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I have been both a mortgage banker, a mortgage broker, a broker/owner, and back to a banker. It’s a merry-go-round … sometimes you’re a lion, sometimes a horse, but most important is that you continue to go around and around continuing to earn an income. There is no right or wrong answer as they both provide a source of employment.
A mortgage banker provides a service of loan origination, processing, underwriting and closing. Bankers utilize lenders like Fannie Mae and Freddie Mac, offering a variety of loan products such as conventional, jumbo, FHA, VA and USDA. Most bankers have their own underwriters in-house, which often means the ability for direct contact, questions, structuring and other key questions that often only an underwriter can answer adequately.
Another positive aspect as a banker is the opportunity to learn different roles within the industry to allow future career expansion and growth. As a broker, your expansion opportunities are limited to possible ownership of a brokerage company.
I will point out that a banker is most definitely the way for a newbie to go, they offer structure and training. Education, training and product knowledge are typically abundant in the banking arena. Most bankers have the funds to spend on their employees, to help increase their sales ability, technique, customer service, leadership, product knowledge and more.
Mortgage brokers have positive and negative sides as well. All mortgage brokers have to be federally-licensed, as well as state-regulated. All brokers must possess an active NMLS (Nationwide Mortgage Licensing System & Registry) number.
A broker doesn’t work for a specific lender, they are a middle person. They originate loans, some may even process their own loans, while others offer in-house processors and then submit the loan to a lender of choice.
A broker must be knowledgeable in all products they want to offer, thus brokers tend to be more seasoned loan officers. Some mortgage brokers will only take on loan officers with a minimum of two years under their belt, and in my opinion, that’s not enough. LOs working as brokers will be expected to shop their own loans, understanding specific lender guidelines for that type of loan, knowing how to structure a loan, and either processing the loan, or having a processor assist in the processing of the loan and then properly submitting the loan to the lender’s underwriting department.
Often, the LO working as a broker will need to work with an account executive from the lender they are placing the loan with for more product information, such as lender overlays on top of standard guidelines. This is where it can get tricky. When you work for a bank, you know their guidelines. As a broker, it is more difficult to learn in an ever-changing environment 15-25 or more lenders guidelines. Thus, one way to combat this is to work with three or four key lenders, get to know their guidelines, underwriters and schmooze with account reps. The more business you or your company sends to a particular lender, the more brownie points you score. It’s like taking care of your own. Who are you going to help in need, a good friend or co-worker who you positively interact with daily or someone you see at a Chamber of Commerce networking event once every other month.
There is an upside to this as well. As a broker, you have more autonomy and freedom to place your loans where you want them to go. This is the number one advantage of being a broker—the ability to submit different types of loans to your choice of lender. Never submit the same loan to more than one lender at a time … this is unprofessional. This action could cause a lender to stop accepting future loans not only from you as an individual loan officer, but could jeopardize the whole company’s ability to continue to submit loans to the lender that the loan gets pulled from.
One other major difference is at closing. A banker is lending their own funds, whether a loan or not, they are closing in their name. They can choose to keep the loan in the name with the use of their own funds, portfolio lending or they can choose to sell the loan to one of the players, such as Fannie Mae, Freddie Mac or another large lender who are buying loans. What a banker will do is sell their loans in bundles—for example a $5 million bundle—the larger the bundle, the more perks the banker may be able to obtain. For example, sometimes the bankers providing $50 million or $250 million in loan bundles may get a rate discount that they can choose to pass on to the borrower to attract more loan business with a tad lower rate, or maybe keep it to help pay for internal costs, such as the in-house underwriters. They may also get a pass on some guideline that is in a grey area, allowing them to structure a loan differently.
A broker, on the closing side closes the loan in the lenders name, nothing ever closes in the broker’s names, unless the broker has secured a loan, called a warehouse line of credit enabling them to table fund. Table funding allows a broker to close in their name for a short while, typically less than two weeks. They then package their loans and send them to the lender who is “buying” them from the broker and servicing them. There are risks involved here for the broker owner, as the loan is closed and funded with their warehouse line of credit, thus the package must be exactly how the lender expects it to be in order to sell the loan. If it is not, the lender who the broker anticipated selling the loan to could reject it, causing the broker to rectify the issue immediately.
There is a gray side to being a banker that allows the brokering of certain loans. It’s kind of like having your cake and eating it too. However, there are not many bankers that are currently offering both avenues.
It may seem that, as a banker, you receive a slightly reduced commission split, but it is an offset for what you get in return—an office, the use of the company’s computers and software, printers, all business supplies, business cards, in-house underwriters, processors, marketing materials, and training. I can honestly say I made the most money in my career as a banker, more than I did as a broker.
Even though my commission was set to the same amount for every deal, with a little fluctuation for volume, I truly made more. I think I worried less as well. I had a specific processor assigned to me. I was allowed to have an assistant and all was good in my world. I worked for a portfolio banker, which made my position easier. I had unique programs, the ability to underwrite based upon our own guidelines and common sense, and the banker wasn’t selling the loans. It was a great time to be a banker.
Brokers and bankers both have advantages and drawbacks based on the timing of where you are in the circle of life chain. When I first started in the business, I was unaware of mortgage brokers. They weren’t popular or abundant at the time. As my career evolved, I started to learn about what mortgage brokers could do, and soon, all of us bankers had a network of brokers that we passed off business to. As a banker, our guidelines were too strict and we couldn’t do the loans. But to keep our real estate agents happy, we knew who could get the deal done. The mindset was that brokers did the more undesirable and more difficult to do loans. But bankers still controlled the market, as brokers only had a small percentage of the business.
That soon began to change. Soon many banks, lending institutions opened their doors to brokers’ loans. Brokers were starting to compete against the bankers for the more desirable loans. They could now originate top-notch, top-quality loans, as well as blemished ones. It was perfect verbiage for a broker to say, “Work with me. I’ll shop your loan for the lowest rate, the best scenario.” Or if they had a more difficult loan, “Don’t go to a banker. If your loan is denied, it’s over. If I originate your loan, and one lender says no, we simply repackage the loan and send it to another lender for a second option.” Brokers soon started cutting into the bankers’ pockets and were closing more than 50 percent of the market share until the financial crisis hit.
Then, the rules and the game changed. Banker guidelines tightened, home values dropped, foreclosures were running rampant, and both broker and banker’s compliance rules had an overhaul, and many bankers and brokers closed shop. The big boys like Bear Sterns, Countrywide, Lehman Brothers and Washington Mutual closed their doors. Even Fannie Mae and Freddie Mac required a bailout. Just the same impact hit the brokers as well, as many closed their doors and went out of business. Today, it seems that the banking side is on the upswing, as well as the brokers who were able to sustain themselves though the crisis. Survive and thrive!
Both mortgage brokers and mortgage bankers have their advantages and drawbacks, so choose the avenue that is right for you and continue to prosper!
Laura Burke, MBA, MS, MIS, CFE, EA is an author, and trainer with 20-plus years of experience in the mortgage arena. She has been in the trenches as a loan officer, originating more than $35 million to becoming CEO of her own mortgage brokerage company. Laura specializes in federal tax law, compliance, fraud, data management, security, leadership, training and marketing. She may be reached by e-mail at [email protected].
This article originally appeared in the October 2015 print edition of National Mortgage Professional Magazine.