With all of the upheaval and continued government involvement in the mortgage industry, the mortgage broker has been added to the endangered species list if you haven't already noticed. A mastermind group of some of the top originators in the country over years past addressed this issue of how the mortgage broker will survive in this industry and will be able to continue originating loans. That group saw the writing on the wall back in March of 2009. With HVCC (Home Valuation Code of Conduct that requires all conventional loans to be handled through a 3rd party Appraisal Management Company with no communication allowed between the mortgage broker and the appraiser) now required on each and every Conventional (Fannie Mae/Freddie Mac) loan as well as the new HERA and TILA guidelines in effect on every loan, this further pushes the broker to the brink of extinction. Let me be sure to make mention of the fact that HVCC, HERA and TILA were all instituted very recently and AFTER this group spoke in March about the very real issues facing mortgage brokers. Since then we have also seen Colonial Bank file for Bankruptcy. They have been reported to have supplied 25% of the warehouse lending available to the mortgage market for mortgage brokers to utilize to fund deals through wholesale lender channels. And if that wasn't bad enough, we recently saw Taylor Bean & Whitaker be forced to close its doors by the government due to being "cut off" for failure to provide proper documentation to HUD and other government agencies. They were one of the largest wholesale lenders left in America and were a huge ally to the mortgage broker as a wholesale lender. They did not have a retail channel like what you see with Wells Fargo. They were the largest funder of Manufactured Homes in the country.
So what does this all mean? Well, lenders would impose tighter underwriting guidelines coupled with a very strict policy on loan fallout(loans that don't close) in order to continue to do business with mortgage brokers. This creates a chicken before the egg or the cart before the horse kind of a dilemma. You see, for the most part, tighter guidelines and absurd loan conditions from underwriters are causing loans to fall out and thus causing lender/broker relationships to be severed. That clearly leaves the broker in a major predicament. No where to send loans!! In addition, for the brokers who still have wholesale lending partnerships to be able to send loans to; underwriting, review times and appraisal issues and blah blah blah have made it near impossible to close a loan in an acceptable time frame - say 30 days or so. Is that broker funding FHA loans? Well, I was told that about only 10% of brokers are FHA approved and guess what, most loans are now FHA (cue the daunting music.)
And now for what is potentially on the horizon: the elimination of YSP or Yield Spread Premium which is how the majority of mortgage brokers are compensated for sending loans to lenders. This would just about break the back of the mortgage broker.
Well, with all of this being said, it's good to be a mortgage banker! We are underwriting our own loans and funding our own deals. If I have a question about an underwriting condition I can just pick up the line and discuss it with them directly. We can close loans in about 10-12 days thus eliminating the issue of putting the deal into another lender's hands to take 45 days because they don't care about the borrower.
I have nothing to back this up but I would venture to say that almost every mortgage done moving forward will be through a mortgage banking relationship. Let me also say that as a former mortgage broker I have had to deal with every single one of these struggles. It's about positioning yourself for the long haul. So here I am - positioned well to move forward. I look forward to helping you or your clients!
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