Revenge of the banks: Can't beat 'em? Join 'em!

Until the 1990s, the mortgage landscape was dominated by big banks and local savings and loan banks. While the sleeping giants were enjoying market dominance, a new breed of mortgage producers came into supremacy. From out of nowhere, the Mortgage Brokerage business was born and flourished to take more than 60 percent of the originations nationwide. It took regulators more than 10 years to realize that this shift had taken place and start truly reining in the industry.

As a former broker/owner for 15 years and past president of the Illinois Association of Mortgage Brokers, I know, first-hand, how hard it is to keep up with the ever-changing regulatory climate. Just when you think you have been dealt the worst possible cards by the state and sometimes federal regulators, you find out that there is another bill pending or rule coming down to make your life more difficult, such as branch licensing requirements, loan officer licensing, continuing education requirements, record-keeping and expense burdens.

Today, the regulatory landscape is far more difficult and complex than it has ever been. There are bills that have passed or are pending in many states that put personal liability on loan officers, add additional requirements to loan officer licensing and make the playing field very uneven. Since only state regulated entities are subject to these changes, federally chartered banks are exempt from them and do not have to alter how they do business. Now, even traditional mortgage bankers are being attacked on local and national levels, as they are all regulated by state agencies. Congress is even trying to pass a law that would outlaw or severely limit yield spread premiums (YSP). In addition, the U.S. Department of Housing and Urban Development is trying to count table-funded loans, which most mortgage bankers live on, as needing the same disclosures of YSP as brokers have now. It seems as though the legislature is hell-bent on putting Mortgage Brokers and many mortgage bankers out of business. As if that was not enough, Fannie Mae and Freddie Mac have rules pending that would forbid brokers and table-funded mortgage bankers from using their own appraisers or even ordering appraisals directly. They now want the actual lender to control the entire process. Additionally, major lenders are pulling out of the wholesale business altogether. Allegedly, the number one wholesale lender in the country, Countrywide Home Loans, will be exiting the wholesale business by the year's end as part of its integration into Bank of America. Wall Street firms are also cracking down on third party originations and being extremely picky about with whom they will do business and from what type of entities they will buy/securitize mortgages. The pendulum has shifted back heavily in favor of direct lenders and federal banks in particular.

So, the question stands: If you can't beat 'em, join 'em? Many small- to mid-sized Mortgage Brokers and bankers are now affiliating with federal banks to ensure their survival, gain massive market share opportunities and enjoy the very same exemptions from all of the state laws that are plaguing the mortgage business. This means life without borders—originating loans anywhere, from anywhere and with no licensing requirements. What a concept!

Naturally, the idea of affiliating with a federal bank is not going to appeal to everyone who is looking for a way to survive and thrive in this ever-changing market; but for some aggressive mortgage entrepreneurs, it just might be the best solution as the next step in their mortgage evolution.

Rob Hardman is president of Primera Mortgage, a division of Colorado Federal Savings Bank. He can be reached at (708) 795-9900 or e-mail [email protected].