Christopher Bennett: 2020’s Unprecedented Growth Requires Counterintuitive Thinking

Christopher Bennett is principal of mortgage industry hedge advisory firm Vice Capital Markets, Novi, Mich. He can be reached at


Mortgage applications are up, but investors aren’t purchasing loans. Interest rates are at historic lows, but the credit box has gotten smaller. These are just a few of the extreme statements being made in and around the mortgage industry these days. While some of them are based on facts, these blanket statements do not apply to the industry as a whole.

In fact, there are companies whose day-to-day reality runs contrary to these statements and, as a result, are facing a labor crisis that threatens their ability to capitalize on the tremendous opportunity for growth presented by the current rate environment. While the typical response to such a scenario is to hire more internal staff, now may be the time for lenders to also seek outside sources of support, even if those sources duplicate pre-existing internal resources.

On July 9, the Mortgage Bankers Association released a report stating that the Mortgage Credit Availability Index fell in June, continuing the downward trend that has defined 2020. This report, and others this year, have stated MCAI levels have reached 5-, 6- and 7-year lows. For those unfamiliar, the MCAI is a barometer on the availability of mortgage credit using guidelines from institutional investors who purchase loans through the broker and/or correspondent channels.

Taken at face value, the most recent report seems to validate the claims that investors aren’t purchasing loans and suggests that lenders will face a ceiling to their growth this year. However, the MCAI is not indicative of EVERY company’s performance in 2020, as many lenders using hedge advisory firms have seen substantial and sustained growth this year. For example, origination volumes for Vice Capital’s clients are up 163% over this same period last year.

This kind of explosive origination growth almost certainly guarantees a corresponding increase in secondary marketing activity, and even for organizations with a well-established capital markets and/or secondary marketing department, the level of growth the industry is currently seeing combined with the decline in the MCAI is enough to tax even the most robust internal loan trading department.

Thus, organizations struggling with this kind of growth may need to seek the aid of an outside party, such as a hedge advisory firm, to help shoulder the load. While it may seem counterintuitive to duplicate internal efforts by leveraging a third-party firm to manage the same activities, the unique position that the current market has put lenders in requires organizations to respond in kind.

As any grizzled mortgage veteran can attest, the history of the mortgage industry is cyclical, and for every peak – no matter how sustained – there is always a corresponding valley. While the standard industry response to these variations is to hire-and-fire as needed to manage volumes, especially in regards to frontline staff such as loan officers, the complex nature of secondary marketing and the expertise required to manage it effectively does not lend itself to this particular strategy.

Partnering with a hedge advisory firm offers lenders a more scalable solution to address staffing/capacity needs in their capital markets and/or secondary marketing departments, as these firms typically offer a range of services depending on an individual client’s needs regarding support. By leaning on the expertise of these third-party traders and position managers, lenders can avail themselves of an extra set of eyes in monitoring market movements, as well as the expanded knowledge base that comes from delivering contracts for numerous organizations amidst differing volume levels across a variety market environments, to maximize their execution without adding to their overhead.

It’s been said many times before, but it still rings true: we don’t live in the same world we did a year ago. As COVID-19 continues to affect the mortgage industry, lenders are realizing that conducting business as usual may not be possible or plausible. For a lender’s growth to reach new and different heights in 2020, new and different business practices, such as working with a hedge advisory firm, are required. Lenders that are looking to smash the growth ceiling many are facing in 2020 are finding themselves looking to outside sources to establish strategic growth partnerships.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at; or Michael Tucker, editorial manager, at