As published in Scotsman Guide's Residential Edition, July 2005.
In the past 10 years, I have discovered that most brokers work with more lenders than necessary. Often, brokers have relationships with as many as 100 different lenders but only use 15 to 20 regularly.
I’ve often wondered how these brokers keep all of the different lenders’ products straight. How do they build meaningful rapport with all of them? What incentive does the lender have to give better service when the broker works with so many competitors?
I believe it is strategically advantageous for brokers to work with fewer lenders — about three per loan type, period. If brokers offer prime-paper, government, Alt-A and subprime loans, that leaves them only 12 lenders — which can trim their lender base considerably. It also is possible to choose one lender to be the contact for two loan products, which lowers the total even further. Overall, the fewer lenders with whom brokers work, the more benefits brokers will receive.
Know the benefits
By working with only three lenders per loan type, a broker will become familiar with each lender’s consistency of service. Eventually, the broker and lender will begin to learn what to expect from one another and better cater to one another’s needs.
More interaction with a particular lender also increases the chance of a successful personal relationship. The expectation that “you scratch my back, I’ll scratch yours” is prevalent in the mortgage industry. Lenders are more inclined to refer business to a friendly broker, just as the broker has referred business to them. Once lenders see that a broker is helping to increase loan volume, they are much more likely to give that broker better pricing than found on the rate sheet.
After establishing a stronger personal and business relationship, lenders also are more inclined to teach the broker about new products and services. In addition, lenders’ sales support will help brokers develop a more-proficient way to market products to their customers. The lenders’ sales staff would be more likely to run scenarios and help brokers determine which loan products work best for their borrowers when a strong relationship is in place.
Proceed with caution, though; the philosophy of not putting all of your eggs in one basket definitely applies to wholesale-mortgage lending. If brokers only choose one lender, they would be putting an enormous amount of trust in that lender’s quality of service. What if that lender’s service started to slip? Not only would these brokers have to rebuild a relationship with another lender, but they also could lose customers during the switch.
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