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   ARTICLE   |   From Scotsman Guide Residential Edition   |   May 2016

Getting to the Next Level Requires an Expanded Reach

Launching a correspondent channel can open up a whole new line of business opportunities

Getting to the Next Level Requires an Expanded ReachYou are a mortgage originator working with a wholesale lender whose business has grown. You’ve been part of a team that has helped the company build a solid reputation, and it has good management and infrastructure in place to accommodate more volume. What’s next?

Wholesale lenders that have built a robust business but are ready for more may be looking for ways they can use existing infrastructure to expand in terms of volume or product offerings. Typically, a wholesale lender that has achieved a measure of success starts thinking about the possibility of becoming a correspondent investor — which will allow the company to purchase loans for resale on the secondary market, typically aided by providing other loan originators with access to a warehouse line of credit.

Adding a business line focused on correspondent loan purchases can offer many advantages to existing wholesale lenders and the originators working with them. These businesses can boost their volume quickly by buying mortgages originated by others. There is money to be made from that volume, either by reselling loans, getting into the business of loan servicing or both. These business-line extensions can present big opportunities for growing wholesalers.

Startup phase

Before wholesale lenders enter the correspondent business, they need to examine their existing operational infrastructure to ensure they have the support they need. If not, they will need to spend some time creating robust back-office mechanisms to service the business. A team of professionals is required to establish basic business practices and controls, to create a seller’s guide and obtain warehouse line-of-credit approvals if the business is not a bank — all in service of the ultimate goal, which is to have the bench strength necessary to fulfill the business the sales team establishes.

Once the back office has prepared for the volume, the company will need to focus on creating a sales team. Wholesalers would be best to scroll through their contact lists to reach out to established, well-connected correspondent salespeople with industry experience. This is not the time to take a chance on someone who doesn’t know the business. The first few salespeople will be worth their weight in gold and will have a hand in determining the early success or failure of the national correspondent lending channel.

Ideally, the company’s new salespeople should be bringing their books of business with them when they join your company. Obviously, hiring experienced salespeople is going to require a significant financial commitment, but businesses that are not prepared for this level of financial outlay may have to rethink the strategy of adding correspondent lending.

Marketing push

After a year or two in the startup phase, the focus shifts to increasing name recognition and letting potential clients — loan originators — know the company exists. At this point, it’s all about marketing. To establish the company’s name, it makes sense to attend conferences, sponsor events and put on a marketing hat to create a recognizable brand in the correspondent lending space.

New correspondent loan buyers with a recognizable
brand name behind them will surge ahead.

New correspondent loan buyers with a recognizable brand name behind them will surge ahead. Those with broker experience have an additional advantage, because they can credibly present themselves as consultants who have spent time in some well-worn shoes as loan originators themselves. Everyone wants to work with someone who understands their pain points.

After a few years, when the business has gained some momentum, it will need to shift focus from being a startup to growing its market share — seeking to become a significant player in a marketplace crowded with brand names and well-established niche companies. To succeed, a company will need to differentiate its business in one or more ways to become a name that potential clients recognize, and to earn the market share that will make it a sizeable player.

Adding staff will be necessary as the company increases the volume of business it is getting from each banker or other loan originator and is continually adding new clients. The company will need persistence to grow from $500 million to $1 billion in purchased loan volume annually. A relatively new correspondent buyer should be purchasing loans from about two-dozen new correspondent loan originators a year. A more realistic but still reasonable goal would be to add 10 or 12 new client relationships annually. Prospecting is key, and the company will need people who are not afraid to continue calling on loan sellers until they can convince them to come on board.

True success requires differentiation. Similar to the wholesale sector, best-in-class service is a must and will pave the road to success faster than any other single factor. If you take care of your clients, they will stay with you and increase the loan volume they sell to you.

Other steps

Other features can help a new correspondent investor stand out in a crowded field. Some correspondent buyers, for example, do not operate a retail chain that could potentially compete with its clients’ originators. For some loan sellers, this builds trust much faster, because they don’t have to be concerned that the loan buyer’s retail arm will try to poach refinance business from them down the road.

Some purchasers offer a certified loan program that provides the client with a representation and warrantee release should something happen to the loan after they sell it — such as fraud or misrepresentation. This usually comes with minimal cost to the client, only requiring a small deductible should repurchase be required. This is like insurance coverage with no upfront fee, and it can be a significant benefit to clients.

Other correspondent buyers offer a diverse product mix, with the ability to purchase a wide variety of loan types. In such a case, a client loan originator will not need relationships, contracts and deals with several different buyers. Some clients prefer to work with a company with a well-known name and seemingly unlimited resources to spend on marketing and support. Other potential clients will feel more comfortable with a company that has been in business for decades.

•  •  •

A company’s ability to be successful as a correspondent investor starts with developing a solid, comprehensive business plan. When executed well, that plan will launch a company on its way to expanding beyond the wholesale business to becoming a successful correspondent buyer. 


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