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A mortgage pipeline is a group of loans that have been approved by a mortgage company but have yet to be financed. The mortgage pipeline is the process by which a mortgage lender, usually with the assistance of a secondary party, conducts all business. The third party also completes and files all necessary paperwork to prepare a mortgage agreement for a potential borrower.
The mortgage pipeline is similar to a holding tank or waiting period. During the mortgage pipeline period, all necessary work is completed to get the mortgage to the final stages before the closing date for the property to be purchased. Mortgage loans are removed from the pipeline when either the loan is funded or the borrower backs out of the agreement. Mortgage loans will remain in the pipeline and be owned by the mortgage originator, remaining locked until that time when something changes with the mortgage. When the mortgage is in the pipeline, it is protected from changes to the interest rates and remains at the rate that is secured by the lender.
A mortgage originator is either a broker or banker who is a lender of mortgages to individuals. The originator is the company responsible for the mortgage until the time it is sold, or put into a loan portfolio. Originators are part of the primary market, which is where borrowers and lenders come together to set the borrowing terms of mortgage agreements.
A secondary marketing department traditionally manages the mortgage pipeline. This third party is a person or company who works to gather information from the borrowers to complete the mortgage application. The information that is gathered from the potential borrowers is then sold to the mortgage lender in order to complete the mortgage application. Based on the information, the lender can approve or deny offering a mortgage to the borrowers.
The mortgage pipeline has some associated risks for the mortgage broker. This risk is equal to the loss associated with locking in low interest rates to entice borrowers to accept the mortgage terms. If interest rates increase during the time that the mortgage is in the pipeline, the lender will be tied to the lower rates, thus losing possible interest income. Also, while the mortgage is in the pipeline, a prospective borrower may decide to decline or accept the mortgage. All borrowers have a grace period in which they can back out of the mortgage agreement even after approval has been granted.
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