Intero Real Estate Blog

After several decades in the mortgage industry, there is very little that gets me excited. I’ve learned that staying calm can often be the most effective way to handle things.

Having said that, there is one thing that does have me excited. What is it? It’s the return of the mortgage banker as the best source of good loans for borrowers. Note that I didn’t say banks. And I didn’t say mortgage brokers. I said it was the mortgage bankers who are staged to make a big difference for the American homeowner.

First, let’s define our terms – A mortgage broker cannot fund loans. He is dependent on so-called mortgage wholesalers, and hardly a day goes by where another wholesaler reduces the number of brokers they will do business with. These decisions to reduce suppliers (which are what a broker is) are being made based on the quality and volume of the loans produced by that brokerage firm.

Over the past 10 years brokers maintained a long list of lenders that the broker could leverage off each other without much regard. If a broker was approved with 100 lenders but only did 10 loans a month you can see that the relationship was good for the broker (lots of suppliers) but not so good for the lenders (fighting over limited volume from each small broker).

Long gone are the days when a broker could legitimately say he was approved by dozens and dozens of lenders and that he could shop the loan among them. Not so any more. This is making it very difficult for the Mom and Pop brokerage to compete. Most small mortgage brokers firms are down to a handful of wholesalers they can do business with. As for the banks, they are just not lending much outside of FNMA/FHLMC conforming limits. We read about that almost every day.

So where does the mortgage banker come in? What exactly is a mortgage banker? First, a mortgage banking company is one that funds its own loans. More importantly, it has historically been the link between institutional investors and mortgage borrowers.

Historically, mortgage bankers would line up relationships with out-of-state banks, S&Ls, insurance companies, and larger pension funds. They would find out what yield requirements these investors wanted. Then, they would try to come up with mortgage programs that would deliver that yield while still being attractive to borrowers.

Quite often, these investors were in areas where there was little growth and even less demand for mortgages. They had money to invest, but not enough borrowers. The California mortgage banker was able to help them meet their needs.

It might be yield, but it could also be other loan attributes such as loan size (some investors like jumbo loans) or maturities (some investors like loans that start adjusting after three years). The mortgage banker would enter into a formal, legal agreement called a “Forward Commitment”. It would spell out the types if loans he would sell to the institutional investor and would commit the investor to buying a set amount of these loans over a one year period. These commitments could be for $50 million or $150 million. The main thing is that they guaranteed that these programs would be available.

The mortgage banker was typically very smart about identifying these institutions and very sophisticated about formulating programs that met the institutions needs while still being attractive to borrowers. He had to be smart about all this because he was using his own balance sheet to fund the loans. He was, in fact, assuming true liability.

What excites me is that this model, which had been quiescent the past several years, is going to come back. I’m certain of this. Mortgage bankers will return to their roots, grow bigger retail divisions, and probably push out the smaller and now less agile mortgage broker. This will leave us with big brokerage shops, mortgage bankers, and banks, all competing for the same customer but all with very different loan product and service offerings. Gone are the days where a company can say that they have all the products in the market. For those of you that were in the business in the 80’s and 90’s this may sound like a return to the past. Well it is.

We’re going back to a time when the mortgage banker has exclusive relationships with large out-of-the area institutions.

• He’ll meet the needs of his investors.
• He’ll meet the needs of his community.
• He’ll have programs no one else will have.
• He’ll be providing more alternatives for his borrowers than they currently have.

It’s hard work, but this is what mortgage bankers have traditionally done. And it thrills me that we’re headed back in that direction.

Our company has recently entered into on such agreement and now is Funding it’s own jumbo Arm’s and Fixed rate products. This product can only be obtained directly from the LoanSource and will not be offered on a wholesale basis. We are provided for a product for the high end where the liquidity crisis is still impacting real estate sale. This new product provides for loan amounts as high as 2 million and loan to values as high as 80. Talk to one of our loan officers for details.

These are exciting times!