A New Breed: Mortgage Industry Veterans Are TalkingMichael Knightwarehouse lines, paradigm shifts
The phone rings. "Hi there, my name is Jon, and I can help you
become a mortgage banker." I have received four calls just like
this within the past three weeks, coming from mortgage veterans who
realize the current paradigm shift that will eventually squeeze a
majority of mortgage brokers out of business. In the dawn of
mortgage brokering, brokers had zero market share, which quickly
matured to a ripe 65 70 percent that others are now attempting to
take away.
In essence, with our success also comes some problems, and
mortgage brokers have garnered their fair share of attention from
new industry participants, joint ventures and, most recently, a
regulatory environment intent on squelching that achievement. With
all of these challenges, a new cottage industry of "mortgage
consultants" has smelled opportunity. This new consulting breed of
industry veterans has spotted the latest trend, a paradigm shift,
and is capitalizing on all the forces reshaping the mortgage broker
industry.
A consultant may sound like the easy answer, but they come at a
hefty price. The ones who contacted me gave initial quotes from
$35,000 to $50,000, and one estimate came in at a lofty $85,000.
Clearly, today there is definite recognition that the journey from
broker to banker is not only necessary, but advantageous if the
right choices are made. However, there are a few problems that lay
beneath the surface if you decide to work with a consultant of this
type.
Get a Warehouse Line
No consultant in the world can change the warehouse line
qualification process, which is one of the ways to convert from
broker to banker and still remain independent. To qualify, a broker
must have good credit and considerable liquid net worth in their
business in order to close loans in their own name as a mortgage
banker. A small percentage of mortgage brokers can meet the rigid
qualifications. Also, it will take an experienced warehouse manager
to run your warehouse line, which means one more person on the
payroll and you are still left with all of the inherent risks. So,
before you hire a consultant, it may be best to first find out if
you can meet the minimum requirements to obtain your own warehouse
line.
Join a Net Branch
Net branching is an entirely different avenue in which a broker can
become a banker. The need for consulting services is minimal but
does boil down to educating yourself on the many net branch
companies out there and then choosing one to work under. Generally
speaking, net branches will absorb your mortgage company, require
you to change your name to the net branch name, use their systems
and processes, and you become an employee/originator. Gone is your
name, independence and company, but in return you gain access to
different loan programs, some benefits, warehouse line. If you are
willing to give up all of these things, plus any equity you had
accumulated in your company in return for the net branch benefits,
then net branching may be your ticket.
Join a National Mortgage Partnership
The last, and, in my opinion as an independent mortgage broker, the
most robust and lucrative banking option’±is a
partnership model that transforms brokers into bankers with little
day to day disruption. This is a perfect example of an emerging
company spawned by a paradigm shift. Mortgage broker/owners who
join this partnership are paid for their participation and their
years of hard work. This is contrary to all other options that
require mortgage brokers to pay some sort of membership fee for
their participation either through initiation fees (co ops) or
ongoing per file charges (net branches). In the partnership model,
mortgage brokers are also able to keep their valuable company name
and total operating autonomy. In addition, the partnership model
offers these unique perks:
*A warehouse line without having to manage it or take any of the
risks yourself;
*New channels of revenue;
*Sharing of best practices with elite mortgage partners across the
country;
*Real estate agent incentives;
*Fortune 500 benefits;
*National branding and marketing;
*Stock;
*Stock options;
*Incentive stock options (ISOs, which function like a profit
sharing plan); and
*Retirement/exit strategy.
As with this and all paradigm shifts, industry leaders who had
little market share under the old business model, emerge with a
much more sizeable piece of the pie. These companies are pioneers
on the fringes, who went about their entrepreneurial way to explore
new models, while the rest of the industry players, who had the
most invested in the old way of doing things, woke up and said,
"What happened?"
There is a man named Joel Barker who refers to himself as a
"futurist." He is a corporate trainer who speaks to Fortune 500
companies about the dangers of getting caught in "paradigm
paralysis," causing companies to literally "miss the boat." He
calls this the going back to zero principal, whereby these new
pioneers come out of nowhere and end up with a dominant market
share, while established industry veterans see their market share
drastically diminish.
The message here, of course, is to recognize what is going on in
spite of how busy we have all been. You have to read between the
lines of all the headlines about mergers, joint ventures, strategic
marketing agreements, new entrants into the burgeoning mortgage
marketplace, and the onerous regulatory environment that is being
proposed by HUD? The edict is this, as recorded by Bob Dylan, "The
order is rapidly fading. And the first one now will later be last,
for the times they are a changing."
Reality does not change when a paradigm shift occurs; in fact,
reality can be a cruel awakening to those who closed their eyes to
the obvious changes happening right in front of them. The best
defense is the best offense, and the partnership model is leading
the paradigm shift happening in the mortgage industry today. Will
you be one to accept and ride this wave of change or will you be
left fighting to keep the old way of business alive and in the
course of doing that, wake up one day on the outside looking in?
Will we, the independent mortgage brokers, collectively take
control of our own future and apply what we know as leverage and
strength in numbers to prosper during this change? The partnership
model is saying "yes!"
Michael Knight is Immediate Past President of the Colorado Association of Mortgage
Brokers and CEO of Vanguard
National Mortgage & Title. He may be reached by phone at
(866) 875-6811 or e-mail
[email protected].
