2011 State of the Wholesale and Correspondent Channels: A National Mortgage Professional Magazine Roundtable Discussion
In putting together this month’s focus on the wholesale and correspondent channels, National Mortgage Professional Magazine decided to gather a few of the industry’s top wholesale and correspondent players for a roundtable discussion on the state of the industry. Our seven discussion participants share their thoughts on the future of the wholesale and correspondent channels, the current state of the market, the mortgage broker’s view of the market, regulatory restrictions, and what the wholesale and correspondent channels are doing to attract the broker market. The participants … Joe Amoroso, Director of National Sales Real Estate Mortgage Network Inc. (REMN) Mat Ishbia, President United Wholesale Mortgage Michael Maida, National Sales Director GSF Mortgage Matt Moubray, Senior Account Executive Polaris Home Funding Corporation Shane O’Dell, Director of Wholesale Production Bay Equity LLC John Walsh, President Total Mortgage Services LLC Bob Wexler, Vice President New Penn Financial The discussion … What are your feelings on the current state of the wholesale marketplace? ►Joe Amoroso: We are bullish on the wholesale marketplace. The traditional bank retail business channel is not set up to meet all the demands of all borrowers. Service levels of wholesale mortgage bankers and their broker counterparts make them a very attractive alternative to banks. Product diversification and competitive pricing are additional factors that will allow the wholesale channel to continue to rebuild. Perhaps not to its former levels, but it will continue to be a significant part of the market. ►Mat Ishbia: At United Wholesale Mortgage, we believe that the wholesale market is about to make a huge comeback. With almost all of the uncertainty in regards to legislation behind us, such as the SAFE Act, the Nationwide Mortgage Licensing System (NMLS), and loan originator (LO) compensation, we see a huge number of LOs returning to the broker world. Brokers offer the most options to consumers. LOs have the opportunity to make money and now have no concern of what the future holds for brokers. We think it is a great time to be a broker and are excited to help all brokers succeed nationwide. ►John Walsh: We see a tremendous opportunity in the wholesale channel today as many lenders have exited the channel and the remaining lenders do not seem to be providing real value, either from a rate perspective or service levels. However, I believe to be successful, wholesale lenders must focus on creating the best possible operational infrastructure in order to deliver the highest service levels. Our goal at TMS Funding, the wholesale lending arm of Total Mortgage Services, is to optimize the lending value chain through a game-changing operations infrastructure to deliver the perfect mortgage and the ultimate customer experience. ►Bob Wexler: Wholesale lending may not be in vogue today, but there are opportunities for a few well-capitalized wholesale lenders who properly manage risk and credit. The regulatory environment is challenging, there is lack of product differentiation and it all must be managed with thin margins. Where will the wholesale marketplace be in three years? ►Shane O’Dell: We at Bay Equity are bullish about the future of the wholesale market. As product returns, there is no doubt the broker community will continue to grow and displace the larger institutions that have a difficult time with service. ►Bob Wexler: Yes, but it will be smaller and will continue to evolve. Wholesale lending is a cost-effective way for many lenders to deliver their programs to the market. I believe there are big opportunities for larger, well-capitalized, non-depository lenders to find opportunities in wholesale lending. I think the large, multi-state brokers of the early 2000s are an increasingly rare breed. The cost of compliance to run a multi-state operation as a mortgage broker has become prohibitive. I think we’ll see smaller yet more efficient shops in local markets. Do you feel that the mortgage broker will reap the benefits of a rising purchase market? ►Michael Maida: With most large banking platforms, the big four or five offer either a below average execution price with a 45-60 day lock period, or provide shorter term, best execution pricing solutions that are much higher then the broker is able to tie into. The broker wins the game by having flexibility to tailor the relationship with regional lenders based on service, technology and pricing solutions that match the customers’ needs. The “Big Boys” are more rigged in policy and procedure which, in a purchase market, is a disadvantage. ►John Walsh: Mortgage brokers have historically had a very close relationship with real estate agents, as they live and work in the same communities and are therefore one of the closest advisors in the purchase transaction. Mortgage brokers play a very important role in providing borrowers access to the most competitive rates in the marketplace, as well as a wide array of mortgage program options. With these advantages, I believe mortgage brokers are best positioned to be part of the mortgage solution for borrowers looking to purchase a home. ►Bob Wexler: Real estate is a local business and homebuyers will seek real estate agents and mortgage brokers who can add value to the process. Nobody knows the local market like a local mortgage broker. When the housing market turns around, the local and well-connected broker will always win. What can mortgage brokers use as their competitive advantage when selling against originators who work for a big bank? ►Shane O’Dell: The banks simply cannot keep up from a service standpoint; we are in a purchase-driven market with a high demand on COE deadlines … brokers are much better positioned to deliver than banks. What makes your company win the business of a mortgage broker … price, service or technology? ►Joe Amoroso: With the new LO compensation rules leveling the playing field, service is what makes you earn business from brokers. Consistent service levels and a positive broker/borrower experience is what builds long-term relationships. ►Mat Ishbia: United Wholesale Mortgage (UWM) makes closing loans simple and easy. Brokers always have direct access to our underwriting staff, along with having control of generating a Good Faith Estimate (GFE) and Truth-in-Lending (TIL) online, allowing them to collect money at point of application. We developed our own proprietary technology that enables brokers to submit applications directly into our paperless loan origination system (LOS). Once an application has been submitted, our brokers can log on to our Web portal 24/7 and view the real-time status of their loans in progress. As an example, when an underwriter clears a condition, it automatically populates out of our LOS and into our broker portal, providing brokers with full visibility over the underwriting process. UWM prides itself on making our submission through closing process easier than any other lender in the country. We evaluated commercially available software applications for pricing, prequalification, underwriting and processing, but found that they couldn’t meet the level of automation, service and efficiency that we wanted to offer our brokers. As a result, we spent the time and money to build our own technology, which we feel is superior to what we would have had to buy off the shelf. Technology is one of our competitive advantages, and it’s in part why we are the number eight Federal Housing Administration (FHA) wholesale lender in the country. It’s just that easy to do business with us. ►Michael Maida: Balancing price, service and technology is the ultimate goal. Service is paramount, without the confidence that a transaction will meet the target closing date, the relationship suffers. The third quarter of 2011 and forward will be won by the purchase-centric broker. For a lender to sustain the broker relationship, it is paramount that the broker has the ability to tie into technology platforms they may not be able to afford on their own. Most technology platforms today assist in reducing the cost to produce and allowing more operational staffing to vet the file and hit target closing dates. Regional lenders that specialize in specific products, such as Unites States Department of Agriculture (USDA) and U.S. Department of Veterans Affairs (VA) loans which are not as price-driven, allows the regional lender the ability to give back to the broker purchase-driven technology to optimize their workflow. ►Matt Moubray: I believe that all three of these characteristics play a role in our wholesale broker retention. Price is always going to be a factor, but the urgency of closings these days brings technology and service front and center. For example, Polaris allows same day closing docs. That is a huge advantage in a purchase-driven market where all sides of the transaction want to close as soon as possible. How has the new LO compensation rules impacted your relationships with the mortgage broker community? ►Matt Moubray: While LO compensation was a huge impact on the first quarter of 2011, business has, to a large degree, rebounded and compensation topics have taken a back seat to simply closing loans. Most broker owners have made accommodations to ensure that the livelihood of their originators was spared. There are hurdles that arise from the new rules as it pertains to credit for rate chosen and/or incorrect disclosures, but most of them can be resolved.