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When non-conforming fits

National Mortgage Professional
May 23, 2005

To be or not to be: that is the questionJoe Amorosomortgage banking, change of business plan, technology, product pricing, Opteum Financial Services, American Heritage Mortgage Its been a while since I read Shakespeare, but from what I can remember, Hamlet struggled to define his place in the changing world around him. For mortgage brokers, the situation is not much different. Gone are the days of free-spirited, entrepreneurial organizations, simple mortgage products and an environment of light regulation. Theyve been replaced by complex product options, a growing sea of new and tighter regulations, lower margins and sophisticated technology that helps deliver the right mortgage product at the right price, quickly. When faced with the new realities in our industry, some brokers are opting to change their business and define themselves as bankers. Some have done it successfully, while others have struggled. That leads us to a question: Should you, as a successful mortgage broker, consider becoming a mortgage banker? While I cant exactly answer that question for you, I can help you consider a few of the significant hurdles that must be overcome for the sake of your current business as well as your transition into the world of mortgage banking. Many times, brokers underestimate the challenges of mortgage banking, such as net worth requirements, secondary market exposure and compliance issues. That being said, there are brokers who would make excellent bankers. Who are they, and are you one of them? One way is to evaluate your operations in the face of our changing business in these four challenge areas: 1. Economics In years past, there were brokers whose profits depended on a large number of low-margin loans or a small number of high-margin loans. Today, the whole industry is moving to higher-quality, lower-margin loans. Taking a shot at someone is no longer an option. Consumer organizations and compliance laws just wont let you. 2. Technology More sophisticated brokers today use technology to price, submit and underwrite loans. Five years ago, that wasnt the case. Why? Lenders are asking brokers for more upfront, and borrowers are demanding faster approvals and turnarounds. If you cant deliver quickly, theyll find someone who can. 3. Products Previously, brokers chose to specialize in either A-paper or sub-prime loans. Alt-A loans and the explosion of new products over the last 10 years have bridged that gap among brokers. Empowered by Internet research, consumers are more educated than ever about all of their options and want to explore each of them, forcing brokers to become more diversified or risk losing market share. 4. Compliance Beyond the economics, technology and new products that brokers juggle, bankers have an added burden that brokers do notand I cant overstate its importance or potential expense to your operation. From Home Mortgage Disclosure Act requirements to state-by-state predatory lending regulations, bankers must dedicate a tremendous amount of resources to meet filing deadlines, have the right information during audit time, and find ways to constantly and successfully self-police their organizations. Self-policing is important to mention since, as a banker, you are responsible for the actions of every one of your employees. Weve weighed the risks and benefits of both options, said Robert Vignola, director of operations and staff attorney for Connecticut-based American Heritage Mortgage. Creating new warehouse lines while setting aside capital reserves for buy-back provisions in liability agreements were significant challenges. Combine that with the increased overhead for servicing, compliance and legal staff, and no matter how diligent you are, there is always one file thats out of compliance. The analysis led us to a definitive conclusion. We will achieve our long-term financial goals by becoming a powerhouse brokerage with multiple branches rather than remaking ourselves into a mortgage bank. In short, its not as easy being a banker as it used to be. However, the more sophisticated your operation and the degree to which you have embraced the evolving marketplace, the greater the chance of transforming your brokerage into a successful mortgage bank. Become a banker or continue building a successful brokerage: That is the question only you can answer. Joe Amoroso is a senior vice president with Opteum Financial Services. He may be reached by e-mail at [email protected].
May 23, 2005
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