As the mortgage industry adapts to uncertainty in the market- place and the many regulatory changes that have occurred over
the past 10 years, some major trends have
emerged. These trends continue to evolve today. To better understand these trends and
the way they impact how mortgage originators manage their business operations, we first
need to take a brief look at the history of the
business models that emerged post-2008.
Branches and NDCs
In some parts of the country, mortgage originators joined large lenders through branching programs and became branch operators.
Hosting lenders shared their compliance-management system platforms; provided
established appraisal panels; and shared
human resource, marketing and information
Becoming a branch of a large lender allowed banking methodologies to be applied to
disclosures and the QM points-and-fees test,
giving former independent originators some
parity with bankers in the marketplace. In
addition, joining large lenders also shielded
small-business owners from an unfriendly
In exchange for these benefits and services,
mortgage originators/owners forfeited some
of their independence. In some cases, they
also lost the ability to control their own branding, marketing, pricing, choice of wholesalers and, most importantly, their control over
their processes, workflows and businesses.
Although this was a bit of a shift for independent originators, large lenders generally
benefited from these efficiencies.
In other parts of the country, mortgage
originators took out warehouse lines of
credit and restructured themselves as non-delegated correspondent lenders, or NDCs.
Non-delegated simply means these lenders
do not underwrite their own loans. They sell
loans to investors who underwrite the loans
prior to funding.
By funding loans themselves, however,
NDCs become creditors. They can choose
their own appraisal management companies, set their own pricing, use banking
methodology for disclosures as well as the
points-and-fees test and have control over
their processes. Independent originators
who enhanced their business models by
adding the NDC channel gained all the benefits of banking, but also retained much of
their independence and control over their
Importantly, NDCs lost none of the benefits of being independent originators by
adopting this model. Instead, they gained
added benefits in exchange for taking on
more risk and more responsibility.
The latest trend is the emergence of investors
and fulfillment companies offering software
solutions and expanded services to assist
originators looking to emerge into an NDC
model with less risk as a new business owner.
Some boutique warehouse-lending facilities
offer software solutions that feature performance feedback to emerging NDCs. Similarly,
some fulfillment companies are now offering
more guidance to emerging NDCs.
In addition, several investors are partnering
with warehouse and fulfillment services to
offer emerging NDCs well-rounded guidance
and efficient processes that act to mitigate
risk to NDC owners without deteriorating
the integrity of their status as correspondent
lenders. These NDCs must still shoulder more
risk than independent originators or branch
operators, but the industry is now organizing
to better support these business owners.
Across the country, branch operators can
now consider the NDC model as a viable platform for themselves and their teams. They
can re-establish their independence as well as
their control over their wholesale and investor
relationships — and therefore their pricing.
In most models, branch operators are
required to fund the majority of their
originations with the hosting lender. In many
cases, the wholesale relationships offered by
the hosting lender are limited, if nonexistent.
This reduces the ability of branch operators
to access product and pricing comparable to
either independent originators or NDCs.
Other factors that may drive branch operators to explore the NDC model include their
desire to regain control over their own branding, marketing, compensation and loan processes. More importantly, branch operators
can ensure that all their hard work goes to
establishing equity and capital in a business
they own with no ties to a larger brand. It
comes down to the ability to own something
that you can control, build, brand and someday have the opportunity to sell — prospects
that are more limited in the branching model
Finally, many independent originators also
are looking to the NDC channel as a smart
enhancement to their existing business
model. This trend is being driven by the
desire to offer sales candidates and referral
partners the banking-methodology perks
mentioned previously, plus the added cache
of being a banker.
Terri Buckman is senior vice president of the national wholesale and
division of Finance of America Mortgage LLC. Helping small-business owners in the mortgage industry
establish successful business models to better serve
their communities has been a focus and a passion
for Buckman for over 19 years. Reach Buckman at
82 Scotsman Guide Residential Edition | ScotsmanGuide.com | January 2018
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