Bert Morrison of Quality Funding Group (QFG) in Rancho Bernardo, Calif., would probably not characterize himself as "everybroker." Before he was a mortgage broker, he was a senior mortgage banking executive with an industry-leading firm, and before that ran a highly productive retail lending branch in a major metropolitan area. In those days, admittedly, his competition did not include mortgage brokers; the industry had barely come into existence. Curious then that Morrison would find his longest and most fulfilling career as the owner of a small brokerage firm.
QFG is a general products provider, kind of an "everybroker"-you want it, they've got it. They have six people, four of whom sell; they are small by design and use office automation to fill the gaps. Almost 20 years as an independent has given him a healthy respect for the hazards of carrying overhead. And Bert's mortgage banking background has given him a highly realistic viewpoint on a number of issues facing independent originators today, including the delicate relationship between mortgage brokers and the lenders who fund their loans.
It's a symbiotic one, a relationship that generally works to the benefit of each party. That's different from the much-used "partnership," which implies profit participation by the parties. Symbiosis means they rely upon one another to fill a necessary role and if one succeeds, the other generally does as well. Sure, the concept of advantage is at the core, but the overall relationship is the key for many businesses like Morrison's.
"We're very careful [about] who we do business with," he said. "Wholesalers are paying more attention to relationships than they used to by making it easier to work with them." Easier not just in policies and procedures, either. Easier also means putting a human face on the business.
The Human Factor
An increasing number of wholesale field reps are coming from the ranks of former mortgage banking executives who are going back to their roots in the field. Mostly now in their 50s and 60s, they bring extensive background and experience to the party and are a good fit with people like Morrison, who said, "The quality of the wholesale rep makes a huge difference in my choice of a lender. If they are responsive and know what they are doing, it really improves the relationship." The rep can make or break a relationship, generally with the right attitude and a willingness to go to bat on a deal that's important to his or her broker.
One such rep is Larry Flores, a California-based representative of Chevy Chase Bank in Maryland. A former senior executive, Flores finds life "in the trenches" highly challenging and rewarding. "I miss the executive side sometimes," he said, "because it's a good feeling to lend your experience to the corporate effort. But I've found that in this role, it's like being an instructor every day to our younger loan consultants, and that's satisfying." He also likes being close to the action on a daily basis. "I've always been a competitor and it's one of the things I like best about the business. At this stage of my career, brokers will often choose to work with me because of my knowledge, follow-through, and reputation."
Another reason seasoned mortgage bankers are finding life as wholesale reps beneficial is the evolving nature of the business: companies come and go, but the reps stay in the marketplace. "The field offers you a base of business that can be taken with you if the company closes or you decide there are better opportunities," Flores noted. "And the longer you stay out of the field in favor of the executive suite, the more your contacts retire or leave the business. I like being where the action is, and my best tools are frequent contact with my clients and fast, effective follow-up."
Is the wholesale rep all that important in view of all the technology and other enhancements in the marketplace? Amy Brandt, CEO of WMC Mortgage, Woodland Hills, Calif., recently acquired by GE Capital, has strong feelings on the subject. "In the last five years, a number of companies have introduced new technology (intended to) make the wholesale rep obsolete. Once all the noise died down, it's interesting to see that wholesale reps are still here and those companies are gone." She believes their knowledge and experience is essential to the wholesale process. "That's because today's borrowers don't always fit in a perfect mold and the rep's experience and expertise are critical to ensuring a smooth loan process, (especially for) brokers who are aggressively expanding and diversifying their pipelines to include more non-prime loans."
Steve Skolnik, EVP of First Franklin, San Jose, Calif., agrees. Skolnik believes the wholesale rep plays a critical role in lender success, but is quick to point out the contributions made by the operations team, as well. "It is very, very important that the sales and operations staff work together as a team in the overall loan file flow from application to funding," he said. "A rep working from home supported by an operations staff far away from the clients runs the risk of being less responsive than one supported by a regional center, closer to the action."
And the role of technology? "Technology should handle repetitive, objective functions so that people can effectively manage the subjective ones," said Brandt. "Technology can never replace the value of people and relationships." Skolnik echoed the sentiment with, "Technology can only enhance a process. It does not drive the business unless it is so innovative that it builds a great value proposition which acts to differentiate your firm. At this point in time, I am not aware of any lender that enjoys such a value-add."
Morrison feels wholesalers should not underestimate the power of a great Web site. "Many wholesalers do not have them," he observes. "I look for highly usable Web sites, where I can lock in online, check the status of my loans, and get current pricing. They need to be highly user-friendly and comprehensive."
