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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   October 2017

Success Is Built One Deal at a Time

Focus your energy in the mortgage business on going from good to great

 You have already made the career decision to become a commercial mortgage broker. You have secured your license, established a physical location or an online presence, have business cards, letterhead and, most importantly, you have the heart of an entrepreneur.

You want to be self-employed, the architect of your own future, with unlimited potential income. To achieve your objectives, you have to recognize or do the following:

  • Uncertainty is your new normal;
  • Accept your reality;
  • Build opportunity by producing value;
  • Focus on the future; and
  • Never stop learning.

Be action oriented

In a nutshell, a commercial mortgage broker’s future is about “doing things.” That means nothing happens until the sale is made, the transaction is closed and you get paid.

At a Glance

Following is a partial list of the questions that a commercial mortgage broker should ask a lender:

  • What are the bank’s current portfolio needs?
  • What are the new initiatives currently happening within the bank?
  • What is the lender’s ideal loan size and desired interest rate?
  • What are the bank’s preferred loan types? — i.e., acquisition, development, construction, mini-perm
  • What are the lender’s market-geographic preferences?
  • What is the bank’s attitude in regard to dealing with mortgage brokers?

In addition, mortgage brokers must recognize their three most important assets: time, knowledge and the commitment to succeed. So, never miss an opportunity to gain from your experiences and never quit. Never, ever, ever quit.

There are many moving parts to this business, however, and among the top concerns are money sources, or lenders. Mortgage brokers are paid on commission based on the loan amount sought by the borrower and granted by the lender.

Operating a mortgage brokerage business can be very gratifying and very financially rewarding. It can also be a constant battle, if the broker develops certain bad business practices.

These shortcomings will encumber a broker’s ability to close transactions and also limit the broker’s ability to grow business. These shortcomings include the following: chasing the wrong loans, not identifying and understanding a lender’s preferred loan products, trying to make too many exceptions to loan policies and not having a fee agreement in place.

Mortgage brokers must continuously seek new ways to distinguish themselves in the market. A broker who is also a skilled underwriter, for example, can assist the borrower in navigating the funding process with the lender. Another key to success as a commercial mortgage broker is to develop a funding source for just about every loan product you choose to offer. Developing funding sources is an effort without a finish line.

Develop a network

Many lenders are constantly changing their portfolio requirements and risk profiles. This is not to suggest that lenders are indecisive or erratic, however. It must be understood that lenders are highly regulated and operate in a constantly changing economic environment.

One day a lender will eagerly accept a retail transaction, the next day a wholesale deal, and the next day both are unacceptable. These policy changes may be a result of the bank being very liquid and willing to overlook many flaws. Or, the changes could be the result of the lender’s loan portfolio concentrations, or because it was criticized by a regulator, or it could stem from a negative article in the newspaper about the economy. Commercial real estate lending is, frankly, very subjective and constantly in flux.

The key to loan-volume success as a mortgage broker is to identify a range of lenders who are actively lending today. Further, keep in mind that there is a common belief that has a degree of truth: 20 percent of real estate loan officers do 80 percent of the loans. Consequently, a savvy mortgage broker should identify which lending officer is doing the most deals and work hard at developing a strong working relationship with that individual and financial institution.

Before starting to develop banking relationships, it is appropriate for the mortgage broker to identify which loan markets to actively pursue.

Building strong, long-lasting relationships with lenders requires more than sourcing well-qualified loans.

Frequently, a broker that has developed a niche may have more success than a generalist. But that is a strategy unique to the individual broker, and their area of expertise and interest. In any event, the broker will need a sizable number of lenders that are ready and eager to finance the loans sourced by the broker.

Narrow your plan

What is a sizable number of lenders? Well, that depends on whether you are a generalist or a specialist. A generalist will attempt to do almost any type and size of deal that comes along. A specialist has developed a niche and specializes in two or three specific loan products — construction loans, for example, or perhaps owner-occupied commercial buildings, or maybe multifamily projects.

The generalist will need as many contacts and banking relationships as can be developed. This will, of course, require considerable time and effort. Maybe this time and effort could be better invested by narrowing the business strategy, which will reduce the need for so many lender relationships.

A successful mortgage broker will frequently stand out as a specialist. If a particular market is stronger and more active, the broker may wish to emphasize that niche as their primary focus. If the broker’s lending partners have a particular focus, then that niche, too, could become an area of shared emphasis.

Currently, a wide-ranging array of lending options exist. Commercial mortgage brokers should know what the market demands and structure their marketing strategies accordingly. Once the broker decides on a focus, the next step is to start identifying potential lenders. It is essential for a mortgage broker to know the lender’s desired loan products, lending focus and underwriting criteria to ensure the borrower’s financial needs can be matched with the appropriate lender, resulting in a faster credit decision and more timely loan closing.

Perhaps one of the more time-consuming efforts the commercial mortgage broker must commit to is developing a clear understanding of the lender’s credit philosophy, portfolio needs and volume expectations. The broker should be able to pinpoint the specific loan products or package style that will best fit each lender’s credit criteria. Yet another side benefit of developing strong lender relationships is that lenders may then refer clients to the broker, thus fostering a mutually beneficial partnership.

Cultivate lender loyalty

Building strong, long-lasting relationships with lenders requires more than sourcing well-qualified loans that meet the lender’s portfolio requirements. Lenders also will have certain codes of conduct that the broker is expected to follow.

These “fiduciary duties” will include, at a minimum, the following expectations:

  • Loyalty — putting the bank’s interests ahead of the broker’s interest;
  • Transparency — promoting openness, unrestricted communication and responsibility;
  • Disclosure — releasing relevant information concerning the client, broker and all other matters that may impact a credit decision;
  • Privacy — protecting the client’s and bank’s information and data; and
  • Conflict of interest — avoiding discord between the broker’s interests and the interests of the borrower and the bank.

These standards are not optional. They are required to be understood and obeyed in order to create and maintain a solid business relationship with the lender and as part of complying with appropriate laws. Another area that a broker must be up to speed on is the general state of the business environment and economy, which can have a dramatic impact on borrower confidence and the lender’s growth strategies.

• • •

We are going through a period of unprecedented change and modernization, advances in technology, growing regulatory control and a turbulent political scene — all of which are creating a certain level of disruption. Those forces also are changing fundamental aspects of how financial businesses operate.

If mortgage brokers don’t put themselves in a position to respond appropriately, they risk being left behind. Brokers who embrace rapid change will likely find more opportunities and methods to serve their clients and lenders. Fast-moving creative thinkers will not only survive, but they also will succeed. Our future is on fast forward. There’s no time for complacency. 


 


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