Carefully consider your endgame before making a move from broker to banker

Darrin Stobaugh, senior manager, Argus Lending

As published in Scotsman Guide's Residential Edition, June 2012.

Mortgage brokers always have had the option to transition their business to mortgage banking, but today, more brokers are making the transition than ever before. There are a number of reasons why so many brokers are making the jump, from increased regulations to the potential for increased revenue. Sometimes, seeing the money that can be made from service-release premiums (SRPs) alone can be enough to lure brokers to banking.

Brokers should know, however, that transitioning into the banking world can be difficult without planning appropriately or putting the right pieces in place. In the world of banking operations, there are no knee-jerk reactions when problems arise, because hasty reactions simply will burn more time and money, and adversely affect the entire operation.

There are a number of different factors that go into creating a successful mortgage banking operation, and brokers who are contemplating the transition should carefully consider their moves beforehand. Familiarizing yourself with the basic operations of mortgage banking is key — as is making sure that you’re prepared for the number of differences between brokering and banking in general.

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 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.

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