Why become a mortgage banker?: An article for those doing $5 million or less per monthElaine RoccioMortgage banking profession
I thought I would share with you some thoughts I have, regarding
this mass migration that I see of mortgage brokers transitioning to
mortgage banker status. Almost everyone seems to think he needs to
do it. I have had my company, Broker to Banker Consulting Services
Inc., for more than six years now, and, previously, I could
understand the threat from Mel Martinez at the U.S. Department of
Housing and Urban Development and the proposed RESPA changes. At
that time, the reasons for becoming a mortgage banker made sense.
Of course, only those mortgage brokers with the minimum standard of
$250,000 in net worth that was audited by a certified public
accountant were eligible for the crossover. At that time, the
emerging mortgage banker also had to have all of the systems and
personnel in place to be able to function just like the big guys.
All of that has changed in the past two years. Correspondent
lenders, who once had great disdain for the new wannabes, have
changed the whole culture of their corporations in order to solicit
and sign up the new mortgage banker. They have changed their style
of doing business so much that it puts their wholesale lending
divisions at great risk of extinction.
But, don't be fooled. The 10 or 20 correspondent lenders--and
you know who they are--will always seek to improve their profit
margins; just as soon as one of the majors changes the rules of the
game for correspondent approval, you can bet the rest will do the
same. The winds of change are blowing, and as interest rates rise,
they will probably be blowing very hard by the middle of next year.
There is no magic to this business. Profitability is the highest
priority for all companies, but especially for the large mortgage
bankers that receive their highest profit margins from their retail
and wholesale divisions, and not from their correspondent
divisions.
Most mortgage brokers who have taken the step of incorporation
are usually subchapter S corporations. That means that you have a
mandatory Dec. 31 fiscal year end. Audited financials need to be
prepared annually to maintain a correspondent approval, which means
that they are due to the warehouse lender and correspondent
lender(s) no later than March 31 of the new year. If my suspicions
are correct, we will soon start to see new net worth requirements,
production requirements and any number of other criteria come into
play as a means of either obtaining new approvals, maintaining
existing approvals or sending marginal correspondents back into the
wholesale division.
So, why go through this transition just to jump on the same
bandwagon as everyone else? If you're still in the development
stage of your company, and production is good, but not great, your
staff is limited to only a few people, or you don't understand what
is involved in mortgage banking, my advice is this--don't do it.
Give this whole broker to banker thing a bit more time to see what
develops in a rising interest rate environment. In some cases, low
volume producers will be heavily courted by the wholesale lenders
and will be able to obtain a level of customer service previously
unavailable. Pricing may become more negotiable. Some correspondent
lenders may offer the use of a small warehouse line for their
products only. All of this makes for a good deal and overall would
create less risk for the mortgage broker while building toward the
future.
Understand that I'm not trying to put myself out of business. In
six-plus years of doing this turnkey transition from mortgage
broker to mortgage banker status, I have worked with too many
brokers who were not ready. It requires a commitment of energy,
emotion, time, money and resources. Analyze your long-term goals
and understand clearly why the transition is an important part of
your growth and marketing strategy. If the answers fit, then do
it--but not before.
Elaine Roccio is a mortgage banking consultant with more
than 20 years of mortgage industry experience and is founder of
Broker to Banker Consulting Services Inc. She can be reached
through her Web site, www.brokertobankerconsultingsvc.com.
