THE END OF THE MORTGAGE "BROKER" Part 2

By
Mortgage and Lending with PS Mortgage Lending 305-791-4874 or 888-845-6630 365768

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.

WHY/WHY NOT?

 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 RULESMost 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.

 

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Information and content in this blog is original to Phil Stevenson

Please click the "SUBSCRIBE TO MY BLOG" button on the right, and receive more Traditional and Reverse Mortgage information in Florida and other parts of the US & Puerto Rico.

 

Phil Stevenson

PS Financial Services

Owner and Principal Mortgage Originator

Certified Reverse Mortgage Professional (CRMP)

LO #365768

NMLS #968090

Cell: 888.845.6630

Miami Mortgages & Florida Mortgages

Copyright © 2013 by Phil Stevenson & PS Financial Services, LLC

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Mortgage Bankers of Florida 09/08/2010 01:20 AM
  2. Brian Clayton 09/08/2010 02:26 AM
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Rainer
108,003
Brian Clayton
Moudry Real Estate Advisors - Houston, TX
Real Estate Agent - Houston

Great follow up to your original post! I am interested in reading all the comments on this one as well!

Sep 08, 2010 02:29 AM #1
Rainmaker
362,038
Jeanne Dufort
Coldwell Banker Lake Country - Madison, GA
Madison and Lake Oconee GA

I am following this topic with great interest.  Thanks for laying out the case so clearly.

Sep 08, 2010 03:06 AM #2
Anonymous
Will Smith

The Mortgage Broker is dead, could not be the furthest thing from the truth. Mortgage Brokers have not collected YSP since January 1st, 2010. It is shown as a credit to the borrower on the GFE. So mortgage brokers can and will still be in existance from now on. If anything the banks and direct lenders are the one's that are getting ready to take the big hit. #1 they will have their pay capped at 3% and with big bank overhead will take this from LO pay. And #2 the FHA ruling that the lender is responsible for the FHA brokers will mean more LOs coming back to the mortgage broker side. NAMB (National Assocaition of Mortgage Brokers) called the Finance Reform Bill a glorious act and a great day for mortgage brokers. And finally bank employees are going to have to start disclosing Service Release Premium starting in April 2011. This means that all the LOs that ran to work for banks will have to disclose their fees just like mortgage brokers have been doing since January 2010. And the next thing, is LOs working for banks will have to take NMLS testing just like mortgage brokers have been doing all year. So again, if anything is getting ready to happen the mortgage broker business is getting ready to boom. I work for a direct wholesale lender so I can assure you for a fact the mortgage broker is not going anywhere but up. It is the banks and mortgage bankers that are about to get blind sided in April 2011. Watch it happen.

Sep 08, 2010 03:36 AM #3
Rainmaker
601,542
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Phil - Like you, I too do not know what is going to happen but whatever happens, I will never, ever go to the dark side (national bank).  I love being a broker because as a broker, I can offer my borrowers so many different options. 

Furthermore, as an MLO for an extremely large broker, we have Tier 1 status with dozens of small, regional lenders that offer us premium pricing and preferred underwriting, which means I have a direct line to the underwriter and actually get to talk to them about my file.  Granted, we also have Tier 1 status with the big, national lenders too but I find working with my small, regional lenders so much better. 

Working with my Tier 1 lenders is very much like option C for me and that is what I am planning to continue doing, using my small, regional lenders that have the best options for not only me but my borrowers as well.

Sep 08, 2010 04:27 AM #4
Anonymous
Lee

in your blog you made the comment...."in today's market as a broker or even a LO at the lending giants you never see or speak to the underwriter". 

I work for one of the "lending giants" and came from the broker world after 12 years. For the first time I can actually pick up the phone and call the underwriter or their manager to go over a complex scenario or shaky deal. I also have the ability to send in a "naked file" before I order the appraisal and other inspections to make sure the deal is solid. We also have a home value analyzer that allows us to check up on the value before wasting the borrowers money. Because of all of this, zero deals have blown up, unlike the broker world where I constantly felt like I was pulling teeth to get loans closed. 

Yes, I joined the dark side, but have no regrets. I take an average of 6-7 apps a day, and average 30-40 funded units per month, which is more than double than what I was able to produce as a broker due to the lack of a decent support system (processors..closers..underwriters...etc...) 

 

Lee

Sep 22, 2010 02:18 PM #5
Rainmaker
271,377
Phil Stevenson, CRMP
PS Mortgage Lending 305-791-4874 or 888-845-6630 - Miami, FL
"Mortgage Nerd" in Miami, Florida and Texas

Lee,

Great input.  I have heard from some that they cannot speak to the UW, but you seem to be in a great position just as I am when it comes to communication and benefit to the borrower.  Thanks!

Sep 23, 2010 04:25 AM #6
Rainer
397,573
Jana Holmstrup
Jana Holmstrup - CCO - Kings Mortgage Services, Inc. - Visalia, CA
Why does Will #3 say that Lenders will have to disclose SRP come April 2011?? Whether we sell our rights to service a loan or not is not linked to the borrower and may not be known prior to closing. Phil, I am enjoying your discussions. Haven't formed opinions yet... Still trying to sort out the facts Would love to see a Group here on AR where we can share our experiences while we work towards April Fools Day! Thanks, Jana
Sep 26, 2010 08:36 AM #7
Rainmaker
271,377
Phil Stevenson, CRMP
PS Mortgage Lending 305-791-4874 or 888-845-6630 - Miami, FL
"Mortgage Nerd" in Miami, Florida and Texas

Jana,

Very well put.  YSP and SRP and two totally different things, and will probably never be diclosed to the borrower.  The only thing I see that MAY be regulated is the amount paid or how money will be paid to the originator by the lenders based on the SRP.  I doubt there will be regulation on that, but if there is, then it all depends on the wording.  A lender can pay profit sharing, bonuses, etc. and it does not necessarily need to come from YSP or SRP.

No matter how you look it, the lender will have the upper hand depending on the wording on Aprils Fool's Day 2011.  btw, great association for the day the regulation begins, lol.

Sep 27, 2010 06:21 AM #8
Anonymous
Andy Harris

Phil, your last comment regarding SRP and YSP is completely false as well as your view of wholesale.  PLEASE READ THE FINAL FED RULING BEFORE PROVIDING ANY OPINION.

The banking channel will not have the upper hand.  SRP and YSP are both gone as the originator knows is on all channels.  The lender cannot pay the originator any bonuses or SRP in banking.  All loans are paid identically and based off the loan amount only- no exceptions.

Please get your facts and I truly hope you discontinue self-promotion from your personal change to banking.

Oct 21, 2010 10:12 AM #9
Rainer
8,042
Craig Grella
CreativeREO - Nashville, TN

In my real estate career I've borrowed money, brokered money, and lent money, and through it all, I never really understood yield spread.  As a broker, you are selling your services to the client saying I will be your advocate and find you the best mortgage for which you qualify.  Then, whether you disclose the YSP or not, you are recommending they sign off on a loan that is, by definition, not the best deal for which they qualify since the YSP is inflating their actual approved rate.

I have to believe that if you are honest with your borrowers and truly get them the best deal around they will come back to you.  Maybe that's just old fashioned thinking.

Jan 18, 2011 07:56 AM #10
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Rainmaker
271,377

Phil Stevenson, CRMP

"Mortgage Nerd" in Miami, Florida and Texas
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