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Shearson Lehman Hutton Mortgage Conduit System
As
Senior Vice President, Data Processing for Shearson Lehman Hutton Mortgage and
the company’s expert on loan origination and secondary marketing systems, the
CEO asked that I team with another Senior Vice President to create a response to Wall Street
demand for large mortgage backed obligations by building a new Conduit business.
Together, we recognized the opportunity to become the dominant player in an
emerging industry by leveraging technology to build a state-of-the-art IT
centric operation.
I designed and directed development of an e-commerce Residential Mortgage
Conduit System with associated business policies and practices initiating the
first fully automated business-to-business capabilities within the industry.
This business solution enabled a staff of 25 to electronically acquire, package
and deliver more than $3.2 billion of master serviced loans to Wall Street
investors while our nearest competitor required more than 125 staff to perform
the same function. Shearson realized a decisive competitive advantage plus
annual personnel savings of more than $4 million.
The Conduit System enables originating mortgage brokers and/or mortgage
companies to electronically takedown one or more “origination commitments” based
on predefined Credit Risk Factors built into and monitored by the system. These
unique Credit Risk Factors are established during the Conduit
Application/Approval process and set operating limits for each mortgage
broker/company conducting business with Shearson Lehman Hutton Mortgage Conduit
(The Conduit). Subsequent to the mortgage broker/company establishing a
commitment with The Conduit, loans are electronically delivered against that
commitment. As each loan is delivered, the Conduit System validates more than
500 loan characteristics to insure origination commitment parameters (stored as
part of the commitment) are met. Loans not meeting these delivery conditions are
not accepted by the Conduit System. Accepted loans are electronically warehoused
awaiting delivery of the corresponding loan package from the originating
mortgage broker/company.
On receipt of the origination loan package, the Conduit Audit Department
compares documentation in the package against data in the Conduit System.
Discrepancies are recorded within the Conduit System and electronically made
available to the originating mortgage broker/company. Loans passing the audit
are approved for funding. The Treasury Department, through the Conduit System,
automatically wire transfers funds to the originating mortgage broker/company
within 48 hours of loan package approval.
On demand, the Conduit System produces (in the mortgage broker/company office)
Pro-forma Funding Schedules listing loans that passed the audit process and are
to be funded by The Conduit as well as a Pended Loan Schedule listing loans with
discrepancies. The Conduit System also produces Commitment Status Reports
indicating available delivery line, scheduled funding/wire transfer by date,
pro-forma funding by date, and pended loan deliveries (volume of loans not
meeting commitment criteria).
A key control in the Conduit System revolves around the Credit Risk Factors.
Should the mortgage broker/company exceed the Credit Risk Factors, the Conduit
System automatically suspends the ability to takedown commitments and notifies
The Conduit Sales staff of the situation. When the Conduit System detects the
mortgage broker/company is once again in compliance with the Credit Risk
Factors, full system capability is restored and the Conduit Sales staff is
notified.
On a real time basis, the Conduit System aggregates loan deliveries from all
originating mortgage brokers/companies and allocates each audited/approved loan
against “investor commitments” stored within the system. Once again, more than
500 loan characteristics are verified by the Conduit System to insure loans
conform to investor requirements. Wall Street trading desks are provided the
unprecedented real time ability to electronically preview The Conduit’s investor
commitment status via on-line Pro-forma Investor Delivery Schedules.
The Conduit System also provides The Conduit’s management team extensive real
time monitoring tools highlighting key control factors including early warning
of potential commitment delivery failure on both sides of the operation.
Additionally, the system continually maintains a liquidated mark-to-market
position such that appropriate hedge strategies are more easily managed.
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