[New] Only RISK Will Lead To Reward

BY KATIE JENSEN, STAFF WRITER, NATIONAL MORTGAGE PROFESSIONAL MAGAZINE

Addressing a gathering of mortgage executives a few years ago, Freedom Mortgage CEO Stan Middleman made a blunt assertion. There are only two ways to make more money in mortgages: create more production, or take on more risk.

For mortgage brokers who are staring in the face of another year of disappearing originations, Option 2 may be the only real option at all.

The Mortgage Bankers Association (MBA) expects originations to amount to $2.26 trillion this year, and drop down to $2.05 trillion in 2023. Those numbers had peaked at a record $4.4 trillion in 2021.

Rising interest rates are spooking would-be buyers to back out of home deals, and lenders are competing hard to slash rates. UWM waged war against other wholesale lenders by temporarily lowering rates, making it hard for others to compete. Now big-name lenders like loanDepot, FOA, and Amerisave are pulling out of the wholesale business, leaving brokers with fewer partners.

Remember The Appeal

When times are tough like they are now, it’s important to remember the appeal of being a broker in the first place. Many have decided to become brokers so they could have more control over their careers. In fact, many refer to themselves as entrepreneurs, since they are 100% responsible for any success or failure that comes their way.

As a broker, you start off wearing all the hats within your business; you’re a full-time administrative assistant, processor, underwriter, marketing director, social media coordinator, researcher, compliance manager, and sales agent. You need to plan for market downturns, like a business owner would, and have enough financial resources to carry you through tough times. Above all, you have to answer to your clients. Without them, you have no business.

When the housing market began to boom in 2020, active state mortgage loan originator licenses increased 21% from the year prior. Because interest rates were near historic lows, bringing in business was easy for brokers and loan officers. Many were looking to refinance or buy a home in a more affordable market. Broker comps were high then, but they naturally began to taper off as buyer demand faded. Data from ATTOM shows that by the end of the third quarter in 2022 purchase loans fell 33% and refinances fell 67% from last year.

DON’T BE HOPELESS

Feeling a bit hopeless? Well, you shouldn’t. Remember, you got in this business so you could be in charge of your own destiny. Now is the time to take control and figure out what options are out there for you.

With originations plummeting, many mortgage companies are evaluating ways to future-proof their origination engines so the next boom can be met with better systems and more control, so they can come out more profitable. For mortgage brokers who have enough volume, becoming a mortgage banker is one such direction they can pursue to take their company to the next level. If you’re considering mortgage banking as an option, there are two particular terms that you should add to your vocabulary that might help you in the long run: delegated and non-delegated.

Plenty of industry professionals struggle to define the difference between delegated and nondelegated, though they may be too embarrassed to admit it. Here, you’ll get the full breakdown of how correspondent lenders view each path, including the costs and benefits to each.

Definitions

The big difference between working with correspondent lenders on a delegated or a non-delegated basis is who’s doing the underwriting.

Non-Delegated: If the mortgage banker has a non-delegated relationship with the correspondent lenders, then the mortgage underwriter from the correspondent lender underwrites and approves the loan.

Delegated: If the mortgage banker has a delegated relationship with the correspondent lender, then the mortgage banker will need to underwrite the loan with their in-house mortgage underwriter.