From broker to correspondent.
Brokers must disclose on the Good Faith Estimate (GFE) form any compensation they'll receive from yield-spread premiums (YSPs). Total compensation for the loan is shown on the GFE, and the YSP amount is subtracted from that to show borrowers their "adjusted origination charges." Doing so "makes brokers look noncompetitive" in their pricing, says Alexander.
"Banks have won the propaganda war," asserts Alexander. "The public feels safer working with bankers and is reluctant to use brokers." He adds that because borrowers "feel secure" walking into their local bank branch, they're less likely to shop for rates--and may pay one-fourth of a percentage point more as a result.
Yet correspondent lenders typically offer better pricing than financial institutions do, Alexander says. National and regional banks are "big, slow, and have high rates," he adds. "Competing against them is easy." Having its own underwriters and warehouse line lets Axia Financial's originators provide faster turnaround times, Alexander says.
Break the mold
Brian Barnes also has gone from being "a die-hard broker" to being an employee at a correspondent-lending firm. Barnes is a divisional president for Primary Residential Mortgage Inc., Salt Lake City. Barnes still is doing business as Paradise Financial, which he began in 1992 in Roseville, California. Paradise went from being a mortgage brokerage to a mortgage bank in 2001, and its staff grew to 300 as volume rose to $100 million per month.
However, in 2006 Barnes went back to being a broker, and downsized the firm. Costs associated with mortgage banking plus loan buyback concerns prompted that decision, he says. Barnes notes that the $105 million warehouse credit line he carried as a banker would require him to hold $30 million in liquid assets today.
Yet working as a mortgage broker now isn't as attractive as being part of a correspondent lending firm, according to Barnes. He estimates brokers need 45 to 60 days to close a loan today. Yet Barnes says his current closing time as part of Primary Residential Mortgage's correspondent lending group averages 23 days.
A big factor in the faster closing time is that correspondent lenders can underwrite to the specifications of the loan's final buyer. Paradise Financial has an in-house underwriter who uses "overlays" detailing what different investors are looking for in a loan package. Additionally, the Paradise underwriter can call underwriters at different loan investors if a question arises.
Brokers don't have as much access to loan buyers, so it's harder to underwrite for specific investors, Barnes says. As a result, brokers may have to go back to the borrower several times for more information to meet conditions imposed by wholesale firms. Brokers also may find their borrowers' rate locks are in danger of expiring before they've gained approval. Or they may need to re-disclose to borrowers if the parameters of a deal change.
Lenders with their own warehouse lines also can prioritize production flow. A loan can be closed quickly if necessary at Paradise Financial, by pushing it ahead of applications that were begun earlier. Yet wholesale lenders typically don't provide brokers that amount of flexibility, Barnes says.
Barnes affiliated with Primary Residential less than a year ago, and is recruiting additional salespeople now. Most of his eight originators are former brokers who might have had 10-person offices in 2005, but now are working out of their homes. His staff "average 15 years in the business," Barnes notes. "I was treading water 12 months ago," he says. "But we're quite profitable now."
Today's market "is not that bad," adds Barnes. He compares the current environment with that of the late 1990s, before the housing boom took off. Four out of five loans Paradise originates are insured by the Federal Housing Administration (FHA), and 90 percent are purchase loans.
"There's a lot less competition" now, according to Barnes. But loan officers must be knowledgeable and hard-working to thrive today, he explains.
Real estate agents now are bringing Barnes deals that retail bankers can't approve in a timely fashion. He notes that borrowers approaching national banks may find it takes five days to get someone to return their call. Or someone making an application online could wait "a few weeks" and still not have loan approval, Barnes says.
Being able to fund faster than both retail lenders and mortgage brokers means that "now our niche is service," says Barnes. "I'm a broker in my mind," he adds, "but I'm working in a banking environment."
Howard Schneider is a freelance writer based in Ojai, California. He can be reached at email@example.com.
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|Title Annotation:||Broker Business|
|Date:||Jun 1, 2010|
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