4 Tips to Plan an Effective Mortgage Pipeline Hedging Strategy

by Tomi Pironti

The right mortgage pipeline hedging strategy can do more than help you offset risk. A good strategy can also help you stay flexible and efficient and improve your chances of a high return. Here are some of the best ways to plan an effective mortgage pipeline strategy.

mortgage pipeline hedging Man with planning risk and strategy in business. Conceut business vector illustration.

1. Keep an Eye on Your Data

Loan officers depend on having accurate, timely data. This way, you’ll be able to improve the accuracy and efficiency of your forecasts and create reliable models for the future.

This is where a high-quality customer relationship management (CRM) platform can shine. The right CRM system can help you track your data and integrate with your organization’s other software to provide accurate information.

2. Set Appropriate Benchmarks

For positive gains, loan officers must match loan duration profiles accordingly. This means you’ll have to ensure that assets share similar sensitivities to changing interest rates and other key factors.

One way to do this is to set a benchmark duration. This isn’t just an educated guess; it allows lenders to simplify decisions based on the relationship to the benchmark. At the very least, these benchmarks can serve as a reference point to help your decisions in the future.

3. Create Stages in Your Mortgage Pipeline

Your mortgage pipeline isn’t always a straight line from beginning to end. Instead, think of your pipeline as proceeding in different stages. The data you glean along the way allows you to track progress.

For example, many originators rely on pipeline fallout ratios to estimate the pull-through ratio. The latter refers to the likelihood of funding a particular loan commitment. Fluctuating interest rates can influence fallout rates and pull-through ratios. This creates a need to manage the process throughout the borrower’s journey.

Dividing the pipeline into stages also helps you refine your strategy. When customers first enter the pipeline, for example, you may need to provide some initial consultation. As they progress, you may want to provide additional guidance and help them understand where they are in the mortgage process.

4. Use Forward Sale Commitments

Lenders can sometimes get stuck with mortgage loan commitments if the borrower chooses another lender. After all, borrowers can change lenders without penalty, even after they lock in a rate for a loan. That leaves lenders on the hook for a hefty portfolio.

The solution? Many lenders are choosing to use forward-sale commitments as part of their mortgage pipeline hedging strategy. This means that the originator will commit to delivering a set dollar amount of mortgage loans at a certain price by a certain date. 

This doesn’t eliminate risk entirely. But it does put you in a better position to manage your portfolio and offset the risk of homebuyers pulling out.

Choosing the Right CRM

The best way forward is to pair your mortgage pipeline hedging strategy with a state-of-the-art CRM platform. BNTouch offers comprehensive tools to help you stay organized and efficient.

Request a demo today, and discover how BNTouch can transform your lending business.

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Tomi Pironti
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