In a recent Origination News article titled, “Joining Up With a Retail Operation or Opting Out,” 360 Mortgage president Mark Greco discussed the reasons why loan officers are looking to return to the wholesale channel.
Some of Mr. Greco’s insights include:
- Loan officers are transitioning back into being mortgage brokers in part because of compensation issues. Many loan officers are not happy with the pay they are receiving ever since the loan officer compensation rules went into effect.
- Product is another issue impacting why loan officers are considering returning to being mortgage brokers. As the refi boom ends and the purchase market picks up, it will make every loan more valuable as the overlays that some larger organizations have imposed are hurting a loan officer’s ability to close a loan.
- There is a trend emerging with the five-to-10 person mortgage broker shops that became a branch and are now “unhooking their wagon” from the larger organizations and going back to being independent brokers.
While some loan officers will always feel more secure at a larger retail lender, others with a more entrepreneurial spirit are returning to the wholesale channel for the autonomy and the multiple choices that they have as mortgage brokers.
What are your thoughts on this topic?
The full Origination News article can be seen below:
Joining Up With a Retail Operation or Opting Out
By Brad Finkelstein
MAR 8, 2013 5:10pm ET
In today’s mortgage environment, branching proponents are giving a myriad of reasons why loan officers or independent mortgage broker shops should consider joining a larger organization.
And if many of those arguments sound familiar, it is because they are. The same reasons for considering becoming an employee at a larger shop still exist, mainly better loan pricing and the cost of compliance.
However, according to one wholesale mortgage bankers, an opposite trend is developing. Feeling stifled either creatively or in terms of compensation, these branch managers and staffers are opting out of the model and returning to being independent.
Still there are probably more people seeking to become branches than leaving.
Equity Loans LLC in Atlanta added 17 branches during the past year to its operations. Eddy Perez, its president, said one of the biggest things an organization likes his brings to the table is its platform. A lot of originators feel frustrated, he said, because they do not have the products or secondary market capabilities needed and “that they feel like it is hold them back from achieving more success.”
Perez said Equity built its platform from a sales perspective because the management had themselves started out as brokers before moving over to the banking side. This allows them to have an understanding of the realities these originators deal with.
The new offices were predominantly on the East Coast, although offices did open in Denver, San Diego and other locales.
He said the decision to open an office “was more about the opportunity that was presented,” adding the consideration included penetration into a “traditional” footprint where the office was dealing with such local referral sources as Realtors, builders and certified public accountants.
“No matter what happens in the market, if somebody has a good foothold in an area, that will allow the company to continue to grow,” said Perez. Thus Equity was seeking those who already had developed a referral based business. Equity’s name might not have been known in those markets but that person with the local connection gave it a leg up in getting that name out.
“We’re very sales centric, where we’re trying to work together with the sales force, instead of against them. So yes, we may have been new in an area,” but with management’s experience as originators and branch managers themselves, they could offer these new branch managers advice from a sales perspective.
The company has been in business since February 2008 and now has 28 branches total. Starting during the height of the bust means it doesn’t have the legacy issues that many other mortgage bankers are dealing with, Perez said.
From Daniel Jacobs’ perspective, depending on their individual situation, different originators will have different reasons for seeking to become a branch, although some of those reasons might overlap at one point or another.
Some company owners might decide they are no longer putting their personal net worth in jeopardy because of the risks the mortgage industry has today, said the president of retail branching at Residential Finance Corp., Columbus, Ohio. For small mortgage bankers, issues like managing the warehouse line and regulatory compliance are taking up more time.
Either they are miserable because they are doing all the tasks they don’t like or they are eating into their bottom line because they have to hire people to do those tasks.
There is tipping point, which may vary from company to company, where it is worth hiring an in-house attorney, or a full-time compliance officer, or a full-time closing department. But unless they grow far beyond that tipping point, these companies might find it hard to make money relative to their peers, he said.
By becoming part of a larger organization, they can focus on the areas they like, such as business development.
Broker owners are feeling squeezed by changing and tightening regulations, Jacobs said. The complaints from 10 years ago about compliance, he declared, “We didn’t know how good we had it back then.”
On the other side, wholesale investors, in their quest for compliance are making it difficult for brokers to deliver
through that channel. And then there is the lack of control over turn times, which hurts competitively in a purchase market.
Another category of those seeking a new retail home are those who already work for branch networks but those firms, as Jacobs put it, “lost their focus on service. These folks are struggling in organizations that once met all of their needs, but are no longer focused on servicing their internal customers—their branch managers and loan originators.”
This in turn affects the branch manager’s ability to deliver the service their referral partners expect.
At RFC and other similar firms, the focus is allowing branch managers and originators to concentrate on business development and revenue generating activities. The back office and financial issues are taken care of at the corporate level.
The underlying assumption, Jacobs said, is that the parent company is going to remain focused on those details.
Jacobs is a veteran of the branch development business, having been the chief executive of 1st Metropolitan Mortgage, one of the largest mortgage broker shops by both volume and number of offices during its heyday.
Given the expected shift to a purchase market, a branch environment could be more beneficial to the originator but it depends on how focused that parent is to providing support to its originators.
It is important for someone looking for a new retail home to ask a perspective employer how does that company treat purchase applications different than refinancings, he said.
A lot of companies get so enamored of refis that they forget that purchase applications have different needs. Purchases have time specific needs and a plan needs to be in place to handle them. That is something a person should consider to see if an organization is a good fit, Jacobs said.
There are cases where a branch environment is not a good environment for an originator. People who have only been an owner tend to struggle in switching, because they are not used to “having the buck stop anywhere but with themselves and they are used to doing things everything their own way,” he explained.
While the branching model is generally good for entrepreneur types, some might have issues adjusting to working within an organization.
Mark Greco, the president of 360 Mortgage Group, Austin, Texas, said he is seeing a lot of loan officers transition back into being mortgage brokers in part because of compensation issues; they are not happy with the pay they are receiving ever since the loan officer compensation rules went into effect.
Product is another issue; once the refi boom ends and the purchase market picks up again, “every loan becomes more valuable.” And while the market is plain vanilla, the overlays that some organizations have imposed are crimping the loan officer’s ability to close a loan.
What Greco is seeing is that a lot of loan officers are going back to work for the larger broker shop. He is also seeing the five- to 10-person shop that became a branch is now “unhooking their wagon” from the larger organization and going back to being independent brokers as well.
Ironically, loan officer compensation was why a lot of people exited the broker channel. But they soon discovered, he said, that retail could be difficult to navigate, and the compensation rules also applied there.
“Their issue is ‘if it is going to apply to me anyway, I might as well have my autonomy, have the multiple choices that I have as a broker and I’m entrepreneurial in spirit anyway. I might as well be a broker and be on my own,’ and that is why they are making that choice,” Greco said.