Commercial

Jumping the Fence from Mortgage Broker to Mortgage Banker

Dec 14, 2018

If the grass looks greener on the other side of the mortgage fence, maybe it’s time to consider a transition from broker to banker. How easy that transition could be depends on whether you are an independent broker or have a brokerage business.

Independent Mortgage Broker

If you have tried your hand as an independent mortgage broker for a few years, it could be time to review your career path. If you feel being the “middleman” between the borrower and the lender has its limitations, it may be time to consider becoming a mortgage banker. If you’ve been working from your home office, joining a larger organization as a mortgage banker can offer better technology and systems. It’s also likely you’ll have a larger marketing and advertising budget that could help you expand your client base and your monthly fundings. However, be prepared to give up a little control – you won’t be your own boss anymore.

It is important to do your homework before making any transition. Be sure the mortgage banker you join offers the product mix you’re looking for. You could lose some of the loan programs you used as a broker, but you may still have the ability to broker out to get what you want.

The transition should also give you more time to focus on building relationships with borrowers and referral partners because accounting, technology, and compliance will now be handled at the corporate level. You may also find your days less stressful when not dealing with multiple lenders.

Crossing over to the direct lending side of the mortgage business can be a stepping-stone to eventually running your own mortgage banking business.

Transitioning a Brokerage Firm

Like independent mortgage brokers, owners of brokerage businesses also wrestle with the decision to transition to mortgage banking. Maybe the idea of funding loans in their own name is appealing or the hope of increased profits drives their interest. Becoming a mortgage bank could also increase continuity throughout the loan process and provide greater control during loan closing. This could all have a significant impact on building customer trust and profits.

While the transition to mortgage banking can usually be accomplished in 30 days for an independent mortgage broker, converting a brokerage operation or establishing a new mortgage bank is much more extensive. It takes detailed planning, personal and financial commitment, and a significant amount of time.

If you’re toying with the idea, an initial review of the following three requirements could determine if you’re on the right track:

Mortgage Experience
Education, Training, and Certifications
NMLS Registration

Mortgage Experience

Although there isn’t a set requirement for experience, 10 years is a common benchmark. What’s important is that you have a thorough understanding of the loan process, experience with a variety of loan programs, and a basic understanding of the secondary loan market.

The mortgage industry has gone through significant changes since the housing crash of 2008. If you experienced the crash firsthand, you undoubtedly have some valuable insights regarding best practices that can be applied to your mortgage bank. However, post-crash experience is the most important, and brokers with 5 to 7 years of experience may also be qualified for the move. And, as with any industry, a savvy entrepreneur with a team of experienced loan officers might succeed with far less experience.

Education, Training, and Certifications

Having a college degree is not mandatory to becoming a mortgage banker, but some education in banking, finance, real estate, or business would be beneficial. Ultimately, a talent for sales, people skills, and the ability to understand financial concepts are what translate into success.

Regularly attending Mortgage Bankers Association (MBA) conferences is important. These conferences allow mortgage bankers and brokers to connect with industry professionals, research new loan programs, and exchange ideas pertaining to production, technology, and operations. They are an opportunity to improve your knowledge base and bring back beneficial information that can be applied to your own company’s venture. Depending on where you are lending, you can also utilize state and local mortgage banking associations located throughout the U.S.

In addition to conferences, the MBA Education website is an excellent resource for training and education. There are numerous courses, designations, and certificate programs offered by MBA. One of their programs, the Residential Certified Mortgage Banker (CMB®) designation, may be especially useful in solidifying the reputation of your mortgage bank.

NMLS Registration

The Nationwide Mortgage Licensing System (NMLS) registers mortgage companies, branches and individual mortgage loan officers. As a mortgage broker, you’re familiar with the organization and process. However, if you don’t already have a license for your brokerage firm, you’ll need to go through the licensing process. The NMLS Resource Center provides a wealth of information, including quick guides and an NMLS Call Center to assist you in this process.

