Transitioning from Broker to Banker?

There are advantages associated with transitioning from a mortgage broker to a mortgage banker. Among the advantages is that a mortgage banker controls the entire closing process. By closing in their own name, a mortgage banker is exempted from RESPA disclosures. A banker will typically gain a better premium for a closed loan and pay fewer fees. Bankers typically attract quality loan officers.

Adequate Liquidity: It is important to note that when transitioning to a mortgage banker, a broker will need to ensure that they possess and maintain an adequate capital base, because most correspondent and wholesale lenders require non-performing loans to be repurchased. Each of these companies may differ in their requirements, but typically a first payment default, or non-performing loan within the first 12 months, may be required to be repurchased.

Management Skills: Additionally, does management posses the requisite skills to successfully manage a mortgage banking operation? Furthermore, the mortgage banker must ensure that they have sufficient back office staffing to schedule, close and process the loan packages. It is also important that the warehouse line is managed and reconciled. There are outsourcing companies that can accomplish this.

Net Worth & Profitability: Leverage (Total Liabilities / Tangible Net Worth) is typically pegged at a benchmark of 10:1 or better. Does your company have a consistent level of profitability?

Quality Control: A very critical component of a mortgage banking operation. It is imperative that the mortgage banker has a comprehensive QC policy that is diligently applied and adhered to in order to assure that loans will be of investment grade quality and will be purchased off the line by the investor quickly. There are outsourcing companies that will perform this critical function and provide management with reports.

Securing a warehouse line of credit is your first concern and the first decision you will make in your transition. Not all warehouse lines are created equal. Some are available at a higher or lower multiple to your net worth. Your profitability and the service and support you receive can vary greatly depending on whom you choose as your partner.

Look for a warehouse banker who lends at 10 to 20 times net worth. Also, be wary of the "haircut." This is where many warehouse lenders want bankers to use a percentage of their own finances to fund loans as an added security.

There are numerous benefits in moving from mortgage broker to mortgage banker. Make sure you do your homework and choose the warehouse partner and correspondent lender that is right for you.