The need for the mortgage broker business still exists as consumers have needs that retail lenders are unable or unwilling to meet, ON found in talking with the leadership of the National Association of Mortgage Brokers during its midyear meeting in Phoenix.
The discussion also covered why the requirements of the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act enhance the professionalism of the business and could turn banks into the safe haven of those who cannot meet them.
In addition, the group discussed the financial services reform bill (see Origination News' sister publication National Mortgage News, June 5) and a myriad of other business issues that are affecting the mortgage broker business right now.
For example, the bill includes a provision that sunsets the Home Valuation Code of Conduct, which mortgage brokers have remained in active opposition to. There was also language regarding appraisal portability that the group would have liked to seen made stronger. And the group is optimistic brokers will be able to order appraisals again.
The National Association of Mortgage Broker's chief executive Roy DeLoach, president William Howe, president-elect Michael D'Alonzo, vice president Don Frommeyer, secretary Ginny Ferguson, treasurer John Councilman and immediate past president Jim Pair met with Origination News managing editor Brad Finkelstein.
ON: Let's talk a little bit about the availability of loan products. Right now, even though there seems to be some movement in the jumbo market, the market is dominated by Fannie Mae, Freddie Mac and the government products.
FERGUSON: You've also got the super-conforming loans out there, which have taken the place of a lot of the bottom end of the jumbo market. I am doing quite a few of the $700,000 range loans right now (in the Pleasanton, Calif.-area) and we're doing those at 4.875%. I don't know how anybody can do anything a whole lot better than that for the consumer, when you are dealing with a 4.875% 30-year fixed, no prepayment penalties and zero points. The jumbo market is out there but it certainly has not come back, and the pricing is more in the mid-6 range for that consumer that is above [the super-conforming limit]. We do have lenders out there that are allowing us to combine a fixed first with a fixed second up to 80% loan-to-value at about $1.2 million combined loan totals. So we are having the capability now to do more of those jumbo pricing type loans, which six months ago, we did not.
ON: Are you seeing competition with retail lenders for this product?
FERGUSON: A direct lender is generally going to be handing out that type of a loan product to their retail division long before they hand it out to the wholesale division. Now whether or not the retail loan originators are out there in that marketplace and know what their underwriters need well enough to package that loan is a whole different question.
ON: So, the big selling of being a broker is your experience?
FERGUSON: We're experienced, we're licensed, we've got the education background behind us to be able to go out and help that borrower navigate the waters today that are extremely treacherous in underwriting.
HOWE: And generally have more product available.
FERGUSON: Because we are aren't just selling the product that the parent company has.
COUNCILMAN: I see regularly one wholesaler just arbitrarily setting a ratio of 45% of income, a person with a 46% ratio simply is not going to be able to go to that lender.
FERGUSON: It is not just 46%, John, it is 45.01%.
COUNCILMAN: We see that, yet the mortgage broker has the ability to have several lenders where they can take that individual as a perfectly qualified borrower, that the retail loan officer is not going to be able to do, unless their actually doing some form of brokerage.
D'ALONZO: I think also the speed in that a broker can react, they are going to be proactive as opposed to a bank employee that may be on a salary. We're working on a commission, we're going to be there, we're going to be answering our phone at 8:00 at night, we're going to be working on weekends. I think that gives us a distinct advantage in the long haul. I think you are going to see is a lot more loan originators can't pass the test and going through the rigorous background checks and the rigorous qualifications, they are going to run to the banks, whereas the professionals are going to stay in the broker community.
ON: Kind of a negative selection for loan officers?
FERGUSON: Which is something we had suggested when this whole thing started was perhaps to going to happen to a segment of the industry if they did not have the same required licensing that everybody else did. If you were going to have a problem originator, they were going to run for cover where the restrictions were the least stringent. That is why we're going to be out there a year from now still doing loans.
COUNCILMAN: We didn't address why the government is doing so many of these loans and that is a concern with the recent (financial reform legislation). It appears they are going to push people toward FHA, VA and USDA loans based on they'll have a presumption of compliance, where GSE loans or any other conventional loans will not have a presumption of compliance.
ON: Where do you as brokers see the future of the secondary market going?
PAIR: Personally, I feel the secondary market is going to continue to improve and grow and it's going to be more for the safe harbor-type loans, the fixed-rate mortgage, no prepayment (penalty), the ability to prepay. As long as we deliver a good quality package that meets those requirements, I believe that the secondary market is going to be there. There will more confidence in the secondary market because of these factors.
ON: Will it have the same form prior to the GSE's conservatorship? Or will it be privatize or under total government operation?
PAIR: I believe the GSEs are going to continue to play a role, as long as Congress does not do anything to change the structure of Fannie or Freddie at this particular time. The private secondary market will continue to grow as confidence builds in the products that are being delivered to the market.
ON: Speaking of government programs, what do you think about the changes to the FHA program, removing the approval and audit requirements for correspondents (FHA terminology for brokers) and leaving such approval up to the wholesaler?
COUNCILMAN: We're very much in favor of it. Opening brokers to all conduits, even more than they are right now is something we hope to see. We do work with other secondary market players directly, portfolio lenders. In many ways, we have structures that need to be looked at again. Where the broker can put the loan where it belongs and not worry about some other government process pushing it where it may not belong. This is a real concern that everybody has.
ON: Is everybody bullish on the future of NAMB, that the organization will be here this time next year? And well into the future.
HOWE: Yes sir. (Everyone also answers in the affirmative)
COUNCILMAN: I did forget to mention one thing on the FHA-it's going to convert a lot of small mortgage bankers into mortgage brokers because you will no longer be able to close the loan in the name of a correspondent, if FHA goes down that track. So we're going to see, I'm certain, companies that never would have thought of being a mortgage broker, actually become mortgage brokers.
DELOACH: I want to dovetail on that concept. Just being brutally honest about what is going on-the originate to distribute model is really a code word for saying "we're just brokering the loan." I think what is happening at the FHA, what's happening in some parts on the GFE and what you see on Capitol Hill in terms of trying to differentiate between [types of originators]. Just because you are a creditor, doesn't make you a real creditor. The market is shifting to a realization of what is really going on. A lender or credit union that does a loan, they've already turned around (and) before the ink is dry on the documents it already has been sold to another party. I'm sorry, that's not a creditor, that's a broker. I think you are going to see more and more at the Fed and the new CFPB is (they will differentiate) between people that are really brokers and creditors. You will see that in net worth and the way things are handled from origination through secondary (market sale).
HOWE: In 99 times out of 100, that small lender or creditor had an MI underwriter or somebody like that sitting in their office that was just a pass through. Roy is absolutely correct.
FROMMEYER: To get back to NAMB, we are starting to see a resurgence of people coming on board as new members, people who had belonged years ago now starting to see what they get from NAMB. They are looking at government affairs and what they get for that, they are starting to see the certifications and what they get out of that. Things that can make them be that professional they are going to be. People are starting to recognize, it is not a job just to be a mortgage broker, it is a career to be a mortgage broker. I think you are starting to see a lot of that.
