First Funding Blog

What is the difference between and investor’s “Best Efforts” and “Mandatory Delivery” pricing?

Best Efforts pricing generally means that the Correspondent Lender has no financial risk in case of non-delivery of the subject loan, however, the Secondary Market Mortgage Investor will usually track and fallout and report upon it via Correspondent Lender scorecard or other similar rating system. Mandatory Delivery pricing generally means that the Correspondent Lender assumes the financial risk of not satisfying the delivery of a given loan, or pool of loans. The financial risk most often manifests itself via a specified penalty or penalty formula which defines the amount that the Correspondent Lender owes the Secondary Market Mortgage Investor in the event that the Mandatory Delivery contract requirements are not met by the deadline specified. Mandatory Delivery mechanisms can be very complex and they can create significant risk for the Correspondent Lender, but they can also be a useful pricing tool for sophisticated Correspondent Lenders.