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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.
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What It Takes ___________________________
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 experience and the required financial net worth, as well as the appetite and stomach for it, says Lindsay Bridges, director of business development 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 transition. “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 overzealous 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
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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.
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, undertaking appraisals, processing fees, etc. Bankers incur costs that can vary widely, however, and these costs occur at nearly every step until the sale of a loan.
There are appraisal review fees, pairing-off fees, haircut fees — i.e., risk-determined fees that are charged when a loan is sold on the secondary market — all of which can significantly affect a bank’s net earnings. When loans sit on the line for too long, investors also can charge you for a delay in purchasing availability. Properly designed policies, however, can prevent certain purchasing delays, like those caused by the Mortgage Disclosure Improvement Act.
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