Magazine article Mortgage Banking

From Broker to Correspondent

Magazine article Mortgage Banking

From Broker to Correspondent

Article excerpt

"It's hard to do business as a broker," says Gary Alexander, a former mortgage broker who now is a loan originator with Axia Financial, Bellevue, Washington. Axia is a correspondent lender with branches in Washington, Oregon and Idaho. Alexander explains that revamped disclosure rules under the Real Estate Settlement Procedures Act (RESPA) implemented at the start of this year put brokers at a disadvantage.

Brokers must disclose on the Good Faith Estimate (GFE) form any compensation they'll receive from yield-spread premiums (YSPs). Total compensation for the loan is shown on the GFE, and the YSP amount is subtracted from that to show borrowers their "adjusted origination charges." Doing so "makes brokers look noncompetitive" in their pricing, says Alexander.

"Banks have won the propaganda war," asserts Alexander. "The public feels safer working with bankers and is reluctant to use brokers." He adds that because borrowers "feel secure" walking into their local bank branch, they're less likely to shop for rates--and may pay one-fourth of a percentage point more as a result.

Yet correspondent lenders typically offer better pricing than financial institutions do, Alexander says. National and regional banks are "big, slow, and have high rates," he adds. "Competing against them is easy." Having its own underwriters and warehouse line lets Axia Financial's originators provide faster turnaround times, Alexander says.

Break the mold

Brian Barnes also has gone from being "a die-hard broker" to being an employee at a correspondent-lending firm. Barnes is a divisional president for Primary Residential Mortgage Inc., Salt Lake City. Barnes still is doing business as Paradise Financial, which he began in 1992 in Roseville, California. Paradise went from being a mortgage brokerage to a mortgage bank in 2001, and its staff grew to 300 as volume rose to $100 million per month.

However, in 2006 Barnes went back to being a broker, and downsized the firm. Costs associated with mortgage banking plus loan buyback concerns prompted that decision, he says. Barnes notes that the $105 million warehouse credit line he carried as a banker would require him to hold $30 million in liquid assets today.

Yet working as a mortgage broker now isn't as attractive as being part of a correspondent lending firm, according to Barnes. He estimates brokers need 45 to 60 days to close a loan today. Yet Barnes says his current closing time as part of Primary Residential Mortgage's correspondent lending group averages 23 days.

A big factor in the faster closing time is that correspondent lenders can underwrite to the specifications of the loan's final buyer. …

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