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GATORS takes a bite out of the settlement process

National Mortgage Professional
Apr 27, 2005

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
Apr 27, 2005
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