Carrington adds a delegated option as correspondent loan demand grows

Carrington Mortgage Services on Tuesday announced that it has added a new channel that gives lenders it buys mortgages from more leeway to customize terms for their borrowers and close loans without investor approval.

The nonbank company has added a dedicated sales team to support its new delegated correspondent channel, which it will operate alongside its other correspondent, retail and wholesale origination divisions.

Loans bought on the secondary market have become increasingly important as borrower demand has ebbed a little, and companies have sought to obtain mortgages through more outlets to maintain production levels. Giving sellers more autonomy could bring in more loans to that end.

“Many lenders want to control the transaction with their borrower. Offering a delegated delivery option allows us to reach more of those lenders,” said Michael O’Brien, vice president, correspondent sales for CMS, in a press release.

The success of the new channel could depend on how much sellers value the greater control and the ability to potentially close loans more quickly, potentially at a better price, relative to the risk that the lender won’t purchase a loan it hasn’t unwritten at the outset. Smaller lenders in particular can be wary of rejection that could increase the time they have to hold loans on their short-term warehouse lines of credit. However, Carrington said it plans to offer quick turn times for loan purchases through its delegated channel and also offers non-delegated correspondent underwriting as an option.

Although the correspondent channel was among those disrupted by the early uncertainties associated with the pandemic in 2020, the relative declines some lenders have seen from record loan volumes last year have revitalized loan-buyer demand this year. For example, correspondent loans constituted nearly 55% of nonbank Mr. Cooper’s total production in the first quarter of this year, compared to 45% during the same period last year and roughly 18% during the second quarter of 2020. (Carrington is privately held and doesn’t publicly report quarterly production numbers.)

The demand for outlets also has increased because of recent limitations the government-sponsored enterprises have placed on loan purchases, which have redirected some of the mortgages previously sold through that channel to private correspondent buyers like Carrington.

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