On the Road Again

I took the opportunity of the Mortgage Bankers Association’s annual meeting in San Francisco to talk with a few mortgage bankers about the future of the wholesale channel.The consensus? It’s challenged but still viable.Our panelists were Glenn Ford, chairman and CEO, AllRegs; Lisa Schreiber, chief strategy officer, NetMore America; Marc Helm, COO, Reverse Mortgage Solutions; Brad Finkelstein, editor, Broker; and Lew Sichelman, senior housing correspondent, National Mortgage News.MARK F.: The big news in the weeks before the convention is that a number of companies like GMAC and Citi have scaled back their wholesale operations or gotten out of the business. What is the future of wholesale?LISA: I see it as an opportunity. It allows us to work with (brokers), educate them and we certainly need to look at our processes before we bring them on board, so we make sure we are getting good quality relationships. We know there are many good quality relationships to be had, so we’re happy to be in this business right nowMARK F.: So it is an opportunity to gain market share when the big players are retreating?MARC H.: I think it is a bit of housekeeping too. I think that over the years that anybody who wanted to get in the business could. I don’t necessarily think they were educated the right way. It brought some bad marks against the industry in doing that. I think the cream will rise to the top and survive and people will realize that and step back into the marketplace. I envision the bigger players will come back into the marketplace. I think they are going to have a timeout. I know one top-four bank that exited a piece of the market; they have made it clear to me in conversation that when things level out they are going to be back in. I’m near and dear to this because my son is a broker. I watched him from a year ago doing 50 loans a month and having nine loan officers work for him to this year doing three loans a month and one loan officer and only having five places he can sell loans to; last year he had 43 places.MARK F.: It is still the most cost-effective way to originate a loan, right? That would be attractive to lenders, you would think?LISA: There has been plenty of analysis that shows the wholesale origination channel as the low cost channel. The trick there is the same; it is to align yourself with quality brokers. I have been in wholesale since 1993 and I found that almost all my relationships over the years have been with good quality individuals.MARK F.: I believe David Olsen has estimated the number of mortgage broker companies going down from 53,000 to 25,000. So obviously lots of brokers are getting out of the business. Do you see it as a case of the ones remaining as the good quality ones you want to do business with?MARC H.: I would say that, but something else is changing too. The business has moved to a predominantly government business in many areas of the country and a lot of people don’t have their mini-eagles. A lot of people don’t know how to originate a government loan, whether it be an FHA or a VA loan. So that is forcing retraining in the broker community. It is going to have the effect of a learning curve. If you go to some of the HUD regional offices and submit your 15 test cases to be (FHA) approved, you can be waiting for weeks – four, five or six weeks. The Denver office is seven weeks behind on test cases.BRAD: Glenn, what are you seeing on your end? Are you seeing your clients requesting more FHA materials?GLENN: Absolutely. There is a great demand for FHA training. I’m personally really glad to see FHA come back so strong. I think they have outstanding loan programs that were neglected because of the easy subprime loans that people could make, so much more money at the expense of the borrower. With the fallout of subprime, I think it will be good for the industry, it will restore some confidence. Real trust has got to come back. The regulatory requirements, the licensing requirements that are being promulgated now both nationally and on a state-by-state basis are helping that. But ultimately it comes down to the loan officer sitting in front of the borrower and deciding to do the right thing. They have to put aside their profit motive as their primary motivation and do the best thing for the customer. And in doing that, they will get more business.MARK F.: We heard at this conference that FHA two years ago had a 2% share, now it is 25%. Do you think the government is able to handle the consumer demand for FHA loans?LISA: That is the tough part.MARC H.: The issue is there are levels of how much insured product can be done over a period of time. Since that is booming right now, they have to make sure they stay ahead of that. The segment of the business we are involved in, the reverse mortgage segment, they had a problem with caps and they had move that a couple of times and suspend it. So the last thing you want to do is slow down the lending market when it is working for the people it needs to work for. We’ve always seen that happen. You get 10 months into the year and they run out of insurance capacity.LISA: And the other issue is around technology. Just operationally, in order to be able to handle the FHA volumes that we are having now. So you’ve got education needs on the origination side, you’ve got education needs on the operations side as well.GLENN: I think Brian Montgomery has done an outstanding job of really turning around FHA and making fundamental changes that have made it easier to do FHA loans.LISA: From an origination perspective? Because operationally they are still very difficult to do. Our company is a new wholesale lender. Our COO is a long time FHA person, which is terrific for us. She helps us educate and all that good stuff. But we have to deliver in a paper fashion for two years, just because we are new. So there is really regard for experience and how we can work together to increase efficiencies.GLENN: I agree. I think FHA is open, but I think it is simply the fact that it is a bureaucracy. I think they have good intentions. And I think with the increased demand, it may take some time, but I think it will become more efficient.MARC H.: FHA had a recent proposal out for rewriting many of the systems. If you had that automation, not only would that reduce errors and increase productivity, it would lower the cost for the government. I agree — Brian Montgomery has had an open ear, and every meeting I have been in with him, he wanted to do the right thing. It is a truly a shame in my opinion that someone like him and Joe Murin at Ginnie Mae would be out on their ears in an administration. Those two gentlemen have given a lot to get Ginnie Mae and FHA on track.GLENN: Do you think Montgomery will be out in a new administration?MARC H.: He thinks so.MARK F.: He announced he was leaving at the end of (Pres. Bush’s) term. Let’s talk about reverse mortgages. Are they a good product for mortgage brokers?MARC H.: They are an excellent product. It’s got a very healthy origination fee, but a longer origination cycle, about three-to-four times longer. There are a lot of people buying that product now, there are major companies aggregating that product, so it is good for brokers. Most of the major players (who do reverse mortgages) — except for Wells Fargo — 50% to 60% of their business comes from the wholesale channel. So it is a very viable channel. I am one of those predicting that in 30 years it might be 50% of the market in mortgage loans.LEW: There has been a great rush of brokers to the reverse product and I think a lot of the bad ones are going there. There are people telling them they can be reverse experts in a day. What is the industry doing to protect against that?MARC H.: I am doing my part to educate people about reverse mortgages. I walked up to the MBA booth and said “I notice you are having courses on reverse mortgages all over the country. How do you decide who is teaching those classes?” Their answers were OK, but I think I know the best people who know all the answers on reverse education things and they’re not the people teaching those courses. The other thing is, I mentioned this a few times, two years ago we had Reverse Mortgage in Texas Day, and I went to a meeting in Austin and there were 600 people at that meeting. During lunch, I was at a table with 12 people and everybody at that table was a subprime broker. The good news is we just had that meeting this year, in Houston. We had 250 people and you would have to dig under the floor mat to find a subprime person trying to make the transition. I think they stepped in and saw it was not as easy as they thought it would be because of the long turn times on the loans and backed down.