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Terri Buckman
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Terri Buckman VP, Sales Manager |
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Pinnacle Capital Mortgage Corporation 1390 Willow Pass Road Suite 560 Concord, CA 94520 |
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email Terri 925.822.5931 |
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| Jumping Aboard the Banker Train? | ||
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| 12 interview questions for brokers joining bankers | ||
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| “It is a big step, but if it is a step onto the right platform, it can position you to thrive and grow your business going forward.” So, HVCC, MDIA, SAFE ACT, RESPA and RED FLAGS have you waiving your White Flag. You’ve concluded the barrage of changes to our industry have proven a tremendous drain on focus and energy that could be better spent on marketing and recruiting efforts. There may be other reasons factoring into your decision, such as, concerns over net worth requirements or HUD changes to the loan correspondent mortgagee approval. But probably the most compelling reason is to gain better service levels. Whatever your reasons, this article assumes you have made the decision to join a banker. As such, you are part of an accelerating trend that has produced a multitude of branching options to explore. You may now want to know what to ask potential banking partners. The following 12 questions will help you discern which branching model will work best for you and your team. 1) Is the prospective company primarily a banker, meaning they close more than 80% of their originations on their warehouse lines or are they a mega broker with some banking capabilities? The true banker will probably want something close to 80% of your originations that fit their product offerings to fund in-house on their warehouse lines. The mega broker may have a more relaxed requirement in this regard. If you want to keep more brokering options, this may be a good model for you. However, this distinction brings me to my next question. 2) Is the company you are interviewing a “loan aggregator” or a “fee aggregator”? The mega broker with some banking capabilities will most likely be the latter, meaning they will charge you on a transactional basis. The “loan aggregator” will want a substantial portion of your volume to fund in-house, but they likely won’t have all the extra transactional fees. 3) Will you be able to retain your DBA? If you are still open for business, my guess is you have spent years, perhaps decades, building your brand and presence in your marketplace. Quite simply, some branching opportunities allow you to continue operating under your dba and some require you to adopt their name and branding. The importance of this is a personal decision. 4) How experienced in FHA lending is this company? Ask how long the company has been doing FHA and ask to see their compare ratio on HUD’s Neighborhood Watch website. This ratio reflects default rates. A compare ratio of 100 is exactly on par with all loans being originated in the same geographic area selected. A ratio over 100 indicates worse performance and less than 100 indicates better performance. HUD uses this site to monitor quality. A company with a compare ratio over 200 is heading toward an audit and perhaps some disciplinary action. You can also get an idea of the volume of FHA loans this company has generated, which speaks to experience and confidence with the product. Access the site yourself at https://entp.hud.gov/sfnw/public/ Ask too, if they are prepared to meet the 2.5 million net worth requirement HUD is anticipated phasing in on DE lenders over the next 3 years. 5) Do they Wet Fund or Dry Fund? Wet funding is when the lender sends funds with the closing papers after all conditions have been met. Dry Funding is when funds are sent out after the closing docs have been signed and returned from escrow for final review. In the Dry Funding method, docs can generally go out with a few outstanding conditions. The method used will generally depend on where their home office is located. Your preference will most likely be the process that is used customarily in your region. There are pluses and minuses to both methods. Just be aware you may have some extra educating to do with your customers and referral partners if your process is different to what they have become accustomed. 6) What is their profit payout methodology? Some models will pay out all profits by W-2 to the branch manager. Other models will allow you to invoice them through a marketing services agreement for net profits, which are paid to your corporate entity directly without the requirement for W-2 or 1099 reporting. The latter option requires you to have a corporate entity to contract with, but may offer more flexibility for accounting purposes. 7) Have you used this company previously through their wholesale channel? The proof is in the pudding, as they say. If you have the opportunity to try a prospective banking partner out through their wholesale channel, it is the perfect opportunity to “test drive” their platform. Moreover, if your team has already interfaced with the prospective company and established relationships and familiarity with their systems, it makes for a much smoother transition. Your team’s buy in is key for a successful transition. 