Despite web-based pre-approvals and locks, technology-enhanced processes and accelerated delivery methods, at the end of the day it is still a people business. True, the bar has been forever raised by those technology-based improvements, but it is next to impossible to offer special care-particularly important in the non-prime segment-without experienced, knowledgeable, and empowered people to make it happen.
Is broker loyalty fact or fantasy?
"Broker loyalty" was long considered to be an oxymoron for wholesalers, certainly desirable but as elusive as the unicorn. Things are different now; in an environment not remotely as gangbusters as previous years, it is a time in which serious brokers are serious about building relationships with wholesalers based more on strategic considerations than a tenth of a basis point in revenue.
Brandt described broker loyalty as "Absolutely possible, (but there are) several schools of thought on just how to do it," she said. "Some are betting that entertainment and high-visibility, high-cost sports marketing and brand building are the way (to do it, but) I think the jury is still out in B2B."
"People spend a lot of time talking about how you can't develop loyalty among brokers and that brokers are only responsive to price," said Dylan Veal, senior vice president of Production at EquiFirst, Charlotte, N.C. He adds, "I think if you cultivate relationships, help the brokers by responding to their needs on their terms, and add value to their business day in and day out, you'll have brokers who will come back to you and be loyal."
Skolnik has a different view, feeling loyalty is less of an absolute. "It is against the foundation of being a broker to become a loyal customer of any wholesale lender" he says. "It is the broker's job to shop a borrower's file for the best rate and credit structure for their borrowers. As a wholesaler, we strive to earn the broker's trust, and this trust is earned over time based on our history with the broker and their loans. It is up to the wholesaler to deliver on all of these three items of product, price and service to achieve any true measure of loyalty."
Whose borrower is it, anyway?
The giant fly in the ointment between brokers and wholesalers has always been the question of who "owns" the borrower. In years past, brokers simply wouldn't deal with lenders who had a retail operation, but the brokering world has since changedperhaps it has even grown up a bit.
Morrison came from the mortgage banking world, and he thinks lenders with servicing and retail operations are crazy not to go after all the borrowers they've got, regardless of how they were first introduced. That doesn't mean he likes the idea, but he understands why they would do so. Some are better at it than others, he said, "But brokers are better with borrowers based on the trust we have with them. We can trump big lenders." He feels that call center people have weak skills in relating to borrowers and don't necessarily have the borrowers' best interests at heart. "I do," he said, "and my borrowers know it. Even if they receive an attractive offer from their loan servicer, they call me to see if I can meet or beat it, and I usually can."
Brandt takes a global view of the subject. "Who owns the customer," she said, "is a question as old as the wholesale business. The broker found the customer and the lender made the loan, then the servicer invested in the asset. Each party has 'touched' the borrower at this point," she continues, "and each possesses data on the borrower that could generate future business. So each can legitimately lay claim to the relationship." As to whose claim is most legitimate, it would seem logical to rule in favor of the party who has the most at risk. That party is the owner of the asset and is generally the servicer. Neither the lender, who sold the asset as a whole loan, nor the broker, who has been paid for his time and has never had funds at risk in the transaction, would appear to have as legitimate a claim as the servicer. But exactly who has the legitimate claim may actually be irrelevant.
"A better question is, who does the borrower think they have a relationship with?" observed Brandt. "This usually comes down to who has done the most to foster a relationship, who has taken the time to explain the intricacies of the deal, and who has been there when things went wrong."
Skolnik agrees that solicitation of the borrower is a very sensitive issue, but observes there is a very good reason why wholesalers are concerned about broker influence over borrowers once the loan is funded. "There is an expectation of the life of the loan and if a broker is frequently refinancing the borrower, it will cause our rates to rise to make up for a lower than expected profit margin." Their solution is to offer the borrower a prepayment penalty in exchange for a lower rate going in. "Generally speaking, our firm does not proactively solicit borrowers for refinances," he said. "If a borrower is willing to take a prepayment penalty for two or three years, most of our loans do not pay off in similar fashion to a conforming loan with zero prepay."
Collyer Smith, group senior vice president and national wholesale sales manager of ABN AMRO, New York, N.Y., added, "Technically, imbedded in the broker's price is a service release premium. One of the assumptions used to determine the amount of this premium is the estimate of the length of time that the loan will be around," he said. "If excessive prepays occur, and the time that loan is around is shortened, then the lender has overpaid for the asset. When rates come down, borrowers are going to refinance.
However, when lenders analyze prepayment speeds on their servicing book and find that certain brokers are one to two standard deviations from the lenders' overall book prepayment speed, then there is a big problem. There is no such thing as a one-sided partnership."
