Strengthen your marketing by transitioning from mortgage broker to mortgage banker Carol Eastoncareer change, broker vs. banker, marketing
It is very possible that as a mortgage broker, you have recently
considered becoming a mortgage banker, otherwise known as a
correspondent lender. There are several reasons why making the
switch can benefit your organization through improved marketing
abilities and lower cost structure. This transition could allow you
to grow your business and reap great financial rewards.
The advantages of becoming a mortgage
banker
To help those contemplating the transition to a mortgage banker,
let's first look at several of the benefits associated with the
switch:
1. Correspondent mortgage bankers do not have to disclose
their SRP
When a broker originates a loan, they are compensated with a
Service Release Premium (SRP) from the wholesale lender. RESPA
requires that all SRPs be disclosed on the Good Faith Estimate and
HUD-1 statements. Because a mortgage banker funds its own loans,
RESPA does not require a disclosure of the SRP.
2. Mortgage bankers have more control over the
timeline
In the broker world, as soon as the loan is submitted to the
wholesale lender, it becomes subject to their schedule. Since a
mortgage banker is not only originating the loan but also
underwriting, preparing closing documents and dispensing the funds,
they have more control over the file and the timelineallowing the
mortgage banker to move the customer through the mortgage process
more quickly.
3. It helps when recruiting high-quality loan officers and
seeking out real estate agent/builder referrals
Real estate agents and builders prefer to work with companies that
manage the entire file because they can control the timeline.
Because a mortgage banker has the ability to underwrite and close a
loan the same day, a real estate agent can receive an approval more
quickly. A real estate agent or builder can get a commitment on
financing much earlier for a customer and know they really qualify
for the loan.
The timeline is also relevant to loan officers. Being able to
have a quick turn-around time simplifies the process for everyone
involved, from the customer to the loan officer. For example, a
mortgage broker may spend a great deal of time submitting the loan
to several lenders before getting someone to finance it. Mortgage
bankers often have in-house underwriters to whom the file can be
submitted. Not only does the loan officer have the capability of
completing their job more efficiently, but has freed up some time
to do more business as desired. Also, if a loan officer doesn't
know how to complete a deal, they have the in-house expertise
available to help them complete the transaction.
4. Easier access to a wider array of financial
products
•Interest-only products
•Home equity products
•Negative amortization products
•100 percent financing options
Many of the advantages mentioned above translate into marketing
benefits for the mortgage banker. They become the very items that
are marketed to prospective real estate agents, builders and
customers.
Marketing advantages
By having control over the timeline and increasing the selection of
financial products, a mortgage banker can distinguish them self
from their competition. This new status brings a competitive
edge.
Another marketing benefit to handling the entire loan process is
a mortgage banker's ability to offer a more competitive pricing
package. As a mortgage banker, you can receive a higher SRP. Since
you are being paid more to do the loan, you can get a better
pricing package with additional income streams to increase your
marketing budget. So, not only do you increase gross revenue, but
also have additional income that could be allocated to a marketing
budget. If you dont already have a marketing budget, then this
could be a way to obtain money for that purpose.
Steps to making the switch
While there are many advantages, both from a service and marketing
point of view, there are certainly risks involved in transitioning
to a mortgage banker. It is necessary to become aware of the
changes you'll encounter and be prepared to make adjustments. In
order to convert from broker to mortgage banker status, an
individual or company typically must invest six to 12 months in the
transition. However, becoming a mortgage banker is very manageable
if done right. The following are five important steps in going from
broker to banker:
1. Investigate net worth requirements
A company's net worth largely determines the level it will operate
at as a mortgage banker. The minimum net worth requirement is
$250,000. Obviously, the higher your net worth, the more options
that will be available to you. Net worth also determines which
investors you can sell to and the terms of a warehouse line.
2. Higher limits for insurance requirements for E&O
and fidelity insurance
Again, there are minimum requirement in these areas as well.
Typically, it is preferable to have a $1 million policy for errors
and omissions and $500,000 for fidelity.
3. Experience level of the team
Two areas where it is important to have experience is underwriting
and post closing. However, if you don't have the experience, you
sometimes can overcome it by contracting out those services or
hiring someone in-house to perform those duties.
4. Obtain a warehouse line of credit
The first step is to identify banks that offer warehouse lines of
credit and select the ones with whom you'd like to conduct
business. Submit information to the various banks and then
negotiate the terms of the contract. Of course, your net worth will
largely determine what you can and cannot negotiate in terms of the
interest rate, line amount and products allowed on the line.
Depending on your net worth, the owner or principal may be required
to sign as a personal guarantor.
5. Verify that the warehouse line of credit provider is
approved to do business with the lenders you plan to
use
At my company, Murray, Utah-based Stirling Mortgage, we looked at
our overall business strategy and objectives and determined
transitioning to mortgage banker status would help us meet our
business and financial goals. We've not only been able to develop
new relationships with real estate agents and builders, but also
increase the business we do with those whom we have long-term
relationships.
Becoming a mortgage banker is a very manageable and effective
way to grow your business. It gives you a competitive edge in the
marketplace and can help you reach your financial objectives.
Carol Easton is president of Stirling Mortgage in Murray,
Utah and an affiliate member of the Salt Lake Board of Realtors.
She can be reached at (801) 281-4304 or visit
www.stirlingmortgage.com.
