December 14th, 2015 3:50 PM by Robin Bain
If you are a residential mortgage loan originator, this is the most important thing you’ll read all year. How’s that for an opening line? The following information is meant only for those that originate loans directly with consumers. Take a deep breath, have an open mind, and step outside of our industry for a moment to look in. Forget all of the exterior noise and the things we’ve gone through as in industry for the last several years. In fact, let’s just mentally start from scratch with a clean slate. I will ask challenging questions and address topics to help you think for yourself and accept how things work, instead of being told what to think or say. Sadly, I do believe ignorance is at its highest historical level in our industry among originators and real estate agents relating to how the mortgage channels work in the primary market.
We each have an independent responsibility and duty to consumers to not misrepresent the truth, yet thousands across the country do this daily either intentionally or unintentionally. Retail lenders spend millions of dollars each year to distract you from reality. Distraction from the truth and ignorance might be something common in the general media, but it’s unacceptable in an industry with such a large financial impact on consumers. We choose where we place our license and how we conduct business. So yes, we have a responsibility to understand the truth. Our clients deserve the truth without deception or the manipulating of facts or titles when selling our services to the public. Competition is critical and certainly you choose what channel you believe is best suited for your business.
So what is the truth retail mortgage lenders fight tooth and nail to conceal? The truth is that mortgage brokering has been around for decades and is alive, well, and thriving. Originators are moving in great numbers back to the wholesale lending channel to work for their clients exclusively rather than a retail lender. Originators are finally realizing that their lack of options and higher margins produce an unnecessary barrier which benefits their employer more than their clients or careers. I call the last eight years “The Era of Retail Recruiting.” Independence and exclusively working for your clients has advantages beyond what I can type through this text, especially in today’s lending climate. Getting a mortgage loan through a mortgage broker has, is, and will continue to be the best way for consumers and originators to go.
Ask yourself these questions:
?What is a retail mortgage lender without originators? It’s a trick question …
?Why have retail lenders spent millions on recruiting and bashing wholesale since 2008?
?Why do many retail lenders go to such great ethical lengths to recruit, such as violating compensation rules, Section 8 of RESPA, originator compensation rules and fair lending?
?Why are there so many retail lender employers, in such a short span of time, on most mortgage originators resumes?
?Why would a mortgage originator intentionally charge their clients more (through significantly higher rates and fees) and make less?
?Why would a mortgage originator steer all their clients to one lender?
?Why do most originators not care or pay attention to significant changes in our industry?
?Why are most originators with years or decades of experience continuing to work in entry-level origination positions, focused on a job rather than their career?
?With mortgage bankers losing business (a growing trend) to mortgage brokers, don’t they question that? What causes them to shrug it off?
Many mortgage originators that choose to work for a lender (what some refer to as “Bankers”) are experts at drinking the Kool-Aid served to them by their employer. They have perfected the art of drivel. The problem with our industry Kool-Aid is that it’s laced with snake oil when sold to the public. Many of these “bankers” drink it so heavily that they seem to now inject it to absorb faster, losing all sense of reality when selling services to real estate agents and consumers or when defending objections. Snake oil is an expression that refers to any product with questionable or unverifiable quality or benefit. So, what are common examples of the snake oil quotes or claims told by many lender-employed originators?
I’m a direct lenderNo, actually you’re not. If you’re a direct lender, than I’m Gandalf. Listen, most loans are backed, guaranteed or insured by Fannie Mae, Freddie Mac or Ginnie Mae. All residential origination is third-party origination (TPO). I’m pretty sure these agencies don’t originate loans directly to the public and I’m pretty sure you don’t work for them. If you fund off warehouse lines, you’re an indirect lender. A line of credit does not make you a bank. It is surprising regulators still allow the term “lender” in these examples. Most mortgage brokers are more agency “direct” with their investors than lender-employed originators, but they don’t use this title. Even if closing in portfolio-held by an originator’s employer, wholesale lenders offer the same programs in nearly every case (commonly with less overlays).
I feel important using the title “Mortgage Banker”What exactly does that mean? If you’re employed by a correspondent lender, they are actually defined as a “non-bank.” You also cannot say you are a mortgage bank under advertising rules, but the “er” is okay for the originator to add on? Look, everyone knows this is to try and appear like you are somehow lending your own money, having control or making decisions. You don’t and you’re not. Have you ever heard of a buy-back? That’s not control and that’s not your money, no matter what channel you’re in regarding agency-backed loans. You’re not a bank and you must grasp this reality. If you think about correspondent filtering and overlays, a mortgage broker is more of a “banker” than an employee of the lender claiming to be in many cases. Again … non lender-employed originators (i.e. mortgage brokers) do not use these false titles to the public.
I have “in-house” underwritingThis one is one of my favorites. Most residential loans are primarily approved by a computer, not a human. So all channels and originators have “in-house” underwriting if they have an Internet connection. If someone needs a human to manually underwrite their file, than this may or may not have to do with originator competency. Either way, this claim exposes that the originator has few options or choices with underwriting and that the underwriter’s salary is built into their rate sheet more profoundly. Mortgage brokers not only have the ability to compare and choose, but can also speak directly with very experienced underwriters, comparing all details, personalities, overlays, location and styles. I’d choose the outhouse underwriting.