Four Pillars of Every Mortgage Bank

If you’ve done some research, you know that there are many factors that go into supporting a successful mortgage bank – more than can be covered in a single article. However, if you’re only trying to determine the feasibility of a transition, there are some foundational anchors to every mortgage bank that can be touched upon:

Operational Set-Up
Product Mix
Sell or Service
Securing Warehouse Lines

Operational Set-Up

As a direct lender, your responsibilities go beyond originating and packaging the loan. You can no longer “throw the loan package over the fence.” Instead, you are now committed to the entire loan process – from origination until sale on the secondary market. This means that in addition to loan officers and loan processors, you’ll likely need underwriters, funders, and closers on your team.

Most warehouse lenders, who will be discussed later, like to see an operational set-up of at least 15 to 20 employees. If you’ve been in the mortgage industry for a number of years, you’ve undoubtedly made a lot of connections. Those connections will become an asset when recruiting the additional staff needed for your operation.

Product Mix

An important decision when setting up a mortgage bank is what loan programs will be offered. Often you will choose to mirror the existing product mix at your brokerage company. Before making a decision, review your existing client base to see what loan programs were used. Also, find out what types of products are being sold in the areas you plan to market. Once you have a basic idea of your product mix, review the underwriting requirements for each program.

Most mortgage banks don’t offer every available loan program, but instead focus on basic programs, at least until they are well-established. Becoming an approved seller for Fannie Mae, Freddie Mac, or both will provide you with a solid set of conventional mortgage products and help you streamline the processing of those loans. If you want to include FHA and VA loans in your product mix, look into becoming an approved issuer for Ginnie Mae.

Although you may not have direct access to all loan programs, you will still have the option to broker out to programs not offered in-house.

Sell or Service

As a mortgage banker, your primary focus is to earn the fees associated with loan origination, mainly through points and origination fees. Once a mortgage is originated, you’ll have the option to retain and service the mortgage or sell the servicing rights to another financial institution.

Because you’re using your own funds to make the loan, you will eventually run out of money if you don’t sell your funded loans on the secondary market. That’s the reason most mortgage bankers don’t retain mortgages after funding. Instead, they sell their mortgages to a larger lender. Selling your loans will provide you with the funds needed to originate additional mortgages and continue to earn fees.

Securing Warehouse Lines

In addition to originating mortgages using your own money, you’re also likely to use money from a warehouse lender. This third party lender provides short-term, secured financing to mortgage bankers for single family residential loans. This enables the banker to close loans in their own name and temporarily ‘warehouse’ them until they can be sold to investors on the secondary market.

Each warehouse lender has slightly different requirements to qualify for a line of credit. However, some basic requirements for a mortgage banker to secure a warehouse line of credit might include:

Volume of over $10,000,000 per month
Preferred net worth of $1,000,000 to $1,500,000
Cash liquidity of $500,000 to $750,000
Personal guarantee of 20% from all owners of the company

It’s also common for a warehouse lender to ask that a mortgage banker secure a second line through another lender to mitigate risk.

Taking It to the Next Level

Sometimes the grass is really greener on the other side of the fence. But before you jump over the mortgage fence, make sure you understand the additional responsibilities of being a mortgage banker and any benefits you’ll be leaving behind in your former role as a broker. Once you’re confident in your decision, the transition can be done in as little as a month.

When it comes to transitioning an entire operation, it will take significantly longer. Do your research, speak with other mortgage bankers who have made the transition, and develop a written business plan. It takes time to hire additional staff, build relationships with warehouse lenders, and meet capital requirements.

Ultimately, it’s the passion for funding loans in your own name and the control that comes with it that can make it the perfect time to take your operation to the next level. The rest is just working out the details.

For more information on Axos Bank and our Warehouse Lending Division that is committed to building strong partnerships, please contact us by phone at 1-888-764-7080 today.