8) Will you retain an Account Executive or other regular onsite assistance? You will need ongoing updates and training for changes with products, pricing, processes or personnel changes. Additionally, a senior account executive can assist with marketing by teaming with your originators to bring in relevant trainings to your referral partners. Some branching models offer this and some do not. 9) Does the company you are interviewing offer a wide array of well priced products? Often times, mortgage bankers specialize in a narrow product set or are priced sharp on a narrow product set. This works fine for wholesaling purposes, but if the company is expecting 80% of your volume to fund in house, you will want be sure the product set is wide and priced well enough that you can deliver 80%. If you are located in a state that has historically used a high percentage of ARMs, you will want to check ARM pricing too. Long term rates won’t stay this low forever. If the company doesn’t generally have the need for aggressively priced ARMs, but your region does, you could regret your choice six to twelve months from now. 10) Ask about the companies relationships with their investors and MI carriers? Do they have special status with these entities? Can they offer you product niche that can help you standout? MI companies, in particular, offer different bankers vastly different options, particularly in distressed markets. 11) Are you speaking to a direct representative of the mortgage banker about their branching opportunities? If you were approached by another existing branch operator, be aware that they are probably receiving some over-ride on your production. There is some, what I will call “pyramiding” going on out there, with regard to pricing. This isn’t in and of itself a bad thing, if the person gaining over-ride on your production is providing value to you. For example, they may offer marketing support or have inside real estate office opportunities. But generally, you are better off bringing your own group of originators directly to the mortgage banker yourself. 12) Does the company offer volume incentives and custom pricing? You will certainly want to ask about volume incentives for your branch and also ask if you can customize your pricing. You may want to pick up a little extra revenue to offset higher loan originator splits and/or the cost of health benefits and payroll expenses. These certainly are not all the questions you will want to ask, but it is a good start that I hope will help you sort out your options. After you have weighed out the structuring details, it is equally important, if not more important to know the people and culture of the company you join. I recommend you visit their operations center and spend some time with the people that will become your underwriting, docs and funding department. You will also want to meet the management team to gain a sense of the company culture and vision for the future. It is a big step, but if it is a step onto the right platform, it is one that can position you to thrive and grow your business going forward. |
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| Post Date: March 8, 2010 |
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| Whose YSP is it anyway? New World Order... | ||
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| The 2010 GFE and the Mortgage Broker | ||
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| Let’s start by understanding what changed and we’ll finish with some ideas of how to use the changes to your advantage. In December, lenders credited 100% of YSP as a POC (paid outside of closing) directly to the mortgage broker. The broker then instructed the lender how much of the YSP they would like to “credit” the borrower. The broker retained their compensation from the YSP. Today, post the new GFE, YSP is handled quite differently. The only portion of YSP that passes directly to the broker now, is the portion that they have disclosed and included in their “origination fee” in box one of the new GFE. Any remaining YSP, if there is any, gets credited directly to the borrower to offset other closing costs. This is the new world order. The YSP really belongs 100% to the borrower. To participate in YSP, the broker must disclose it as a part of their origination fee on the new GFE. There is another option and that is to simply charge all compensation as origination fee instead of YSP and let the borrower get 100% of YSP directly as a credit. The latter option works a little better with most LOS software and may save you some work around hassles. But this option is not your best option on a VA loan, due to origination fee constraints. Both methodologies are treated the same on the GFE, requiring brokers to put the compensation they expect to make (whether all origination fee, all YSP or a combo of the two), as expressed in a dollar amount plus the lender fees in box one. If the rate desired pays YSP, it is disclosed in its entirety in Box 2, as a credit to the borrower. But any way you dice broker compensation, at the end of the day, 100% of the YSP gets credited to offset borrower costs on a brokered loan. It is worth saying it in yet another way: YSP = borrowers credit Discount points = borrowers charge You cannot increase your origination charges, except