For the entrepreneurial-minded mortgage broker, there has never been a better time to make the transition to mortgage banking. Not only can brokers-in-transition take advantage of the advances in digital mortgage technology to increase both productivity and profitability, but current market trends are such that making the transition now could pay off in the long-term.
For example, merger and acquisition activity has been on the rise in recent years, and 2016 was no exception. This year saw several of the nation's largest nonbank lenders — Freedom Mortgage, Caliber Home Loans and Guild Mortgage — acquire smaller competitors, and all signs point to this trend continuing for the foreseeable future.
Much of what is driving mortgage M&A activity is the increased cost to originate, particularly post-TILA-RESPA integrated disclosure implementation. According to the Mortgage Bankers Association, the cost to originate in Q2 2016 was $7,120. While this did represent a slight decrease from Q1, the cost to originate has increased steadily year over year, and smaller lenders in particular have struggled to keep up with the rising costs.
Because larger lenders are able to take advantage of economies of scale to manage these costs, they are able, even in a period of rising costs, to acquire smaller, regional competitors to gain geographic market share. The more these entities grow, the better able they are to leverage economies of scale to hold down costs, and on it goes.
Whatever the reason behind the trend, it's important to note that many recent acquisitions have largely been purchases of assets and not the entire lending operation. As with any merger or acquisition, job retention is not a guarantee for employees of the acquired firm, and a mortgage merger or acquisition is no different in that regard. Furthermore, there is also no guarantee the acquiring firm will be able to honor and/or match whatever compensation agreements may be in place.
For loan originators working for smaller mortgage banking shops that may be M&A targets, making the leap to mortgage banking now could increase your revenue while putting you ahead of the game before the market becomes flooded with displaced brokers making the same transition out of necessity rather than desire. Furthermore, by making this decision proactively versus reactively, you allow yourself the time to establish and refine your systems and procedures to ensure long-term success.
The recent advances in digital mortgage technology have created a significant opportunity for emerging mortgage bankers to gain much needed efficiency and improve loan quality — both of which play a critical role in making the successful transition from mortgage broker to mortgage banker. For example, most e-signature platforms have built-in mechanisms to ensure documents are signed correctly and comply with regulations. In a paper-based transaction, this task would be performed manually and, therefore, have a labor expense attached to it.
Incorrectly signed documents can have significant compliance and salability consequences. However, in this instance, using the more expensive option to complete this task doesn't necessarily ensure the best possible outcome. By automating this function and working with an investor that supports digital origination strategies, the emerging mortgage banker not only achieves greater assurance that the documents have been executed correctly, but they can also significantly reduce their risk of repurchase. Furthermore, the money saved from going digital can be redirected into areas that will provide a better long-term return on investment, such as compliance, training or quality control.
In addition, conducting e-closings and executing e-notes can help emerging mortgage bankers reduce warehouse line turntimes from an average of 20 days to as little as 48 hours. This strategy not only reduces the amount of interest and fees paid per loan, but with the right warehouse partner, an emerging mortgage banker could operate on a warehouse line one-fifth the size it might otherwise need because of the ability to turn the line faster.
When it comes to efficiency and cost savings, digital beats paper every time. As both of these elements are vital to moving from mortgage broker to banker, it would behoove folks making this transition to incorporate digital mortgage strategies from the get-go. With all signs pointing to a continued increase in M&A activity, savvy brokers will recognize that now is the time to increase their revenue through independence as a mortgage banker and that adopting digital origination strategies holds the key to ensuring a successful transition.
Jeff Bode is owner and CEO Mid America Mortgage Inc. He can be reached at firstname.lastname@example.org.