[New] (MortgageDelegated Banker) Mortgage Broker

The beauty of becoming a mortgage banker is that the loan closes under the banker’s name, not the lender’s — even with non-delegated. After the originating mortgage banker funds the loan through the warehouse line of credit, most bankers sell the loans to their correspondent lending partner, which is typically a larger mortgage lender. Once the lender receives funds from the sale of the loan, they pay down the warehouse line of credit and make more loans.

This may vary from lender to lender, but typically the larger correspondent lenders retain the servicing rights and package up these loans from other smaller mortgage bankers. Then these loans can be sold on the secondary market. Alternatively, a large lender like Freedom Mortgage might maintain servicing rights and not sell the loans off in order to build a servicing portfolio.

Most mortgage bankers sell off the loans they fund so their correspondent lender will pay down the warehouse line of credit, allowing the mortgage banker to originate and fund more loans.

“When you’re moving from broker to banker, it generally looks very similar to a broker transaction,” O’Dell says. “The biggest difference is you’re going to be drawing the documents, whereas a broker would not. You’ll also be funding the loan from a warehouse line. So there’s not a lot of additional work that goes into the loan. Some people would argue there’s actually more control over it and you can offer better service to the customer. I would say there definitely is because you’re in charge of your own destiny instead of relying on some lender out there to draw documents and their timeframes and then making mistakes.”

The Journey From Nondelegated To Delegated

If the mortgage banker has a delegated relationship with the correspondent, then the banker needs to have an inhouse underwriter issue the loan approval. This in-house underwriter needs to follow guidelines of the correspondent lender and underwrite the loan to their standards.

“So it really becomes a matter of it being cost effective,” Roberts said. “Because when you go from being a nondelegated to a delegated, you have to hire an underwriter.”

And underwriters aren’t cheap.

“An underwriter salary is roughly $100,000 a year,” O’Dell says. “You’ve got to look into the math and see what your underwriter can underwrite and you know, if you’re willing to take on that additional risk for the additional return on those loans.”

Having an in-house underwriter can be extremely helpful during busy times. On average, underwriting turnaround times can be seven days or more, but with a good in-house underwriter, it can be done much quicker. However, this also comes with more risk. If the in-house underwriter makes a mistake, the lender will not purchase the loan.

“The higher up the food chain you go, you’re taking on more risk,” O’Dell says.

Transitioning from non-delegated to delegated means taking on more risk. If the in-house underwriter approves too many bad loans, it can easily bankrupt a small mortgage banker. In a non-delegated scenario, if the correspondent lender’s underwriter approves a loan that goes bad, it’s the lender’s responsibility. In a delegated scenario, the responsibility falls on the mortgage banker. When loans go bad, the mortgage banker has to buy the loan back, also known as scratch and dent loans.

HIGHER EARNING POTENTIAL?

Mortgage bankers also have higher earning potential. As you may know, mortgage brokers get paid by wholesale lenders or borrowers going lender paid or borrower paid respectively. The loans close under the wholesale lenders name and the broker compensation maximum a company can earn acting as a mortgage broker is 2.75%.

“By far the majority of the loans that are stuck on the line are the delegated loans,” Roberts says. “And so you wanna make sure that there’s not any manufacturing errors and you’ve got to be prepared.”

When To Make The Leap

There are certain times when it can be opportunistic to transition into becoming a mortgage banker.