in very narrowly defined circumstances, but you can reduce them. I hear from many of you that you are quoting very high origination charges so you can absorb fees you under disclosed or inadvertently undisclosed. This strategy will work with clients that blindly trust you. But it will put you at a severe disadvantage with a borrower that does not know you, and actually uses the GFE as the shopping tool it was intended to be. I suggest a couple of things here... First, since you will no longer credit the borrower on a brokered loan, as YSP now gets credited directly to the borrower, it is time we moved away from terms like “zero point” loans or “no cost” loans. They were always misnomers anyway. More to the point, and the pun is intended, you may corner yourself in using this terminology. Look at any wholesale rate sheet. YSP only comes in certain options and sometimes there are big anomalies between tiers. You will rarely have YSP that will exactly offset origination charges, which you would need for a “zero point” loan. If you are suddenly short on available YSP, from the time you initially disclosed and the time you are ready to lock, you may have to reduce your origination fee to affect the zero point loan. Many brokers have already realized this, hence the large origination fee cushions. The same challenge exists if you sell a “no cost” loan. Since you have already disclosed your origination charges and all other closing costs to the borrower, you may want to present them their “wholesale” price options. Rather than sell a zero point loan, for example, you could assist your client in selecting the rate that offers the best combination of monthly payment and credit or discount cost that works for them. Explain to your customer that when they lock in they may receive the YSP credit they see today or it could be a little more or a little less, but it will be their choice and they can rest assured that on a brokered loan, all YSP will be disclosed and credited against their closing costs. They are in the driver’s seat. This is a subtle change in scripting, but it will save you from having to over disclose your origination fees, thereby making you look more competitive on your GFE. And it will certainly save you from kicking in your origination fee. Second, make sure you understand how to quote the fees of the companies you feature on your settlement services provider list accurately. Get a list of common title endorsements your lenders request and get the fees for those as well. Make sure you don’t miss any transfer taxes. Have your escrow officer prepare an estimated HUD-1 for you before you prepare your GFE and ask them to include seller paid fees for transfer taxes and title and escrow fees. Recently, several large investors and HUD have confirmed that all title and settlement fees, including those customarily paid by the seller in specific geographic areas, must be disclosed on the new GFE, unless required to be paid by the seller by state law or local code. There are a few exceptions, preparation and recording of grant deed and seller notary fees, for example. But if in doubt, disclose, disclose, disclose. Third, remember that YSP credited to the borrower from the lender does count toward maximum interested party contribution, except for any portion credited to the broker as compensation in line 801 of the new HUD-1. So, watch your seller’s and YSP credits. They can’t exceed the actual fees, and you can’t increase fees now to absorb excess credit. You will have to relock at lower rate, re-disclose and redraw your closing docs. Last minute credits to the buyer to cure issues could postpone an otherwise timely closing. Educate your realtor partners to work closely with you on seller/broker credits. And last, bankers at present do not have to disclose YSP on loans they fund internally on their warehouse lines, nor must they credit 100% of YSP to the borrower. It is a little more, business as usual, for bankers where YSP is concerned. That said, a well prepared broker could use the new GFE to their advantage, by selling the benefits to the borrower of full disclosure. The borrower does not own the YSP on a banked loan which means it is at the discretion of the originator whether or not to share YSP with the borrower. Brokers could take things a step further, and show the borrower how they can structure the transaction for better tax advantages. Origination fees are tax deductible. A mortgage broker could take all their compensation in loan origination fee (not YSP) and then apply all the borrower’s YSP credit against non-deductible closing costs first. As always, learning to adapt, and understanding how best to present this new world order for your customer’s best advantage will elevate the true professionals from the rest. |
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| Post Date: March 5, 2010 |
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| Happy CAMPers hit Capitol Hill | ||
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| NAMB Conference Washington DC this week | ||
