Mortgage Banking’s Brave New World: The Spoils and the Frustration.
The increasing number of large aggregators pulling back from buying loans from correspondent lenders (and many more to follow) is causing quite a bit of frustration. But it also means opportunity.
First the spoils. Many small and medium sized mortgage bankers who issue securities are now able to buy from other mortgage bankers who had traditionally sold to mortgage lending’s Big Boys. The prospect of doing hundreds of millions of dollars per month is more than a dream with these companies–it is a reality. But the reality typically depends upon the following:
- Having a sufficient capital base.
- Having a back room that can handle the new volume.
- Having adequate warehouse lines that can accommodate the anticipated volume.
- Being able to become approved as a takeout investor by originator clients. Easily the most difficult criterion.
Why is it difficult?
Banks that offer warehouse facilities have always had a large net worth requirement for the take out clients of their customers. In many cases, the desired net worth was in excess of $50 -100 million. Now, emerging end-investor mortgage bankers are seeking approval with net worths under $5 million – $10 million. This presents a problem as well as an impasse to the new breed of security-issuing mortgage bankers, who often can’t get approved as a takeout by their potential client’s mortgage warehouse providers.
What can they do to become acceptable?
Bring in more capital.
Build up net worth.
Build up their back rooms.
Possibly merge with a larger issuing banker.
Add good clients the warehouse lines of which will allow them to sell to your company.
So the good news is that some of these companies can expand their businesses. The bad news is that they can’t get approved as takeout investors. Needless to say, it’s a frustrating situation. But it’s not without hope of improvement.