Howard Wegman, CEO of Creve Cor Mortgage in St. Louis, Mo., sees his company's policy as a real advantage they can use. "We do not resolicit relationships with customers brought to us by brokers," he said. "To me, this is the biggest point in developing relationships with brokers. They are the ones who should deal with the borrowers, not us. We're in a niche and we intend to stay here." He goes on to say, "We sell that we're not out competing with our clients (the brokers) and that's huge."
Enhancing the Symbiosis
What should brokers consider over the next several years to maintain good relationships with their lenders? There will probably always be a certain amount of contradiction in the relationship between brokers and lenders, along the same lines as the relationships between sellers and suppliers in most industries. The bottom line is that they need each other, like potatoes and gravy, beer and pretzels, politics and corruption. So it is in the best interests of each to have a good idea of what can be done to improve the relationship. Wholesalers are always probing, testing and focus-grouping to understand their brokers' needs; here are some things they've said they want brokers to understand about their own needs:
· Be as accurate and complete as possible with submissions. Time is important to both parties, and usually even more important to the borrower. Larry Flores advises that incomplete loan packages are a key reason for slow response, so be sure to ask questions and understand lenders' requirements fully.
· Take advantage of new and better ways to get the information to lenders.
Faxing is low-quality, often causing lenders to waste time and energy trying to read the information. Consider Web-based submissions or other technology tools your lenders offer-it's all there to speed your process for your borrower.
· You don't own the borrowers. Recognize that competition is a fact of life. Many of your lenders are going to be soliciting your borrowers, so as Morrison suggested, simply outperform them when they do.
Originators have a tremendous advantage over lenders, investors, and everyone else in the supply chain: the advantage of knowing your borrowers personally.
* You have all their "stuff" already, their information.
* You have a much better idea of their needs, and can predict their evolving requirements much better.
* You're the one who helped them get a better rate and lower payments, as well as a quick turnaround. If you didn't, you don't deserve their future transactions.
· Emphasize relationships. "Successful brokers will realize that processing loans is a relationship game and not a numbers game," said Veal. "If all a broker wants to do is slam paperwork through the pipeline, it's going to be hard-there may be a lot fewer loans. So leaders in the broker community will be building their marketing and outreach efforts in their marketplace. These will be broker shops that really care about the community where they serve, and care about their reputation and involvement. They'll need to figure out how to track and touch the borrower frequently, possibly learning a lesson from the good real estate agents."
· Demand more from your lenders. To do so will make them better. As Brandt says, consider them parent-figures. As such they have a vested interest in your success, so be demanding.
For example, you should require:
* The best, most knowledgeable, most responsive reps.
* Best practices in technology. It's all about speed, accuracy, and creating a good experience for the consumer.
* Turnaround time, responsiveness. Not just cookie-cutter answers, especially on non-prime "story" loans.
* Marketing assistance. Many lenders have crackerjack marketing departments capable of helping you in your campaigns. You never know if you never ask.
· Support industry involvement and sponsorships. Originators need help to preserve the industry in the form of PAC contributions and event sponsorships. Many brokers are too small to have high impact as individuals, but their lenders are not. Brokers are their point of sale representatives, and as such, lenders need to be involved in the political defense of the industry, as well as promoting training and other professionalism measures. Insist that your lenders be involved and active.
· Continue to educate yourself, said Rod Brace, senior vice president, Broker Wholesale Channel at Chase Home Finance, Jacksonville, Fla. "In a volatile rate environment, competitive pressures will continue to increase, which will drive new developments in the mortgage industry, in turn creating new programs, products, and systems for today's broker," he said. "In addition, consumers are becoming more financial savvy and more knowledgeable about mortgages than ever before, putting pressure on brokers to stay educated on new products and upgraded systems because these consumers will be looking for them."
· Give them input. They're not on the front lines out there, at least not the wholesale department; in fact, they are usually just as interested in overcoming their own retail departments as you are. Give them the benefit of your experience in coming up with innovative loans. As Wegman observed, "Field input provides a large number of our new products." Don't keep your product needs a secret.
Symbiosis is the name of the game for the foreseeable future. Wholesalers without originators are like beached sea creatures, powerful in their own element but unable to stay afloat without assistance. Brokers without wholesalers are equally as helpless, more vulnerable than ever to the retail banking competitors circling out there.
Working together, the two parties have parlayed what was a smidgeon of market share a few decades ago into hundreds of billions of dollars worth of market dominance today. And that's just too good a thing to not evolve and adapt to changing times-for brokers, lenders, and the oft-forgotten third parties to this symbiotic relationship, the borrowers.
JAMES HENNESSY is managing director, Capsilon Financial Systems Group, San Diego, Calif., 858/793-0950, e-mail:
