“Choose your friends wisely.” Wise words of caution often passed down by parents or learned through trial and error. If you associate with troublemakers, you’re likely to run into trouble yourself.
Choosing friends wisely applies not just to our personal lives, but also to our business partnerships. A glance at the latest headlines is all the proof anyone needs to see how a rotten apple can spoil the barrel. Indeed, you can get in sizeable trouble by working with the wrong folks, whether it’s an unscrupulous appraiser, deceitful clients or a careless lender. And yet, it’s not just bad players we need to avoid.
Choosing to align ourselves with people or companies that are barely good enough to stay out of trouble—or provide the bare minimum of service required to do business—can have a profound effect on our performance, too. This is extraordinarily important for brokers, loan officers, and other originators to remember, because it is these folks who have the closest relationships with consumers and whose business most depends on making those consumers happy.
The stakes, as we all know, are high. After the mortgage meltdown of the last decade, the mortgage industry faces an unprecedented number of new rules and guidelines that affect everyone in our business, from investors to title agents to lenders to mortgage insurers. Brokers must choose among these companies, aware that if their partners don’t abide by the rules, transactions may fall apart and their reputation can be ruined. Today, companies are often judged simply for being unwise enough to partner with a company or individual who broke the rules.
Choosing your business partners wisely is also critical due to the extraordinary opportunities presented in the current lending environment. By most accounts, the housing market is improving. According to the National Association of Realtors (NAR), existing home sales as of July were 15 percent higher than they were in 2012, while the median home price logged its seventh straight month of double-digit increases. Similarly, new mortgage loans are making a modest comeback. On July 24, the Mortgage Bankers Association's Purchase Index was six percent higher than it was just one year ago. And while 30-year-fixed mortgage rates have risen in recent months (to approximately 4.5 percent as of this writing), from a historical perspective, they are still tremendously low.
What does this mean for brokers? If you managed to survive the downturn, you probably have a good number of former partners and referrals that were waiting on the sidelines for the market to turn and are now about to spring into action—if they haven’t already. At the same time, if you’re brand new to the business, you don’t have to adjust your prior business practices or feel inclined to work with past partners out of a sense of loyalty. You can start fresh. Either way, you’re in a great position to succeed.
When it comes to a wholesale lender, how do you select a partner than paves your way to success? There are three factors I consider critical.
Strong all-around performance
Even for companies like my own, there are huge opportunities in the current market. A number of large takeout lenders, such as Wells Fargo and Bank of America, have pulled out of the wholesale business, which has really created openings for companies like ours that can provide direct Fannie Mae and Ginnie Mae approvals, a great array of tools and services for broker partners, and a wide range of products. It also creates a break for organizations to build a reputation for being responsive and reliable. For brokers, this is an important characteristic to look for in a wholesale partner, because they will be able to pass this same level of service to their customers. Borrowers, as we all know, can be nervous about getting the best product and locking in rates, and will switch lenders quickly if they don’t think anything is happening.
Unfortunately, the housing market’s improving health has lured a lot of new lenders to the business that have not quite figured out what brokers need in order to excel. Furthermore, many wholesale lenders only offer niche products that serve a small sector of the market. As the market continues to improve, and more mortgage products begin entering the picture, it will be unwise for brokers to count on a single wholesale partner for all of their business. Rather, it behooves brokers to work with a range of wholesale partners that can best cover all the different needs one’s borrowers will have.
Attention to compliance
Let’s face it, we are now subject to a deluge of new rules, and many more are on their way. As a broker, you want to make sure your wholesale lender has the right compliance processes in place. You’ll want to know answers to critical questions. For example: How does your lender protect your borrower’s information? Who do they use for appraisal management, and are they reliable? Does the lender have a fraud control system in place? Does your lender perform underwriting and collateral reviews to ensure loan quality and compliance with the secondary market?
If you are looking for new wholesale partners or considering whether to give more of your business to a company that’s advertising great rates, see if they pay more than lip service to this issue. Ask for concrete evidence of what they do to keep your transactions safe from regulatory scrutiny.
Technology makes all of our jobs easier, plain and simple. Brokers who want to make big gains in a rebounding market will want to work with lenders who provide compelling, easy-to-use and useful tools for transacting loans quickly and smoothly. This typically means that the lender has a web-based automated underwriting platform through which it can accept and lock rates at any time, in addition to tools that provide brokers with the ability to manage their pipelines efficiently. Even better is the wholesale lender that uses technology to streamline approvals with Fannie Mae, as this makes the transaction so much faster and more efficient—something borrowers can surely appreciate.
Technology also feeds into the compliance issue, and for a very simple reason. No lender in the year 2013 is able manage the growing number of federal and state mortgage regulations without some level of automation. Long gone are the days in which human eyes could be solely relied upon to ensure loan files were accurate and free from missing data. For this reason, it’s a good idea to work with lenders who have automated processes in place that can keep transactions safe.
In nearly a quarter century in this business, I’ve learned firsthand both what it takes to get a broker’s business, as well as what it takes to make borrowers happy. I’ve also learned the importance of choosing partners wisely, and make it a point to seek out individuals and companies who hold themselves to a higher standard. After all, your business strategy may change over time based on current market conditions, but healthy principles and strong ethics never go out of style.
Everyone in business gets excited when a potential partner seems to have the answer that could transform our business. As the mortgage market improves, I think we’ll see a lot of new names in the wholesale business—and maybe some old ones, too. They’ll be courting brokers and originators with claims about how fast they can close, how low a credit score they’ll accept, and so on and so forth.
As with all things, some of these lenders will be able to deliver on these promises and some won’t. For anyone in the mortgage industry, the wise thing to do is to listen carefully, ask questions and tread slowly. And to always remember to choose your friends wisely.
Buster Williams is president and CEO of RightStart Mortgage, a mortgage lender based in Pasadena, Calif. that provides a full range of FHA, conforming, ARM and refi products. RightStart’s wholesale division, RightStart Wholesale, is a full-service Fannie Mae Seller/Servicer and a direct Ginnie Mae issuer. He may be reached by e-mail at [email protected]