• Operational risk factors
• Fraud or sabotage
• User error
• Misinterpretation of business logic
• Coding errors
• Systems constraints
• System glitches
• Operational constraints
• Computer virus, worm, Trojan horse

6
Secondary Marketing

• Pricing
• Pipeline Risk Management
• Hedging
• Due diligence
• Product Management
• Investor Relations
• And more

7
Investor Relations

• Pricing, contracts, and alliance agreements
• Investor Fee Reconciliation
• Discrepancy Resolution
• Post Delivery Audit

8
Audit Reconciliation
(1) Monthly Statements
(2) Fee Reconciliation
Mortgage Banker
GSE
MBS, Loans
(3) Audit Report
(4) Investigation Resolution
9
Fee Reconciliation

• Investor fee reconciliation refers to a process
  that compares investors fees with lenders
  estimate by comparing agencys monthly statement
  against internal records. The result is saved in
  a Discrepancy Report which provides a summary of
  discrepancies between lenders calculated values
  versus investors invoice. Ideally, lender
  estimate must match the statement.
• Monetary Discrepancies Occur when we disagree
  with the amount charged. Discrepancies are
  flagged where the amount charged is under/over
  estimated.
• Orphans Orphans refer to fees that are unmapped
  or do not exist on either side. This could be an
  overcharge by agencies or missing records on
  lenders side (see example on next slide).

10
Discrepancy Report
The numbers used herein are arbitrary.
11
Discrepancy Resolution

• Investigate discrepancies
• Identify point of failure
• Make corrections
• Settle financial discrepancies (refunds)
• Follow up

12
Process Flow
13
Post Delivery Audit

• Agencies
• Conduct regular audits of purchased loans
• Identify discrepancies between underwriting data
  and delivery data
• Determine the financial loss
• Recover financial loss from lenders
• Lenders
• Investigate the issue
• Pay additional fees
• Dispute fees if not applicable

14
Benefits

• Financial Risk Mitigation a critical control
  function that drives financial health and avoids
  potential losses by identifying errors before
  they become actual losses on the balance sheet
  (financial risk)
• Contractual Agreements ensure Lenders comply
  with contractual agreements thoroughly
  (compliance)
• Data Integrity Quality Control maintain data
  integrity in all phases of loan origination
  through secondary markets (operational risk)
• Workflow achieve quicker problem resolution by
  configuring the proper investigation type for
  each error scenario and flow back to the correct
  resource (internal audit)
• Greater Financial Controls achieve complete
  control of the transaction process throughout its
  lifecycle (financial control)
• Best Execution ensure financial gain and loss
  is achieved as predicted by lenders