There are some originators who are looking at becoming a mini-correspondent or a retail branch operator, says Willie Newman, president of the Ann Arbor, Mich.-based company. If anything, Cole Taylor is seeing increased interest from mortgage broker shops who want to become retail branch offices for the company.
The growth in the mini-correspondent business comes from what he calls “new opportunities” rather than brokers making the flip. There are those who see operating in the mini-correspondent space as a way to get around the 3% fee cap going into effect on Jan 10.
Some mortgage brokers are quite likely waiting to gauge the impact of the qualified mortgage rule will have on their business, but so far, Cole Taylor Mortgage’s broker base has been fairly stable, says Newman.
Cole Taylor Mortgage’s future is cloudy because its parent company is being acquired by MB Financial. At the same time, the mortgage unit is shopping for a new owner.
At Cole Taylor Mortgage, 63% of its 3Q13 business was purchase. This is the result of a decision it made to price refinancing purchase loans differently, Newman says.
It might have left some refinance business on the table, but in the long run, concentrating on purchases is where the company needs to be.
At Freedom Mortgage, Mt. Laurel, N.J., approximately 75% of its business comes through third-party origination channels, and that is split nearly evenly between wholesale, mini-correspondent and correspondent, says its CEO Stan Middleman.
When it comes to the 3% cap, the broker will be more challenged to stay under than the mortgage banker. That is especially true for brokers who do business in areas which have lower average loan sizes.
The big challenge for brokers will not be the 3% cap, but the shift from refinancings to purchases, Middleman says. Many have not established referral relationships with Realtors and other sources. In turn, this has reduced volume in Freedom’s wholesale channel.
The assets which Freedom acquires through the correspondent channel have a higher cost than either of the other origination channels (including mini-correspondent) but at a cheaper price than if the company is to purchase a bulk servicing rights portfolio.
Freedom has offsetting revenues sources that make doing traditional correspondent profitable, he explains.
USA Wholesale Lending, a unit of Hallmark Home Mortgage, Fort Wayne, Ind., is developing its own mini-correspondent unit. While it recognizes there is a need for this outlet for originators, it is also not being created for them to avoid the 3% cap, says president Howard Hoyt.
The concern is what the Consumer Financial Protection Bureau might decide about the treatment of captive warehouse lines of credit. The agency might not consider a captive line as a bona fide independent source of funds. When the loan is sold to the provider of the line, it might not be seen as a true secondary market transaction and instead would be subject to the fee cap, he says.
Today’s mortgage brokers are more committed, better trained and better educated “They’ll figure it out. My job is to find the guys who have figured it out and take advantage of those relationships,” Hoyt says.
If anything, SunTrust’s decision to exit wholesale is an opportunity for the independent mortgage banker. Fewer competitors help to level the playing field between depositories and nondepositories.
SunTrust will still get brokered loans, through its correspondent business, Hoyt points out. The cost of originating them will be on the shoulders of independent mortgage bankers which sell to the aggregators. USA Wholesale does not sell to SunTrust.
USA Wholesale is getting agency approvals but the plans are for it to keep its relationships with aggregators because they provide an alternative outlet.