A mortgage broker’s to-do list
The term “margin compression” seems to be ubiquitous in the mortgage business these days with the combination of rising rates, strong competition and constant change in
the marketplace. That’s why mortgage originators need
to be as flexible as possible with products, pricing and
options for their borrowers.
One way to achieve this flexibility is to become a
mortgage broker. Although the number of mortgage
brokers has dwindled since the financial crisis, this may
be a time to reconsider it as a career choice.
Although the term mortgage originator applies to
both a mortgage broker and a mortgage banker, the
mortgage broker may work with a number of lenders,
but does not lend money or service loans. A mortgage
banker, by contrast, works for a lender that does lend
money and/or service loans.
In short, a mortgage broker acts as an intermediary
between the borrower and the lender through closing
in the homebuying process. As such, mortgage brokers may sign with a variety of lenders, ranging from
the larger institutions to smaller regional ones, that
may not be as popular with the public but offer advantageous niche-lending products. Following are things
to consider when heading down this avenue.
Again, the chief advantage of being a mortgage broker
is flexibility. Operating as a mortgage broker allows access to a multitude of products and lenders. One of the
banks that the broker works with, for example, might
have Federal Housing Administration FICO credit-score
requirements set at 580 while another could be at 620.
Part of the challenge as a broker is learning the
products that each lender offers. Some brokers are
very niche-oriented, focusing on a narrow range of
products that account for most of their business.
Others use a wider net and offer a variety of programs
that allow them to reach more potential borrowers.
A mortgage broker, unlike a mortgage banker, has
the option to be paid by the borrower or the lender.
Either option allows the broker to be paid up to 3 percent
of the loan amount.
The lender-paid option allows a broker to set up at
a different compensation level with each lender. This
allows flexibility to set margins accordingly, depending
on the strength of the products offered.
The lender-paid method also is a good option when
the borrower would benefit from a lender credit. In
that arrangement, any premium over the lender-paid
compensation amount will be returned to the borrower
in the form of a credit toward closing costs.
This creative freedom to control your products,
marketing, office size and staffing can be rewarding
and very stressful at the same time. How each mortgage
broker staffs their office is completely up to the owner.
So, a mortgage-brokerage business can vary from
one person to larger organizations with loan officers,
assistants and other types of support staff.
Opening a mortgage-brokerage business has many
challenges, especially when it comes to the initial
licensing. Each state has its own set of requirements
that include net worth, audited financial statements,
surety bonds, time in the business, references, office
setup and more. A mortgage broker who would like
to operate in different states must be approved by
each state and adhere to their licensing process and
Once the license is obtained and the business is
open, there are challenges such as state audits, possible
lender buybacks, compliance regulations, vendor and
lender setup, loan origination software, mortgage call
reports and more. Navigating wholesale lenders and
making sure they suit your client base also is a step that
can be overwhelming. There are several ways to find
these lenders such as trade shows, conventions, refer-
rals, and word of mouth. The best resource is a licensed
local broker, who can help you with lender contacts,
the application process and tips for getting started.
The challenge that a broker can face, especially ear-
ly on, is figuring out where each loan fits and under-
standing how to work with each lender. The best way
a broker can get comfortable with a lender is through
repetition. The broker cannot submit just one loan
with a lender and assume the process will be the same
on the next loan moving forward.
The broker needs to learn guidelines, not just with
Fannie Mae and Freddie Mac, but also with their partner lenders. While government-sponsored enterprises
have their own set of rules, the lenders also have their
own that can vary by lender and with each product.
Sometimes these are easy to understand and comply
with. Sometimes they are not.
Brokers should start by focusing and developing a
level of comfort with a couple of lenders. The account
executive who deals with the broker at each lender
is almost as important as the bank itself. A good account executive will make themselves available to go
over scenarios and possible hurdles. This allows the
broker to provide a better customer experience for
The account executive also will make the broker
aware of any changes to guidelines, rate adjustments,
special offers and more. Finding out information regarding the servicing of the loan after it closes is important as well. Knowing whether a bank holds or sells
its loans and getting a handle on what type of reputation they have for servicing can be an important part
of ensuring customer satisfaction.
n n n
In the ever-changing mortgage world, flexibility and
options are a good thing for loan originators. While
operating a mortgage brokerage business is not the
easiest path, it might be one worth exploring. n
A Mortgage Broker Revival
Could Be in the Offing
Flexibility with products, pricing and options is key in challenging times
By Michael Read
Michael Read is the principal and founder of Bridgeway
Mortgage, located in Morristown, New Jersey. Started in 2012,
Bridgeway Mortgage is licensed in New Jersey and Florida
and concentrates on residential lending. Read has 19 years
of mortgage experience as an originator and manager
and also is a licensed Realtor. Reach Read at
n Obtain licensing.
n Understand regulations.
n Find the right lenders.
n Learn the lenders’ products.
n Develop relationships with account executives.