Brokers find 'rationale for existence' in fragmented wholesale market
The nation's four largest commercial banks — Wells Fargo, JPMorgan Chase, Bank of America and Citi — all abandoned the wholesale channel. And at least one mortgage broker likes that because it created a more competitive landscape among the companies his business sells its production to.
"When Wells Fargo left the business, I remember sort of joking to our rep who'd I known for years, 'I can't wait for Wells to leave and let 20 other banks take their share,' because that is what it would take [to replace them]," said Andrew Weinberg, president of Great Neck, N.Y.-based mortgage brokerage Silver Fin Capital. "And that is what I think has happened. We've seen additional smaller lenders pick up that slack and that opportunity."
The more diverse pool of wholesalers is good for brokers.
"If the market was just the big four, I don't know that we as a mortgage broker would have as much value or rationale for existence. But it is a fragmented market and it is a transaction that borrowers don't enter into on a regular basis. The value we can offer is to help navigate someone through this fragmented market and that takes some expertise," Weinberg said.
Silver Fin has been in business for 12 years and unlike some of its counterparts that moved into the mini-correspondent channel, it never wanted to become a mortgage banker.
"We felt that it was a level of risk and complexity we didn't want and weren't sure that it really added value to the client, which in the end is how we establish our reputation, doing the right thing by the client," Weinberg said.
"If the market was just the big four, I don't know that we as a mortgage broker would have as much value or rationale for existence."
— Andrew Weinberg, President, Silver Fin Capital
The housing crisis forced those mortgage brokers that were "less serious or less busy out of the business and the people that remained, in my opinion, are far more experienced and knowledgeable than what was there before," he added.
Mortgage broker loan officers "have to be fairly quick and sharp with numbers and a lot of pieces of information. So the people that remained had a certain skill set to be able not only sell, but to also know the best place to put the loan to get it closed," Weinberg said.
In the wake of the wholesale channel's decline, many brokers went to work for depository and nonbank mortgage lenders. But it wasn't always a good fit for brokers with an entrepreneurial streak who were used to working for themselves. Many of those professionals are coming back to the broker business.
To that end, on March 7, the Senate moved forward on passage of S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, which includes a provision to modify the SAFE Act to permit transitional licensing for registered loan originators that are working for depositories to take a job with an independent mortgage banker or mortgage broker. It also would grant temporary authority for current state licensed loan officers that move to another state where they are not licensed.
Meanwhile, the House of Representatives in February passed a bill, the TRID Improvement Act of 2017, which includes a provision that will allow transitional licensing for depository loan officers who want to work at nondepository mortgage companies.
One of the new faces in brokering that's quickly making its presence felt is Motto Mortgage, a franchisor owned by Remax Holdings Inc.
The real estate brokerage franchisor launched Motto in October 2016 and sold more than 50 franchises in its first year. So far, 25 of them have obtained licenses and are actively taking loan applications.
"We're off to a great start and very excited, as a new franchisor to sell that amount," said Ward Morrison, the president of Motto Franchising.
Initially, Motto only sold franchises to Remax franchisees. Now, it is also selling to independent real estate brokers, loan officers looking to go out on their own, and existing mortgage brokerages.
As the franchisor, Motto does not originate loans or act as a secondary market seller. But it does have a preferred list of wholesalers that the franchisees must use.
Currently, that list consists of eight companies, all nonbanks. But that is a reflection of the current landscape in wholesaling, rather than an aversion to working with depositories. The franchisor is willing to consider additions to the list, Morrison said.
Motto vets wholesale lenders that want to do business with its brokers to make sure they understand its business model and are able to support franchises "with what we call the white-glove approach," Morrison said. "As a franchisor, I want my wholesalers providing great tools and service to our franchisees. Whether they are a bank or a nonbank, it doesn't really matter much to me."
The company is regularly approached by wholesalers looking to establish a relationship. But Motto is taking a slow and methodical approach to adding new investors, as well as monitoring existing ones to make certain they continue to meet expectations.
Remax claims its agents handled more than 1 million homebuyer and seller transaction sides per year, or 17 per agent, per year. While not all of those deals will get their financing through Motto, "that's a lot of transactions coming through a Remax that might have a Motto attached to it," Morrison said.
Wholesale mortgage lending is far removed from its zenith, and it will take some time, if ever, for brokers to regain a prominent role in the industry. But make no mistake, the channel is making a comeback, as lenders seek new sources of volume and a new breed of mortgage brokers restores credibility to a once-beleaguered corner of the origination market.