What It Takes
« POSI TION continued from page 21
By learning more about what it takes to
be a banker and the adjustments necessary to succeed, brokers can determine if
it’s the right move for them and position
their business for a smooth transition
should they decide to proceed.
organization
When it comes to making the transition from mortgage broker to mortgage
banker, one of the most difficult adjustments a broker can experience is one of
the most fundamental: giving up the role
of loan originator.
Of course, when it comes to a typical brokerage, it’s often the case that
even the organization’s owner originates loans alongside the company’s officers. In a banking operation, however,
it’s best if the owner doesn’t originate
and submit loans, as the owner may feel
tempted to cut SRPs in the process. This
only adds more steps to the banking process, as these loans must be monitored
separately to avoid discrepancies in the
amount paid by investors when the loans
eventually are purchased.
In lieu of actually originating loans, it’s
much more advantageous for the owner
of a banking operation to organize and
facilitate the company itself. Bank owners
are tasked with hiring competent employees to fill the various departments that
must be created and managed correctly
for the operation to be successful. These
departments may include:
• Quality control
• Document drawing
• Funding
• Post-funding
• Investor reconciliation
• Lock desk
These are all areas in which it’s critical
to invest upfront while also partitioning
SRP proceeds to cover costs.
To complicate matters, some investors
— as well as Fannie Mae and Freddie Mac — will require
an audit of a certain percentage of your company’s
closed loans. It may be beneficial to have either an
internal auditor, or depending on your prospective
company’s size, a larger outside auditing company.
Regardless, the quality-control director for a well-functioning mortgage bank should have senior underwriting experience, further ensuring the completeness
and accuracy of company files. This also can reduce
Making the transition into an independent mortgage banking
company requires a full understanding of the risks involved and
changes in work scope.
a broker who is considering this transition must have the experi-
ence and the required financial net worth, as well as the appetite and
stomach for it, says Lindsay Bridges, director of business develop-
ment and project consultant at Mortgage Banking solutions.
“There is a whole lot of moving pieces once you’re operating a
bank,” says Bridges, who heads the company’s broker-to-bank
division.
cash flow is one of these factors that can make or break the tran-
sition. “Brokers are used to the concept that there is no such thing
as too much volume. Once you get into banking, you have cash-
flow impairments that can hit you,” she says.
Bridges adds that she has seen companies fail for being over-
zealous and not making calculated and measured movements. she
advises brokers-turned-bankers to leave the option on the table to
broker a loan, as well. “if you’re not 100 percent comfortable with
the risk, consider brokering it,” she says.
in addition, for a mortgage broker who decides to turn a business into a net branch of a mortgage bank or otherwise work for a
bank, it’s a must to fully investigate the working environment and
culture of the larger company.
Fred arnold, director of the national association of Mortgage
Professionals (naMB) advises brokers to interview at least three
companies and make sure that they are supportive of the entrepreneurial spirit of the business. he also recommends finding references
or friends within the local mortgage brokers association who have
worked for the company for a year or two — connections that can
reveal the pros and cons of working for the company.
“it is really important to do your homework upfront, so you find
a company that is the right fit to your culture at the local level,”
arnold says.
— Rania Oteify
For more on the risks and rewards of making a transition to mortgage
banking, turn to Page 70.
internal systems
It’s safe to say that all mortgage brokers
should be familiar with a good loan-origination system (LOS), but brokers
who are interested in mortgage banking
also should be familiar with several other
key systems. For instance, before making
the transition, brokers should familiarize
themselves with a quality wholesale
operating system (WOS).
A mortgage bank needs its WOS to
perform front-end and back-end pricing,
in addition to allowing company pricing
overlays. These systems must have the
ability to sort and calculate the best
prices for loan parameters, given the investors involved. Carefully considering
this aspect of the business can have a
significant effect on your bank’s profits.
A successful mortgage bank also
should have a smooth system for underwriting loans and should be able to
communicate with its investors’ systems and external vendors. Ultimately, a
WOS is only as good as the information
that’s submitted to it, so making sure
that you maximize the system’s capabilities throughout the loan process will
avoid many potential complications in
the future.
In addition, it’s important for new
bankers to make sure that the vendors they’re planning to use will be accepted by potential investors. Vendors
must perform functions like ordering
appraisals, checking 4506-T forms, verifying flood certifications and checking
Mortgage Electronic Registration System
(MERS) transfer links.
All in all, learning about the internal operations and systems of mortgage banking can be a tall task for even the most
seasoned brokers. That said, however,
keeping yourself well-versed in this respect will help make the transition that
much smoother.
greatly the time a loan sits on the warehouse line, which
will keep more of the SRP with the company itself — not
the warehouse bank or investor.
In short, brokers who are looking to make the transition into banking should be keen managers and facilitators. Knowing how to organize a mortgage bank
— and knowing how to properly operate that bank,
as well — is among the most crucial prerequisites for
making the change.
continued on page 29 »
costs
Properly planning for costs is at the heart of any successful business, and mortgage banking is no exception, especially in light of how quickly the costs of being a banker can add up. Mortgage brokers typically
have fixed costs when it comes to their businesses
— costs that may include generating credit reports,
darrin Stobaugh is a senior manager for Argus Lending in Pleasant Hill,
Calif., where he also writes the company’s blog. A 26-year veteran of the
mortgage industry, Stobaugh is also the owner of DES Financial Services in
San jose, Calif. He has held positions as a regional operations manager and
corporate-under writing manager at some of the top wholesale institutions in
the industry. Reach him at darrin.stobaugh@argus-lending.com.
