Editorials

As mortgage brokers, are we waiving our white flags of surrender, or are we just adapting to our new environment?

The bad players have left the industry by now, but the attack on mortgage brokers continues in the halls of Congress at both the federal and state levels.  The net effects of HVCC, MDIA and RESPA require wholesale lenders to be very involved in many upfront origination processes. Wholesalers now must order the broker's appraisal, deliver their TIL and soon, may have to deliver the new GFE within three business days of the broker taking an application, or at the very least will have to deliver all subsequent revised GFEs. And with the new zero tolerance on lender fees, effective immediately, brokers will need to know where they are placing the loan at application, or potentially absorb any fee discrepancies. All of these processes have hindered one of your biggest advantages, the ability to redirect a loan as necessary, for better terms.

To boot, the new GFE has disparities in how YSP is disclosed between bankers and brokers, with brokers being at a clear disadvantage. Brokers will have a little more "splainin' to do, Lucy" to convince the consumer they are not charging more than the banker. Brokers will have to include all YSP in their origination charges, then credit back some to the borrower, to ultimately come to the same net figure that a banker comes to by simply not disclosing the YSP at all.

These are some of the obvious reasons brokers are now driven to seek partnerships with bankers. The less apparent reasons are more alarming. HUD is in the process of doing away with their loan correspondent mortgagee approval (the mini-eagle), which still has unknown ramifications to the mortgage broker. At the MBA conference, I heard directly from the horse’s mouth (President John Courson) that many DE lenders are considering putting a higher net worth requirement to their brokers originating FHA loans than the $63,000 that HUD required. This is a very big unknown for mortgage brokers that originate FHA loans, making it tough to project volume for 2010. Aligning with a banker generally secures HUD approval.

The other big unknown is the Federal Reserve's proposal to regulate loan officer compensation, doing away with YSP as we know it and requiring private flat fee compensation agreements between brokers and lenders. It's difficult to envision how the broker/wholesaler world will look if this comes to pass.

The trend from broker to banker is not a new trend, but an accelerating trend.  I expect that first quarter 2010, will reveal a lot of new partnerships.  It feels like the beginning of a land grab by the mortgage banking community. There is some sense of urgency and also opportunity among bankers to align with the most profitable and well run broker shops for a more exclusive relationship.

The urgency stems from a concern that there will be very few true broker shops left. The viability of the wholesale channel is in question. Profitable wholesaling is about volume and efficiencies, and the contracting broker community and increased labor necessary per loan, is making this ideal harder to achieve.

The opportunity for bankers in these arrangements is, of course, a closer relationship with the originator and the fact that converting any portion of production from TPO (third part originated) status is a benefit.  Retail loans simply perform better. The affiliate branch operators better understand their banking partner's products, processes, policies and people.  I think of it as the ultimate broker partner program. One colleague of mine likes to say, the dating is over, it's time to settle down. Beyonce would say it this way, "If you like it then you shoulda put a ring on it."

It is also very telling that CAMB is in the process of changing their name to CAMP (California Association of Mortgage Professionals). The assumption is that the association hopes to gain membership from the banking community.

Let me be quick to add, I sincerely hope wholesale survives.  And should you decide to forge a partnership with a bank as an affiliate, I wish you continued success, and commend you for refusing to give up your independent and entrepreneurial spirit.  But I also commend you for recognizing that the need for adaptation is paramount to success moving forward.

Terri Buckman is the Vice President and Sales Manager of Affiliate Branching for Pinnacle Capital Mortgage. With more than 25 years of experience in the mortgage banking and brokering industries, Terri welcomes questions at tbuckman@pcmloan.com or via phone at 925.822.5931.