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Theyve been replaced by complex product options, a growing sea of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:
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.
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.
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.
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
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]