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| It was Mondor on Monday: Paul Mondor, Senior Attorney of Community Affairs addressed the room on the topic of Regulations on Originator Compensation in 2010. Mr. Mondor tried to assure the NAMB attendees that it was not the intent of the Federal Reserve Board to ban YSP, describing this as the #1 misconception of the proposed reform. He said there were, in his mind, three types of YSP: 1. Premium paid for above par pricing 2. Portion of YSP that can go to LO 3. Type of YSP that LO has control over and is based on terms and conditions of the loan He stated the board would like to do away with the third type of YSP. He further stated “terms and conditions” of the loan “may” or “may not” include the loan amount. The “flat fee” compensation model would be based on agreements between loan originators and their employers or lending sources, in the case of brokers. Mr. Mondor cited examples of things that could influence compensation in the proposal. They were: 1. Loan Volume 2. Geographic Differences 3. Competition He acknowledged that the board received over 4,000 comments during the comment phase and they were reviewing them all. Tuesday was “The Commish”: FHA Commission, David Stevens gave the keynote speech during lunch Tuesday. He was upbeat and gave assurances that he understands wholesale/broker lending and told the attendees that no policies were designed to be eradicate wholesale. He said he felt the broker channel would come back. He acknowledged that HUD will be making changes to the FHA program for soundness reasons. But he explained all changes will be screened by three filters: 1. Impact on Housing 2. Impact on core mission to serve the underserved 3. Changes to get capital reserve ratio He talked on counterparty risk management and mentioned TBW and Lendamerica of examples of companies that competed on credit and failed. He confirmed that an announcement on the elimination of the Mini-Eagle was very imminent, leading me to think it would be Monday, March 1st. He said he had HUD permission to say from the podium, “Don’t spend thousands on your financial audit, until you see the announcement.” This was a direct reversal from Vicki Bott’s instruction to mini-eagles to get re-certified, which she told attendees on Monday from the podium.Ms. Bott is Commissioner Steven's deputy. In any event, we can all certainly wait until next Monday. On the topic of the SAFE Act, Commissioner Stevens, gave us a great idea for a new slogan. He said, “If you can’t pass the licensing test, go work for a bank!” I think it would make a good slogan for CAMP. Tee-shirts anyone? On the issue of the Fed pulling back on buying MBS, the Commissioner said it will be the first test of just how sick the market actually is. If private capital comes in, it is obviously a good sign. If prices rose by .25 to .375, it would indicate some market viability and would be tolerable in his mind. More than that and the government would need to step back in and he said it would step back in. “We need to instill confidence in global investors. Cleaning up our industry, and demonstrating quality is how we do that.” Ivy Jackson, Director, Office of RESPA addressed our GFE woes: Ivy acknowledged that there were different methodologies being used in the marketplace for completing the GFE, primarily with regard to the treatment of YSP. She said HUD was hosting a meeting with the biggest industry players to gain some uniformity in methodology and get everyone on the same page with this new disclosure. It appears this has happened, because we are seeing several announcements indicating methodology adoptions in line with the three big banks this week. She also made it very clear that fees paid by the seller would have to be disclosed on the GFE unless there was a state law prohibiting the seller from paying it, regardless if it is “customary” for the seller to pay that fee in a particular geographic area. She made the point, that there is no way to document or know what is customary, short of a law or code requiring it. We have seen several large investor announcements this week echoing her words. So, disclose, disclose, disclose. Wednesday, the Happy CAMPers took to Capitol Hill: As the contingency from California rolled toward “The Hill” in our shuttle, we dubbed ourselves, “The Happy Campers”. Hey, a positive attitude always helps! We divided into groups to hit as many legislators as possible. Our message was that we embraced the changes that required a higher level of professionalism in our industry. That we were seasoned professionals that stood ready to assist constituents into homes for the first time or back into homes if they were one of the unfortunates being displaced by the housing crisis. We advocated on being able to retain the use of YSP on behalf of the consumer to assist with closing costs. We also shared concerns over HVCC and other issues. It was a very good day and we could see that our efforts were worthwhile. If you have never been to Washington, DC, I highly recommend you go and drop in on your representatives. |
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| Post Date: February 26, 2010 |
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| DISCLAIMER: My Blog solely represents my own personal opinions and commentary and does not represent the opinions of any corporate entity or other individual. The intent of this blog is to start conversation on topical mortgage issues. This is not advice and should not be acted on accordingly. Further, this information is intended for mortgage professionals only and is not intended for consumers. |
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