Correspondent vs retail lender

by Kimberly Greene16 Aug 2018

When it comes to originating, there are a lot of things you can do on an individual basis that will determine your effectiveness and your success. But one of the things that will determine what your business looks like is whether or not you work with a correspondent lender or a retail lender.

One of the most attractive aspects of being an originator is the freedom and flexibility to make your own schedule, to be your own boss, to create your own brand. It’s a romantic notion, to be sure, and there’s also the burden of building a team, ensuring compliance, and creating a distinct brand, or at least figuring out how to capitalize on a brand that’s not as well-known as bigger retail lenders. When you’re starting out, it can be much easier to take the well-trodden road so that you don’t have to reinvent the wheel on your own.

One aspect to consider is how you want to compete with other originators in the field. It’s not about doing your job well and providing good customer service; everyone does that. If rates are your thing, for example, and that’s where you want to compete, than you’re going to be best served by going with a retail lender.

“When you’re comparing the correspondent channel to the retail channel, the retail channel is generally going to win because their whole business model (from my outsider’s perspective) is based on their ability to cross-sell other products and get deposits,” said Mark Maimon, Vice President and Team Lead at Freedom Mortgage. “For me, I’ve chosen intentionally to stay away from them, number one, because I compete on breadth of product and being able to handle transactions that traditional banks can’t handle, because if you’re one of 10 traditional retail banks all competing in the same exact market, doing exactly the same thing with matching rates, you get commoditized. You can’t really stand out, in my opinion. You can be good at your job and be a great communicator and all these things, but in terms of really being able to stand out as a resource, where somebody has a deal that’s falling apart elsewhere, who do you call? I want to be the first person that that agent knows to call.”

The benefit of working independently, of course, is that you are much more responsible for your own success. The freedom lies in the flexibility: you alone can decide the strategy, you set your targets and define your own success. You decide when that changes and how to respond to market conditions. When it’s out of your hands, that can simultaneously be a blessing and a curse.

“If you’re working for “The Man” and “The Man” or the company is providing all your resources, you’re at the whim of that company’s success. If there’s a change in directive from the top on how they want to move that market, you’re going to be changing with that company whether you like it or not. So the true resilient loan originators have their own book of business that no matter where they go, those customers are going to end up working with that person,” said Ben Anderson, Executive Loan Advisor and Branch Manager at LendUS.

For obvious reasons, larger retail lenders look through a much bigger lens when deciding on their strategy. They’re able cross-sell and get deposits from other non-mortgage products, and originators can access some products that they wouldn’t be able to access at a smaller brokerage.

“I have some additional tools, which – being at a bigger bank, some of the smaller brokerage shops don’t have, like having a private portfolio, we have relationship-based pricing, brokerages aren’t going to have that because they’re brokering it off at a higher rate,” said Jason Wiley, Private Mortgage Banker at Wells Fargo Home Mortgage.

What may be a great corporate decision for a retail bank lender, e.g., raising rates, changing the types of products offered, or changing guidelines, could be devastating to a single mortgage loan originator who works under that umbrella.

“Your whole career is dependent on what they decide to do at the corporate level, and I don’t want my career to be dictated by one option. It’s like putting all your eggs in one basket,” Maimon said.

He concedes that retail bank lenders are a good option for some people, especially those whose focus is being competitive on rates, and some banks do remain aggressive with products. Retail lenders can also be a safe option in terms of being able to move from one branch to the next with minimal disruption. It can also be easier to move from one retail lender to another, something that Maimon says he sees often in his peer group.

With many moves, however, comes a loss in consistency. Each time you move lenders, you have to convince your referral partners that your new lender is better than the previous one, and Maimon said that he has “zero interest” in doing that.

“I’ve chosen to stick with the correspondent and broker outlets as opposed to retail even though sometimes we might lose transactions over rate but that’s not how we sell ourselves. Even though we have great rates, there’s always somebody who will try to undercut you. So we try to stay out of that market and my choice of lender is in line with how I compete and what pitch I have to the community out there at large that I’m trying to generate business from.”

To a certain extent, you have to work harder when you’re with a correspondent lender or when starting your own brokerage. When learning how to run a business as opposed to stepping into a well-oiled machine, there’s a much steeper learning curve. Sure, you’re originating, but you’re also dealing with hiring, training, marketing, technology, compliance, and branding.

Decide what you value as an originator, and you’ll be able to decide whether a correspondent lender or a retail lender is the right choice for you and your business.

 

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