“It was a game-changer for us,” said Jonathan Barnes, vice president of secondary marketing at VanDyk Mortgage Corp. Summarizing the impact of the Compass Analytics CompassPoint implementation, he added, “We’re now in control and can direct our business so much easier than before.”  

Starting in 2011, VanDyk, a nationwide mortgage lender with a concentration in the greater Michigan area, experienced substantial production growth in the following five years, more than doubling their annual volume to nearly $1.5 billion. 

In that same time, VanDyk made the decision to partner with a hedge advisor to outsource key secondary tasks such as loan sales, choosing to focus internal resources on other strategic priorities in secondary. By late 2016, however, Barnes identified an opportunity to increase revenue, improve efficiency, and essentially transform VanDyk’s business.    

After evaluating potential partners and preparing internally for this key business initiative, VanDyk selected Compass Analytics to bring loan sales back in-house.

Reflecting on how their business changed in the 18 months since completing the Compass implementation, Barnes commented, “It’s opened up communication throughout our organization as well as with the investor community, which is something we didn’t expect. We’ve even seen better incentives from the investors in the areas they actually want to buy, which helps us make our operations and post-closing operations a new, more efficient unit.” 

How did VanDyk make sweeping changes to their business while maintaining their commitment to exemplary customer service? To answer this question, we first went back in time to look at a typical day in the life of the company before they implemented the Compass solution.

2012 - A day in the life

Barnes and his team begin each trading day by manually exporting an Excel spreadsheet containing loan and lock information from VanDyk’s loan origination system.  Around 10 AM EST daily, VanDyk would receive an executive summary report from their hedge advisor detailing their starting risk position – two hours after the TBA market opened.

Meanwhile, throughout the day, additional loan and lock information is transmitted to the hedge advisor for the next day’s report.  Therefore, the team could not adjust hedge coverage to respond to any intra-day fallout, renegotiations, or any other milestone movements until the next day – often too late.

A sometimes-messy hedge

Even with the summary report each morning from the hedge advisor, Barnes often could not make decisions confidently due to the lack of granularity provided. 

“For example,” Barnes explained, “if we took in $4 million worth of locks, $2 million of that might have been FHA / VA / USDA with periods varying anywhere between 15 and 90 days. The other $2 million might have been conventional.  With just a blanket report of new lock coverage, we were unable to apply correct coverage, which led to a lot of on-the-spot adjustments.  For example, we wouldn’t need 60-day coverage if 75% of our lock volume was in 15-day locks.”

Without the transparency that would allow Barnes to stratify exposure and minimize loss, VanDyk was constantly long or short on hedges the day after market movement, often by a significant margin – as much as $2 million!  In a worst-case scenario, they would experience a compounded effect in losses should the market see an extended rally.

Barnes knew then that there had to be a nimbler way to do this.

Limited loan sale capabilities

Loans sales were similarly manual.  Using the daily Excel export, VanDyk would flag loans as ready to sell to the secondary market.  On specified days, the hedge advisor would send bid tapes to VanDyk’s investors for a competitive auction.  After about an hour, VanDyk would receive back the investor’s bids and would work to allocate the loans to investors.  This began a time-consuming process of considering all the tangible – and intangible – factors of the loan sale process:  in addition to comparing investor pricing, scrubbing the investor bids for soft eligibility considerations and factoring in operational ease of delivery.  When finally satisfied with the allocations, VanDyk would send the results to their trader. 

Eric Bridges, capital markets manager at VanDyk, continued, “We would typically receive the final data file with where the loans went around 4:30 or 4:45 PM.  From there, we were manually keying this information into our system of record.”  Of course, this manual data entry took time away from more valuable analysis and investigation. 

Recognizing the limitations and cost of their current third-party loan sale outsource, VanDyk prioritized finding a path forward.  The benefits of this decision would eventually spread far beyond simply cutting costs. 

Joining Compass Analytics

Barnes and Bridges embarked on a search in early 2017 for the best available partners.  VanDyk was immediately intrigued by the dramatically different approach to risk management at Compass Analytics.  They signed up with Compass in January 2018 and went live with their new platform in two months. 

Instead of the daily, manual process of downloading and sending a data file and waiting until after 10:00 AM for their executive summary, Barnes and Bridges leveraged a real-time integration between their LOS and CompassPoint.  Now, locks were valued in real-time, intraday, automatically slotting to the proper coupon and settlement month.  Even in volatile markets, their risk position was much more predictable.

Added Bridges, “Our volume had doubled and we really got more granular with our pricing in 2018.  We felt it was critical to support our producers by giving them the most competitive pricing we felt was possible. With added risk, waiting for reporting information the next day wasn’t an option.”

Barnes continued, “If you’re not getting the accurate, real-time information that we do now through CompassPoint, you’re at a distinct disadvantage.  If you're okay with that risk and with the cost that's associated, then stay with your current processes.  But when you sit back and start adding up what those costs are, all the guesswork can be a couple months of someone’s wages at a minimum.”  Armed with more accurate, timely inputs and reliable reports, Barnes and Bridges turned their attention to optimizing their loan sale process.