The most recent financial industry shifts and regulatory requirements have made it necessary for mortgage originators to ensure they are aligned with the right company for their career goals. An in-depth review of the various branching models combined with a self-analysis of what’s important is required to determine the best company for each originator. Whether it is remaining independent, being aligned with a megabank or a retail branching operation, there are advantages and disadvantages to each model.
Two of the mortgage industry’s most well-known and successful professionals participated in a question and answer session with National Mortgage Professional Magazine about the various retail origination models most prevalent in 2012. Residential Finance Corporation’s Vice President and Chief Market Strategist Barry Habib, and Daniel Jacobs, president of retail branching, took some time to share their insights into the market and what it will look like in the future.
What are some of the disadvantages and advantages of working with the different origination channels?
Daniel Jacobs: There are various origination channels, including megabanks, retail banks, retail branching, as well as independent brokers. Megabank mortgage lenders have a perception of stability, national branding, cross-selling referrals, strong training programs, bank marketing, strong―although sometimes rigid―corporate culture, national licensing exemption and independence from warehouse lines for funding loans. Some of the disadvantages are the rigidity of the megabank along with the modest compensation, limited loan products, and mortgage origination is often an ancillary business line, which means it may not receive the same level of resources as the bank’s core lines of business.
Then, there is the retail branching model in which, for the originator or manager, although there is no capital at risk, there is a sense of entrepreneurism to operate a branch within a community that can focus on the unique needs without conforming to a one-size-fits-all approach. Retail branching offers originators a sense of independence that only mortgage brokers traditionally enjoyed, with the corporate backing and the various benefits of a larger corporation with a solid mortgage banking platform to support them. It is true that this option lacks ownership, and the sense of independence and entrepreneurism has corporate boundaries, but many experienced originators and managers in the industry have said this model has emerged as the best fit for them. It offers the best of many models and appeals most to individuals with more experience and history in the industry.
Many brokers have an entrepreneurial spirit, independence and focus on personal branding. However, the contraction of the wholesale market, the negative public and regulatory perception of brokers, the distraction of back office audits and disparate disclosure and compensation laws have made it more of a challenge to thrive for independent brokers than ever before. In the past being a broker meant more options to the originator. Today, it means more limitations are imposed on the originator.
There are, of course, exceptions in all of these categories, and that is important to remember.
What is the best way to decide if you want to be a retail branch or join a large bank?
Barry Habib: There are advantages and disadvantages to any of the choices, as Daniel mentioned earlier. It’s important to match your personal desires and goals with the platform that will allow you to excel in those areas. Know your likes and dislikes and do not get distracted by slick sales pitches. Also, determine what model makes the most sense for you. Your professional goals need to align with the company for which you work. I recommend everyone to create a checklist and explore the various options. It is not a decision to take lightly but it is one that must be made so that you can enjoy a rewarding career.
What are some of the key challenges to retail mortgage originations?
Habib: The onslaught of new regulations in the past few years have created new challenges for everyone―consumers, brokers and bankers alike. Some companies have not responded as well as others in this area and their compliance policies put the company at risk for being too loose―this is a particular challenge for companies without robust in-house counsel. Other companies have taken an anti-business approach by responding too heavily with overbearing policies that go above and beyond requirements. This does customers a disservice as it increases the cost of lending and can prohibit too many people from being helped. The bottom line is that companies must be 100 percent compliant with the letter and the spirit of the law without creating unnecessary obstacles for homeowners to jump through.
Jacobs: That’s exactly right. Plus, the uncertain and changing legislative and regulatory climate has made it difficult for originators to develop strategies to grow their business. The increased liability from noncompliance of regulations can be overwhelming. As an originator in 2012, it’s important to have solid guidance to remain both compliant and competitive.
Habib: Other challenges are marketing and operations. Maximizing your productivity through both marketing and operational efficiency is really important in today’s market. The best companies know how to help originators gain more refinance and purchase business through their marketing support without sacrificing on the execution or operations side. Otherwise, income levels rise and fall because as new loans come in they have to be baby sat instead of flowing through the system, which allows the originator to focus on selling.
Another area of concern for all originators is licensing. What should they be most aware of regarding licensing?
Habib: It is silly not to be licensed. It is inexpensive and allows an originator to maximize their options. There are only two reasons not to do this: Fear of the unknown or laziness, neither of which should be an obstacle for a successful originator.
Jacobs: As a loan originator in today’s regulatory environment, it is important to remain up-to-date on continuing education and licensing, even if working for an exempt organization. If not, your career becomes beholden to only those banks that are exempt. We have seen some recent examples of major banks that have exited the market and their originators’ career choices were severely limited due to their lack of individual licensing. Remember, licenses are personal now. The individual owns that license, not the company, making it vital to the true origination professional to hold personal licenses to protect his or her career options.
What are some of the challenges retail originators and branch managers may face?
Jacobs: In addition to the regulatory and licensing issues we have mentioned, the current market requires originators to determine career what kind of organization they want to be aligned with. In the past, they could choose from an independent broker, megabank mortgage lender, net branch mortgage broker, or net branch mortgage lender or a retail independent mortgage banking firm. Each of those options has varying degrees of ongoing viability. But the advantages and disadvantages of each have changed dramatically, due mainly to the legislative changes and other evolutionary changes the industry has experienced over the last five years. It also is important to select a company that shares your core values and business philosophy. And of course, since the LO compensation rules changed in 2011, we have seen more disparity in compensation plans than ever before. So, it’s important to fully understand and feel comfortable with the compensation plan once you find narrow the choices of companies that are otherwise a good fit. This is an important decision and will drive the career and success of the astute originator or branch manager.
Where do you see the market going in the next three years?
Habib: This is a highly uncertain time in the marketing place, which creates enormous opportunities for informed, educated professionals, as clients will need more guidance and wisdom than ever before. Events such as the upcoming election, the tax cliff, chaos in Europe, potential QE3, the debt ceiling debate and, most importantly, the deficit will cause economic gyrations.
I feel there is a strong possibility rates will decline even further and originators need to be able to maximize this opportunity. That said, there appears to be a “bang moment” on the horizon, which is when interest rates may rise rapidly as a result of the bond market losing its tolerance for deficit spending. This is exactly what is transpired in parts of Europe where interest rates have risen dramatically over short periods of time. Originators need to examine their personal business model as well as that of their company to make sure they can weather the storm and seize the opportunities.
