ATLANTIC CITY, NJ—If a mortgage broker has built a successful business based on getting leads from local people, the changes coming in the new regulatory environment should not impact you, a long-time executive at a bank-owned mortgage banker said.
However, for those who do business in multiple states or depend on Internet leads from outside their area, there are business options to consider, Sam Morelli, president and chief operating officer of mortgage division at Eagle National Bank, Upper Darby, Pa., told attendees at the Northeast Conference of Mortgage Brokers here.
If one wants to remain a mortgage broker, he said, he or she should consider if they need to have the ability to fund loans at the closing table (in states where mortgage brokers are allowed to have warehouse lines).
But in getting a warehouse, some lenders are willing to provide the credit, but they want 100% of the production, plus Morelli noted, there are questions about how much they are willing to pay for that production.
Another option is working for a federally chartered depository. There are certain SAFE Act exemptions, but he asks do you want to be an employee? One can also look to work for a state-chartered institution or a credit union.
In addition, large banks are used to consistent growth. Mortgage originators are used to dealing with highs and lows in business cycles, he said.
On the regulatory side, Morelli said when it comes to institutions like his, examiners from the Office of the Comptroller of the Currency are used to dealing with mortgage operations that operate inside the bank’s footprint. They have more difficulties dealing with banks with a nationwide mortgage banking subsidiary.
Then there is the option of becoming an independent mortgage banker. But, Morelli said, a question to ask yourself is do you have enough capital to get secondary market (Fannie Mae/Freddie Mac/FHA) approvals as well as the capital to get a warehouse line? Also, do you want to be personally liable in order to get the line?
Another option is to become a branch of a larger firm. The broker can operate similarly to how they do currently. But, he said, all of the government loans need to be sent to the parent; other types of loans the parent usually wants the right of first refusal.
“These are tough decisions and they have to be made over the next six months,” Morelli said.
Another problem facing the industry is that the person named by the Obama administration to create the Consumer Finance Protection Bureau and write the regulations over the next 18 months, Elizabeth Warren, is on the record as stating a yield-spread premium is a bribe, he noted.
This is one of the things that have to be considered along with the increase in state regulatory activity. So mortgage brokers need to ask can they continue to operate alone or do they need help or support.
Morelli gave a laundry list of things mortgage companies should have to continue to operate in the current environment.
First is a state-of-the-art loan operating system, especially one that interfaces with ComplianceEase. A program from that company is being used by many state regulators to help conduct compliance exams, he said.
Next is access to an Internet or intranet-based pricing and product engine.
Compliance strength and support is needed as well as legal and regulatory support.
A good accounting function is required to check on availability and protection of funds. There have been a number of cases where mortgage originators have lost compensation when their firms went out of business.
