Plucky mortgage originators across the country are going the opposite way of many of their larger competitors. Instead of cutting back, these small and midsize firms are adding retail branches.
Between expectations of a diminished loan origination market, with fewer refinancings coming in the door, and restrictive new rules such as qualified mortgage and ability-to-repay now in effect, the larger companies are concerned about higher expenses and lower revenue.
Expansion-minded mortgage bankers and brokers want to take advantage of the void being created by the national lenders’ retrenchment. The local and regional firms are betting their personalized service and longstanding relationships with referral sources, such as real estate agents, will win them a larger share of a shrinking origination market.
"With the refi boom ending, it puts brokers right in the mix and we are the dominant ones because we have done purchases," says A.S.A.P. Mortgage owner and operator Irene Amato.
Real estate agents have taught consumers that "they have options to choose a mortgage professional. They just don't have to go to their bank,” Amato says.
"When they are given options, they can make the decision of who to use. And we can't forget that [brokers] are held to higher standards," since unlike bank loan officers, mortgage brokers are licensed by the state, she says.
A.S.A.P. Mortgage is based in Cortlandt Manor, N.Y., and recently opened its third office, in Yonkers, a city whose southern boundary touches the Bronx in New York City. The new branch has already helped three or four couples who are starting to look for homes.
"If I had not gone, who knows what they would be doing," says Amato.
Larger banks are more disturbed by the end of the refinance boom than brokers are, says Amato, who is also the vice president of the New York Association of Mortgage Brokers.
The brokers Amato knows have been working under the 3% fee cap called for in the qualified mortgage rule, so that is not affecting their business, she says. There is talk of a third version of the government’s Home Affordable Refinancing Program, but it is not here yet.
Most of the banks had their own refi programs to help their borrowers that the brokers did not have access to.
The housing crisis did force some of the better brokers out of the business. But those who survived will dominate the market, because there is a need for their services, Amato predict.
Survival now depends on purchase business. This brings brokers back into the mix, as most experienced originators have developed the referral relationships needed with not only real estate agents, but others who interact with the consumer either during the transaction or outside of it, she says.
Brokers take the time to explain things to consumers and that is what the borrower wants. "My clients are not just a number to me," Amato declares.
"They want someone who cares about their situation, knows them personally and understand what their needs are."
She sees the Bronx and lower Westchester County as an area in dire need of good mortgage professionals. Residents need someone who is available outside of banking hours, who is willing to work on a Saturday; they need to have a loan officer they can call at night (because the client is working during the day).
Residential Home Funding Corp., a correspondent mortgage banker based in Parsippany, N.J., is looking to add branches on the East Coast from New York down to Florida, says Frank Kuri, its senior vice president for branch development.
Some of the financial institutions that have been cutting back have signed on with Residential Home Funding to provide them with an outsourced lending platform.
Meanwhile, the loan officers who had been employees of those institutions are finding opportunities in the retail units at Residential Home or other mortgage lenders.
Residential Home has 22 branches. It is looking add eight to 12 new offices, Kuri says. It lacks brick and mortar presence in eight of the 12 East Coast states.
For 14 years, his company has specialized in turning mortgage brokers into retail mortgage bankers, he says. For the many mortgage brokers who have concerns about QM compliance, becoming a retail branch at Residential Funding (or elsewhere) is an option, Kuri points out.
At a recent mortgage broker show in Atlantic City, many originators told Kuri they were willing to wait to see how QM would affect them, but they also wanted to have a Plan B in place.
Of course, there are risks to expanding in the current environment. With more people competing for a smaller piece of the pie, inevitably some will fail.
A survey of 24 mortgage banking executives at firms of all sizes (10 of which had 2013 production of under $5 million) conducted by industry consultant Tom LaMalfa during the Mortgage Bankers Association's annual convention found that all but one of them expected to see consolidation in the business this year, rather than growth.
The same number did not expect to see growth in the market share of mortgage brokers nor growth in new outlets for these third party originators. These responses are consistent with prior surveys he has done.
LaMalfa's own views are closer to the lone individual than the majority of his respondents. Through the years, he has examined costs and found third-party originators like brokers are the lowest-cost producers of mortgages. That alone bodes well for growth for the third-party business once the regulatory hurdles are worked through, he says.
RightStart Mortgage, in Pasadena, Calif., has hired a retail business development manager as part of its branch expansion efforts.
At his previous places of employment, John Stangarone's duties included branch recruiting. With RightStart he will oversee the management and growth of this line of business.
The company also hired Jon Okken to fill a similar role in its wholesale operations.