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How partnering with Compass Analytics helped VanDyk Mortgage to streamline their secondary department

More control led to better incentives and communication with investors

“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.

A streamlined process

Right away, VanDyk worked with the Compass account management team to address the items that cost the most time in their loan sale process.  VanDyk leveraged the eligibility capabilities within CompassPoint to model their delivery preferences to take control of which loans are sent to which investor.

 Eric Bridges used the example of a loan with a DTI >45, pointing out that while certain investors might be willing to buy that loan under their guidelines, the operational process of purchasing that loan can be onerous.  “Maybe the investor will ultimately buy that loan, maybe they will not.  We know it will be an operational challenge either way, so we can build in those kinds of rules and it’s been the biggest time-saver for us,” said Bridges.

Working in conjunction with the Compass Analytics team, VanDyk planned the transition to selling loans themselves.  After jointly selling the first bid tapes, VanDyk took over the process in its entirety.  Remembering that inaugural loan sale, Bridges added his team was “almost in awe of how much information [they] had and the kind of time [they] saved.” 

Bridges continued, “It was night and day in terms of the control we had and the clarity of our decisions. We immediately recognized the difference between thinking ‘yes, I think that looks right,’ versus actually knowing that everything is set up exactly how you wanted it to be.”

Barnes noted a marked increase in confidence after taking over the loan sale process “Previously, we would only see the end result and not know what took place to get us there.  Now, I can call the investor’s desk and say to them, `If you improve 2 basis points, you’re going to win another $2 million of volume.’  That is huge.  We are able to control and direct our business like never before.”

Improved external relationships and internal communication

Above it all, the information available to VanDyk resulted in deeper investor relationships.  “Now we can go to our investor meetings and actually talk about volume specifics, why they got the volume they did,” said Bridges.  “It was a game changer for us, and we definitely see a lot more positive feedback from them.”

Because VanDyk is now directly communicating with their investors on a regular basis, they can answer questions with much more certainty.  The improved relationships also yielded better incentives from investors, as well as insight into the types of loans that investors are most interested in buying.  Having this insight has helped VanDyk to optimize post-closing processes and made the entire secondary team more efficient, simply by knowing more about the investors.

“Using CompassPoint to sell our loans to investors has allowed us to engage in deeper conversations with investors, conversations that used to consist of a lot of guesswork, if they were happening at all,” explains Bridges. 

The value of control

VanDyk has also enjoyed dividends from their new processes in unexpected places. 

Year-end audit requests were simplified as VanDyk simply pointed to their own policies and procedures, rather than interpreting the loan sale policy of a third party. 

Bridges also saw improvements to internal communication with senior management.  “We cannot emphasize enough the responsiveness of the information.  Now, I can just click two buttons and I’ve got the report that tells me what I need to know.  I no longer have to send an email or make a call and hope that the person on the other end is not working with someone else already. It’s really a lifesaver. Honestly, I can be on the phone with my CFO and get him whatever he needs in two minutes.”

Looking back, Barnes succinctly summed up his feelings. “We are now in control of the hedge cost, being in the driver’s seat. If someone were on the fence about making a similar transition, I would advise them to run an informal SWOT analysis — What are your opportunities? What are the threats you’re facing?  When we asked ourselves these questions, the answers overwhelmingly indicated that we need to be in control. We chose Compass because the benefits far outweighed the cost.”

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