I am a banker “and” a brokerSorry … you’re not. You are either one or the other. Although you can “broker” loans as a lender-employed originator, please do not call yourself a broker. It is a misrepresentation to the consumer as you are not a “true” broker when sending your leftovers. Your employer will steer everything possible to your credit lines for higher margin and to not comply with anti-steering (which they should be either way). They will also increase the lender-paid margin between the wholesale lender and the company as much as possible to avoid their employees brokering more for better pricing. Many retail lenders also pay less to the originator when brokering loans which violates compensation laws. Brokering this way is “not” true brokering. You do not have the operations for true brokering with credit line influence and steering … period!
“Bankers” have more controlI read this beauty of a statement with some drivel to follow by someone that wrote in to Rob Chrisman. I replied to Rob and he shared my thoughts in his recent newsletter:
"I could not disagree more with comments about brokers 'losing control' over the loan or process when submitting to a wholesale lender. This is actually opposite of the truth providing our ability to choose. If I need something executed or an exception from a wholesale lender, it is a much different interaction than if this lender employed me. They want our business and then want us happy, so quality 'good' Mortgage Brokers have the advantage. If I have a bad experience with turn-times, communication, an underwriter, you name it ... I have the ability to correct that mistake on any future files and we set expectations together as business partners.”
To protect the sanctity and the future of our industry, every originator in the country should stop selling this common snake oil. Here are a few clear benefits to mortgage brokers and their clients over “bankers:”
?Independence produces clarity. You see the entire industry and not just what your employer wants you to see. Multiple lenders, overlays, policies, pricing, the list goes on.
?Lenders compete in all areas for your business and they are your business partner. If you have an issue, you address it differently than if they employed you. NO corporate politics.
?You have a full underwriting, sales and operational team with each lender designated to your success and helping you execute every loan file, every day.
?Faster execution by comparing turn-times, operations and table-funding options.
?Fewer and lower requests for seller concessions due to larger lender credits. Clients are able to negotiate better prices and terms on their new home purchase.
?Wholesale lending is the most cost-effective and efficient way for a lender/investor to get their product to market. Lender comparison and analysis simply results in lower rates and fees to your clients.
?You have less overlays, more programs, agency-direct investors, and operational choice with what investor you choose for a specific client and situation (priceless I can assure you).
?The appetite for wholesale is strong based off the quality of originations. It will get better and better as the years progress along with new non-QM investors and programs entering the market.
?Separating and perfecting origination and processing from underwriting and funding (dual company audits perfecting their gifts), allows for the most compliant and organized loan file.
?You work with the most qualified and experienced people on the mortgage business (my opinion regarding wholesale lenders and their staff).
?With regulatory changes behind us, using a mortgage broker is the safest and most transparent and compliant way to get a new residential mortgage if operated properly.
Wholesale operations as a mortgage broker does require more qualified and experienced staff due to the number of investors and must be operated in a compliant and organized way, just as with any other channel. If you’re considering making the change, you must know what is required. You might consider getting mentored or working with a reputable mortgage broker in your market if making the transition from lender-employment or if re-entering the wholesale space. A lot has changed over the years and brokering is nothing like it was before, but much better. Now is the best time in history to cut the influence from anyone other than your client and your own analytical due diligence with industry awareness.
So why should you listen to me?I have written about the future of wholesale and correspondent lending since the 2008 collapse, defending wholesale against inaccurate industry media with a fear-based agenda (recruiting, net branching, mini-core, etc.). All of my predictions during these volatile times have come to fruition and my opinions have confirmed to be factual. My vision has done great things for my own successful business as a mortgage broker. I have worked in all channels of this industry and know for certain that wholesale origination (if operated properly) is the best platform, on all levels, for consumers and originators in the primary mortgage market. I’m in the thick of it, day in and day out, as a successful originator and business owner. In other words, I’m not some non-originator disconnected from reality with hidden special financial interests or self-serving reasons to influence or recruit anyone. What I do sell is the blunt truth and it’s free of charge.
True mortgage brokering is available for those who are qualified and embrace the opportunity. The “era of retail recruiting” is coming to an end simply from awareness. I feel a sense of duty to share this with the industry from all the steering and over-charging most consumers have been positioned with providing the majority are now “bankers.” I also feel the need to share with the great originators out there. For whatever reason many are unaware of the opportunities to better serve their clients or how to make wiser and more informed career decisions. It is not in my best interests to share this with local competitors (by the way, if you’re a “banker” in Oregon or Washington, please ignore all of this). If you’ve caught yourself selling snake oil in the past, there is a different way. There is a better way … it has been around for decades and it’s called “wholesale lending.”
This article originally appeared in the August 2015 print edition of National Mortgage Professional Magazine.