Over the last few months I’ve talked a lot about our philosophies here in Investor Services at Grid151 – our management principles, how we apply them to our products, and how all of that coalesces into what we believe is a best-in-class suite of vendor services we provide to clients in support of their activity in the secondary mortgage market.  But management principles, and products supporting them, are really only as good as the market insight that underpins their implementation.  If you have a great product driven by great people, but all of that talent overlays a foundation that lacks true insight into the needs and complexities built around the work you are doing, then you may as well be sitting in a house without walls.  When the hard times hit, you will have nothing solid protecting your interests.  And all of your talented people will be left running for better ground.

So for the next couple of months, I want to get technical.  I want to talk about the insights that undergird our performance, and that live every day in the work that we do for our clients.  Because I believe that even more than our management principles, or the products we offer, it’s our unique understanding of this world that we operate in every day – the secondary mortgage market – that separates us from every single other vendor operating in this space.

I’ve often heard it said, and I firmly believe this to be true – the secondary mortgage market, for all of its unique expertise, is first and foremost a relationship industry.  As I’ve talked about before, Whole Loan transactions are vast enterprises built on the blood and sweat of dozens of individual stakeholders, often spread out over multiple departments.  There is a flow from mortgage servicing areas to capital markets teams to legal departments and back to capital markets again, then onto the secondary mortgage market itself where buyers and sellers negotiate and ultimately close transactions, and where mortgage servicing (specifically post-closing and document custody teams) then picks up the lead again.  This is also the place where vendors are tapped to assist with work that is often too high volume, or too singular in its expertise, to be completed by anyone else in the process.  The through-line for all of these various areas – mortgage servicing areas, capital markets, legal departments, document custodians, and mortgage vendors – is the transaction itself.  But those same through-lines aren’t often mining the roads of existing relationships, especially in bigger companies (and in smaller companies, it may be one person wearing all those many hats anyway).  Remember when I said this is a relationship industry first and foremost?  How do you go about building the best relationships?  The best relationships are ALWAYS built on communication.  And to communicate well, you have to speak the same language.  This is nowhere near as easy as it probably sounds on the face of things, because the language coming out of these different areas is often very different from one person to the next.  Mortgage servicing areas are collecting documents and payments on loans, and reporting those same things throughout the business.  Capital markets areas are valuing assets and ascertaining how to make them as attractive as possible to buyers.  Legal departments are ensuring that risks to the business are mitigated.  Document custodians are reviewing documents and shipping files.  Post-closing teams (including vendors) are handling all of the work that comes afterwards.  The terminology and the focus points may be different throughout the various stages of the process, but there are some focus points you can look to in order to help unite all of these disparate areas.  You have to know exactly what the various servicing areas are responsible for, exactly how they report their work, and how their understanding of the transactional stages of the loan will effect what they do next.  You have to know exactly where legal and capital markets drew the line on the various risks in play, and how they committed to addressing those risks for their purchasers, and you also need to be able to speak very specifically to how you are addressing those very same risks to all of the counterparties involved in these transactions.  You have to understand the values and limitations of custodial reporting, the story it tells and when it is or isn’t relevant to the scope of your own work, along with the timing constraints inherent in an area of the business where constant churn and flow at incredibly high volumes is the norm.  When you are sitting in a vendor’s shoes, you need to create a process, and communication around those processes, that speaks to and values ALL of these things, with an understanding of how they are all the same, and how they are also all different in each of their own ways.  Like in most of life, the best relationships here are built on effective communication, in an environment where similarities and differences are valued in the exact same way.

Learning to talk the same language is a valuable thing.  But you also need to have systems that support the complexities of these processes and relationships.  One of the dirty secrets of exception tracking is that it feeds off spreadsheets like a parasite with a bottomless pit at its center.  Custodians and vendors track and report exceptions in spreadsheets, legal and capital markets teams attach various spreadsheets as exhibits to contracts, and servicing areas often have to dump and translate their unique system data into spreadsheets in order to make a living in the same neighborhood as all these other parties.  There is obviously value inherent in this approach, or it wouldn’t be so prevalent throughout the industry, and the ability to manipulate and compare data through spreadsheets is an important piece of any secondary mortgage market process.  But given how disparate the data sources are here, how different the stories are that they sometimes tell, and how singularly important it is for all of those disparate data sources to come together down the line so that they can essentially tell the same story in the end, you have to make sure you have something better than a series of spreadsheets to aggregate data and build efficiencies in your processes.  Exception tracking systems are of paramount importance within the secondary mortgage market.  They allow you to input varied and high-volume data sets into a common platform and translate the output into a language that everyone understands – again, the need to speak the same language is more important than anything else you can do.  A good system needs to be open-ended enough to allow for the variability of custodial reporting and vendor reporting and (yes) even one-off tracking spreadsheets, but be able to translate all that variability into a consistent system of messaging that communicates progress against exception detail, all while allowing for escalation and risk management.  Any vendor in the secondary mortgage market without an exception tracking system should be a flag for you – it represents a relationship built on faulty ground.  I believe our system here at Grid151 is a best in class system in our industry, because it combines the flexibility needed to operate in a process built almost exclusively on the variability of disparate data sources with a rigorous and streamlined output designed to tell the right stories, highlight the right data, and do so in a way that everyone can understand.

It’s funny how even the most technical things then always come back around to relationships in the end – how when we communicate well, and we each tell our own unique story in a way that can be valued and understood, the whole becomes better than the sum of its various parts.  What’s the story we are telling here at Grid151?  We have the best people in the industry, offering the best products, operating in an environment where our understanding of the challenges and what it takes to overcome them is second to none.  There is nothing too technical about that.