HomeBlog HomeBlog Posts4 Key Points to Consider When Transitioning from Best Efforts to Mandatory Delivery

4 Key Points to Consider When Transitioning from Best Efforts to Mandatory Delivery

4 Key Points to Consider When Transitioning from Best Efforts to Mandatory Delivery

Making the decision to transition from best efforts to mandatory delivery is a process that begins well before an organization actually takes the leap. As you contemplate the right transition time and strategy for your organization, you will want to conduct a preliminary evaluation to understand your organizational readiness.

While there are many approaches to a viable mandatory delivery and hedging strategy, those considering a plan of action should take a moment to review four critical “stepping stones” before moving forward. You should only move on to the next step once you meet all of these criteria or develop a plan to meet them.

Step #1 – Evaluate Net Worth

The first step focuses on your organization’s financial health. An appropriate minimum net worth should fall above $1.5 million, at the bare minimum. If you plan to rely on approval from government-sponsored enterprises (GSEs) and other investor counterparties, the desired minimum increases by a base of $1 million. The warehouse banks, securities broker-dealers and investors will also vary in their requirements, so it’s best to discuss your plans with them early in the process.

Step #2 – Analyze Production Pipeline

To fully realize the significant financial benefit of a mandatory delivery program, it is recommended that your monthly commitment volume values at least $10 million. If the monthly production volume exceeds $10 million and you are not employing a mandatory strategy, a considerable amount of revenue is being left on the table. Note that some product types are not suitable for hedging at this stage and should be excluded from the volume calculation; these include jumbo, non-agency and in-house portfolio products.

Step #3 – Assess Investor Relationships

Another consideration focuses on the active relationships you currently maintain with investors, as well as their ability to offer mandatory pricing. For optimal benefit, an organization should plan to work with a number of investors that are competitive in price. Seek knowledgeable advice on which investors offer a viable mandatory program and are a fit for your unique volume size and product mix.

Step #4 – Adjust Internal Processes

Finally, to be successful with mandatory delivery, your organization must adjust its internal processes and policies accordingly to support the efficient management of overall pipeline dynamics. A detailed policy and procedure plan will ultimately become your internal “rule book” and help you capture the true best execution price on loan production. Consider starting with a template that addresses the following:

As you evaluate mandatory delivery strategies, the Optimal Blue team stands ready to support your success. Our secondary marketing experts can help you prepare and transition, and our suite of innovative solutions can help you manage your hedging operations post-transition.

Download Best Efforts to Mandatory: Transition & Training Guide to learn more about how Optimal Blue and our team of experts can aid your business in various stages, including preparing a roadmap, implementing a transition plan, and providing ongoing support and training on capital markets best practices.