Six years ago, when I first started assisting brokers with their transition to mortgage banker status, there was very little tolerance for the emerging or small mortgage banker. No matter the size of the company, everyone played by the rules of the big guys and that meant lots of additional staff, expensive software tracking systems capable of handling loan servicing (even when unnecessary) and a bundle of cash to be able to meet the haircut requirements of the warehouse lender. Mortgage brokers taking that big step into mortgage banking knew virtually nothing about the additional requirements such as Home Mortgage Disclosure Act reporting, having a quality control plan, additional loan processing requirements or any myriad of compliance issues. But proficient or not, brokers trudged on in their quest for greater control, greater profits and the ability to recruit and market the company as a full-service lender.
In those earlier years, the profit margins were appealing, but then came the question, How about cross-training my existing staff and not hiring an experienced funder, shipper, doc drawer or even an underwriter, for that matter? As a consultant, I can only advise and then be there to help pick up the pieces when the experiment fails. As a mortgage banker, you have signed reps and warranties. You have a much greater responsibility to conduct your business as a banker, not as a broker, and this is one time when shortcuts can bring you down. All of the effort and money spent to achieve success can be lost without those important lines of defense being in place.
Your loan processors work closely with loan officers and they have a vested interest in seeing that each of their loans close. They work intently to make it happen for the borrower, for the company and for themselves. Even with automated underwriting and investor guidelines posted on the Internet, mistakes happen. Even when a loan is submitted to a contract underwriter in a mortgage insurance office, mistakes happen. The hiring of a doc drawer and/or funder, either in combination or individually, are your last set of eyes, your last line of defense in making sure that all is correct and compliant with that loan before it is funded. An experienced funder is often the one who catches mistakes with lock deadlines, lack of prior lock confirmation, improper charging of fees, incorrect interest rates, incorrect or insufficient closing exhibits, the list goes on and on.
The answer to the question, Do I really need to hire additional, experienced people? is a resounding yes. Mistakes equate to time and moneymostly your time and money. Without an experienced funding staff, you are the one who will need to stop and either correct an error or find a scratch-and-dent lender that will not charge you a fortune in discount to take the loan off your warehouse line. Then you need to take the time to repair any credibility issues you may have with both your warehouse lender and your correspondent lender. Too many instances of not being able to properly fund a loan lead to questions regarding your status as a valued account. Based on performance, the more mistakes you make, the less you will be able to negotiate better terms and conditions when your contracts come up for renewal. If and when market conditions become adverse, only those small- to mid-size mortgage bankers with perfect track records will be able to continue in mortgage banking. The others will potentially suffer the non-renewal of their agreements with no other acceptable options available.
Questions are often raised about hiring experienced professionals. How do you know if they are any good? What questions do you ask in the interview process? These concerns are valid and I suggest that if you resort to advertising in the classified section of your local newspaper, you should be extremely specific about your location, your recent entry into mortgage banking and your need for an experienced, motivated self-starter who can help you learn more about back-room functions (doc drawers, funders and shippers). Typically, that kind of expertise is not found in a person who has worked in a bank, credit union or savings and loan. This person has usually worked for other mortgage bankers of larger or comparable size and is aware of all of the aspects of correspondent lending. The other alternative is to work with a company that outsources personnel, either on a temporary or permanent basis, with skills specific to the mortgage industry. The SRS Group is an example of a company that specializes in this kind of personnel placement. If you hire a doc drawer, funder, shipper or someone with a combination of these skills on a temporary basis, you will have the time to assess whether the selected candidate was right for you personally and for your company in general. If not, keep trying until you find the right fit for your situation.
It is important to venture into mortgage banking with the capitalization available (based on your size and volume) to hire at least one person experienced with the closing function requirements of mortgage banking. What you dont know details of mortgage banking, your experienced funder can help you better understand. This is not the time to try and cross-train without the proper expertise. Hire skilled people with previous experience in mortgage banking and your learning curve will be far less painful.
Elaine Roccio is a mortgage banking consultant and founder of Broker to Banker Consulting Services Inc. She can be reached at (800) 509-5989 or e-mail [email protected].