The response was overwhelming, and the passion in your comments was refreshing! Over 120 comments with over 6,000 views and many of them were very long dissertations about how they agree or disagree with the blog. The need to follow up and add more to the post resonated in those comments. So here is part 2 of a series of 3. (You can find part one here: THE END OF THE MORTGAGE BROKER)
First, I want everyone to know that I, Phil Stevenson, am a Broker at heart, and even as a small lender we still broker some deals to other lenders. At the same time, I don't foresee myself ever joining one of the lending GIANTS. I have been courted by 2 of the 3 largest Reverse Mortgage lenders in the country, but I don't see the benefit at this juncture. I wrote this blog based on my experiences and what I perceive to be happening in the industry. Your truth and experience may be different from mine, BUT I DO NOT SEE THE EDGE OR THE ADVANTAGE ON THE BROKER SIDE ANYMORE. The financial reform is a big part of it, but other changes in regulation like the Home Valuation Code of Conduct (HVCC) have also influenced these changes.
I do still believe that the Mortgage BROKER will not ever be what it was. Many of you so passionately and eloquently built your cases for why there will always be brokers, and even the CEO of the National Association of Mortgage Brokers (NAMB) emailed me yesterday with some very good ideas. I agree that the Broker will continue to persevere and live in the market, but I don't see them thriving as they once did.
Rules and Regulations; the lenders, large and small, will dictate all rule and guidelines that the broker must abide by. The large lenders create what are called OVERLAYS. This means that if FHA says the minimum credit score for an FHA INSURED loan is 500 (now going up to 580), the lenders will say their minimum is 620, for example. Some may say that this is no different than before, but it is when it comes to things like appraised value, underwriting, and income I will have to disagree.
Appraisal; all lenders, large and small, have their appraisal regulations. They must ALL be HVCC compliant, but 99% require the use of their own Appraisal Management Companies (AMCs). If you have been in the business long enough or are producing in this market, you or someone you know has lost a deal to an absurdly low value. And even if you produced better comps, the AMCs say the same thing, "we believe in and support the value." GARBAGE! How do you avoid that? YOU BECOME THE LENDER AND MAKE YOUR OWN APPRAISAL REQUIREMENTS WITHIN THE CODE OF CONDUCT RULES. Most people don't realize that HVCC does NOT require the use of AMCs.
Underwriting; in today's market as a broker or even a LO at the lending giants you never see or speak to the underwriter (UW). Instead, the poor borrower must pay for appraisal, inspection, etc. before you submit the package to the lender and wait for them to get around to giving you an answer. If the broker converts to being a lender or joins with a lender, they now have the ability to speak directly to the in-house underwriter and even the CEO to see the deal is viable before wasting time. And more importantly, you know whether the UW is an unreasonable one or not.
Pricing; the YSP issue was a heated one in the comments to the first blog, so I will give my 2 cents for what I see happening. I can't say this is the way it will be, but no one really knows because the laws are written in such a vague manner that it's left for interpretation by all. If a lender pays a broker 1%, that same lender can sell the loan in the secondary market for more than that 1%. So if you work for a true Mortgage Lender (NOT A LARGE LENDER or BANK that just happens to offer mortgages) you will be restricted to making the same 1% as the individual Mortgage ORIGINATOR (MO; which can be an LO, MB, etc. whatever title you want to give it) working for that lender. BUT that same small lender can turn around and sell the loan AFTER the transaction has closed and funded, which can leave the MO with a possibility of making a bonus or profit sharing or some kind of other incentive for their production that is not out of compliance with the new YSP rules. The Mortgage Broker gets paid at closing and all numbers must be disclosed on the HUD.
I WANT TO CLARIFY SOMETHING, this is just my thought and I am not saying that this is how my company or any other will run. No one knows what the new rules will state exactly, but from my point of view this gives us as MOs the most flexibility. With this type of structure you have the best chance of doing all of the following:
1 - Close more loans
2 - Be more efficient and get rid of the bad loans faster
3 - Get paid more than brokers or loan officers at large depository lending institutions.
So, for all of those who adamantly opposed my blog and said, "THE BROKER WILL NOT DIE," I won't disagree with you, but I will say this, which of these following options will the best people, the best talent in the industry most likely to take or gravitate towards:
A - Stay as brokers with all the restrictions and less pay
B - Migrate to large depository lenders or banks with a small salary, small commission, and the same restrictions
C - Create their own or migrate to the smaller lenders who can create their own rules within the National guidelines, which means without the overlays or conservative additional guidelines & regulations that the large lenders enforce, as well as the potential for greater closing volume and income per file closed.
D - None of the above, create your own
I WOULD LIKE FEEDBACK FROM EACH OF YOU! TELL ME WHICH STRUCTURE ABOVE (A, B, C, or D) YOU FEEL WILL BE THE BEST ONE OVER THE NEXT FEW YEARS AND WHY YOU FEEL THAT WAY. OR MAYBE YOU HAVE A BETTER IDEA AND WOULD LIKE TO SHARE IT.
Make sure to include (A, B, C, or D) so that I can shows the numbers or percentages in next weeks final post in this 3 part series. SUBSCRIBE TO MY BLOG (on the right) SO THAT YOU CAN SEE THE FINAL RESULTS.