Brokers, Flush from Refi Boom, Flocking to Servicing Business

By Hornblass, Jonathan | American Banker, December 16, 1993 | Go to article overview

Brokers, Flush from Refi Boom, Flocking to Servicing Business


Hornblass, Jonathan, American Banker


Mortgage brokerages are putting on a new face.

Laden with profits and eager to diversify their operations away from the waning refinance business, more brokers are undertaking servicing, according to servicers and brokers.

Most are using "subservicers" to do the processing work as they get their own portfolios started.

Brokers, who usually sell the servicing rights along with the loans, have taken on servicing before. But the number of brokers jumping into servicing has risen dramatically in the past year.

Clientele of Brokers Triples

At Wendover Funding Inc., Greensboro, N.C., one of the nation's largest subservicers, the number of clients that are brokers has tripled in a year. Subservicers perform processing and other tasks on behalf of the holders of the servicing rights.

Of Wendover's clients this year, 22% are brokers getting started in servicing. Last year, brokers were only 6% of the company's client pool.

"It was a small part of our business, but it really came out at the beginning of the refi boom," said Michael A. Hyman, senior vice president for marketing and contract administration at Wendover, a unit of State Street Bank and Trust Co.

Staff Enlarged

In response, Mr. Hyman said, Wendover has enlarged its broker subservicing staff, called the flow-loan program.

Brokers say they benefit on several counts when they retain servicing.

They can defer taxes on originations by spreading some of the income into servicing. Also, servicing diversifies their operations beyond stamp-and-seal loan origination.

That diversification makes brokers financially more secure, said Larry B. Litton Sr., president and chief executive officer of Litton Mortgage Servicing Center Inc., Houston.

But not everyone thinks highly of brokerage business becoming servicers. Some mortgage brokers "do not have the depth internally to understand all the intricacies" of servicing, said Kirk R. Phillips, president and chief executive officer of First Security Mortgage Corp., a broker based in Columbia, S.C.

Spending Binge

Now that some brokers have grown rich with refi money, a few are spending their cash recklessly, some in the industry say. "There are brokers out there with enough money to make them dangerous," Mr. …

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