The mortgage broker channel is growing, and loan originators on both sides of the retail-broker divide are interested in hearing from those who have made the transition. In this series, “From banker to broker”, Power Originator speaks to several brokers who have made the switch to the broker channel about the ups and downs of the transition, and what motivated them to make the move.
A loan is a loan is a loan, whether a mortgage originator works as an independent broker or operates at a bank or other retail location. There are differences in the models, however, that go far beyond products and marketing support.
Dan Lourenco had a fairly smooth transition to the broker channel in August 2018, when he moved from Caliber Home Loans to Mortgage Navigators. In fact, the similarities were much more pronounced than the differences because Caliber Wholesale and Caliber Retail operate in a similar fashion. Even so, Lourenco says that there’s bit more responsibility that goes along with the independence of becoming a broker.
“It's a lot of fiduciary responsibility from a lot of angles, paying a lot more attention from compliance to having no waste within the company, and just making sure we do what's best for the customer,” Lourenco said.
Many mortgage originators will tell everyone that ‘it’s not just about the rate’ but let’s face it: everyone wants to know about their bottom line at the end of the day. For originators who are curious about the broker channel especially, they want to know whether or not giving up the stability offered by a retail lender will result in more money in their bank account. The truth is, it’s not always so cut and dry.
Originators can spend a lot of time trying to figure out complicated compensation plans, tiered or otherwise. Retail originators don’t need to disclose their compensation plans and brokers do, but Lourenco said that the transparency can actually help build connections with clients.
“Most people are excited for you,” he said, adding that some of his clients have even told him that he deserved what he got for being so accessible around the clock. “I'd say the transparency is good. People like to see it and know it, and it's not a bad thing.”
Jeremy Harridath became a broker for a number of reasons, namely because he found that he was getting beat on price—by a lot. He interviewed with different mortgage companies, began looking at rate sheets and comparing pricing, and he noticed that the margins were a bit higher in retail. He decided that if he was going to make a move, he would start his own company, Peace Home Loans, which he did earlier this year.
Harridath has established the commission split at 2%, which he says is slightly below average for brokers. He makes anywhere between 40-100 bps on his loans and is flexible when it comes to investing that back into the business.
More than a potential increase in income, Isabel Williams appreciates that she’s no longer set to one lender’s programs and their commission. Now, as the owner of We Save Loans, she has more flexibility with her pricing options. Even if that doesn’t necessarily mean more money in her pocket because she has higher overheads as an independent operator, she always has the option to put more money in the business. Tony Davis, senior mortgage advisor of Atlantic Home Mortgage, has structured his company so that he doesn’t get paid commission at all. Instead, he takes what he needs to live and reinvests the remainder back into the company in order to improve their technology and grow more efficiently.
Rather than worrying about how much money they’re going to be making from a transaction, Harridath said that originators considering making the switch to the broker channel should be more concerned about having enough money in the bank to withstand any hard times. He started Peace Home Loans with $50,000 of his own money, which was repaid within the first two months.
It’s scary, he says, but originators have to think about the worse case scenario because many people with good talent “crash and burn,” then get out of the business because they can’t support themselves financially.
“The last thing you want to do in this business is to be desperate getting business because then you're not doing what's right for the client. You start doing what's right for your bottom line, and that's where people go wrong,” he said. “If a refinance doesn't make sense, don't do it. Don't put a client in a product they shouldn't be in. Small things like that you start to do when the lack of money comes into play.”
Worst case scenarios aside, a lot of originators have made the switch not because of the money alone, but because at this point in time, the broker channel is where they see more opportunity to grow and to thrive as a professional and as a person. Brett Weiss, senior loan officer at Nexa Mortgage, started looking at the broker channel because he, like Harridath, was losing so many loans over pricing. He encourages other originators to take a hard look at their current business and evaluate whether or not, with the right support, they can do better as a broker.
“All you retail LOs out there: look back on all the times you had to say no because it didn't fit your guidelines, or you didn't have programs for a self-employed person, didn't do a down payment assistance, whatever the case may be. And then you also think about all the potential clients that you didn't get over pricing,” Weiss said. “The thing about it is, everybody says, ‘I don't sell rate, I sell service.’ Well, you can do both. It's a pretty good feeling going to bed at night knowing I was able to offer the best rates available; I'm not knowingly selling something I know isn't the best deal for the client just to make my living. It doesn't have to be that way.”