But the void left behind by the big banks is being filled by residential lenders, at both the national and regional level. Companies like IMPAC Mortgage Corp., American Financial Resources, United Wholesale Mortgage and Carrington Mortgage Services have, in the last few years, become big guns in the wholesale channel.
“I think Chase and the big guys are getting out of it because they can’t do the loans in a profitable manner. A lot of wholesale lenders
out there have a lower cost of doing business,” says Frank Curry, senior vice president of wholesale lending at IMPAC. “The brokers are low-cost providers and the banks can’t compete with them. These guys work out of their houses or small offices, so their cost of originating is lower. … Guys like us, who are willing to partner up with those brokers – our business is going to grow. That’s why we want to grow our business model – because we see lots of opportunities out there.”
Communication is key
So if there’s a rich vein to mine in the wholesale space, how are wholesalers attracting brokers? The simplest way, Curry says, is simply to offer an attractive range of products.
“I think most brokers have three to five lenders they do business with. It gives them a full menu of the products in the marketplace,” Curry says. “They look for a handful of people that cover the full spectrum of their business, and that they feel comfortable doing business with. That’s the advantage. If you work at a bank you’ve got one product – and generally one price.”
But a key component in maintaining good broker relationships is simple common sense: Be accessible to the customer.
“We believe in communicating clearly what our turn times are and what to expect. If you do that, you’re going to have a good relationship with the customer,” Curry says. “Communication is critical. These days, it seems like each loans got some kind of challenge. … We’re updating our customers all the time on all the compliance issues. We’ve done lots of communication through the website and direct emails to the brokers on any regulatory change. We give them as much information as we possibly can.”
“Mortgage transactions have a high level of emotion involved since they affect someone’s home and their family,” says Raymond Brousseau, executive vice president of mortgage lending at Carrington Mortgage Services. “So borrowers often expect close communication – and therefore, brokers expect the same from us.”
Even high-tech mortgage-tracking software can’t replace a good, old-fashioned phone call, Brousseau says.
“At Carrington we introduced a new loan origination system that supports a real-time tracking program called Pipeline Manager. Brokers can access Pipeline Manager online and know exactly what stage a loan is at,” he says. “This allows for better predictability for the broker and provides their borrowers with a higher degree of confidence regarding their originator. That said, resources such as this are utilized to enhance the efficiency and transparency required in our industry – not in any way to replace interpersonal communication.”
“The worst part about being a broker is the difference in operations between their lender partners,” says American Financial Resources President Corey Dubnoff. “I do things differently than somebody else might, so it’s very difficult. To make it an easy process that’s well communicated, well documented, is vital. They have to understand your process. They have to understand who to call, when to call, who to send an e-mail to, when to send an e-mail. They have to have that support. If not, then it all kind of falls apart.”
A relationship-driven business
Communication is vital because most wholesale models are relationship-driven. Brokers won’t keep coming back if their wholesaler is just a few impersonal lines of type on a computer screen or a bored voice on the phone.
”Building relationships with brokers is the highest priority of any wholesale mortgage operation,” Brousseau says. “For Carrington, forging strong bonds with our brokers not only allows us to fulfill our mission of reaching the underserved market, but it also provides us the predictability needed to grow our employee base and sustain our growth. … Critical to the building of each broker relationship is providing a consistent and predictable experience for them. Over the past two years, Carrington has invested heavily into our infrastructure to insure that is the outcome.”
“It’s vital,” Dubnoff agrees. “You listen to their needs and you try to fill their needs. You try to be a partner to them on every single loan, and you try to give them the same level of customer service as you would every single customer that you have.”
“It’s all about service. If you deliver great service and you have a strong relationship with them, they’re going to keep giving you business,” Curry says. “We’re doing it by making the process easier, and using technology and training to make the brokers want to partner up with this. If you do that … that will build a long-term relationship with us. Brokers are good originators of loans, but they may not be the best at processing and funding them – that’s what we do.”
In the post-QM
world, regulatory compliance is both more important than ever and a bigger challenge. That’s why brokers need to work with wholesalers who have a thorough understanding of the latest regulatory requirements.
“Understanding the regulatory environment and having a wholesale partner that has a robust compliance department is key to the survival of any broker shop,” Brousseau says. “We know that our industry is under a microscope and any violations of RESPA, Dodd-Frank or other policies can have dire consequences to both the originator and lender. Although brokers have a responsibility to stay up-to-date with the ever-changing rules, we also know that this can sometimes be challenging. We believe that by providing sound compliance controls in our loan process – coupled with actively updating our brokers on rule changes – provides a partnership that allows both parties to thrive.”
“We’re updating our customers all the time on all the compliance issues,” Curry says. “We’ve done lots of communication through the website and direct emails to the brokers on any regulatory change. We give them as much information as we possibly can.”
In the wake of the financial crisis, big banks started retreating from the wholesale market. JPMorgan Chase got out of the business in 2009. Bank of America closed up its wholesale operation in 2010, and Wells Fargo jumped ship in 2012. This March, Fifth Third Bank joined the exodus, announcing that “significant changes within the industry over the past several years” prompted them to exit the business.