Down, But Not Out

Mortgage brokers are adapting their business model to survive, after looking like an endangered species. Some insiders now believe the cycle is turning and the role of mortgage brokers is poised to grow.

Mortgage Banking Magazine

October 2012


By Robert Stowe England


After a steep decline from their peak at the height of the housing bubble, the ranks of mortgage brokers seemingly hit bottom in early 2011. Since then, brokers have staged a very modest recovery. Even so, it’s not clear what the future holds for the profession.


Views diverge from those seeing little chance for a significant rebound in broker share of the market to those who expect a full recovery.


For the moment, the skeptical view appears to hold more sway.


“Since the credit crisis, particularly the subprime mortgage meltdown, mortgage brokers have become an endangered species,” says Guy Cecala, chief executive officer and publisher of Inside Mortgage Finance.


“I’m not very optimistic about their future,” he says, “[or] about the chances for a strong rebound in the volume of mortgages originated through this channel.”


Why has the downturn hit this segment of the business so hard?


“Rightly or wrongly, they’ve borne the brunt of the blame for making and marketing irresponsibly underwritten mortgages,” Cecala says, even though mortgage brokers do not actually underwrite loans.


“The issue has always been, [in] the case in the subprime meltdown, [that] a disproportionate number of bad loans--or the loans that defaulted the quickest--came from mortgage brokers,” he adds.


“There’s always been a perception that mortgage brokers care more about qualifying the borrowers than they do in representing the interests of lenders or investors,” according to Cecala.


In the wake of the subprime meltdown of 2007 and 2008, “the top lenders immediately started distancing themselves from mortgage brokers,” Cecala says. “And that’s continuing to this day,” he adds. “The latest nail in the coffin, if you will, is Wells Fargo’s [July] announcement it would stop doing business with mortgage brokers.”


Wells Fargo Home Mortgage, based in Des Moines, Iowa, was the last major mortgage lender to operate a direct mortgage broker origination channel. The announcement by Wells Fargo came on the same day that the firm agreed to a $175 million settlement with the Department of Justice (DOJ) in a suit that charged the company’s mortgage lending efforts had produced a disparate impact against black and Hispanic borrowers during the housing boom.


DOJ claimed Wells Fargo had discriminated against minorities by offering them subprime loans that carry higher fees or interest rates when the borrowers could allegedly have qualified for better terms. DOJ’s assertions were based on an analysis of loan rejection data and a theory of disparate impact that showed fewer minorities obtained loans.


In a statement released July 13, Wells Fargo denied the DOJ claims: “Wells Fargo is settling this matter solely for the purpose of avoiding contested litigation with the DOJ.”


Wells claimed that the loans associated with the settlement came from independent brokers, yet denied there was any connection between its decision to shut down its mortgage broker channel and the payment of the fine.


Mike Heid, president of Wells Fargo Home Mortgage, explained the company’s view in July 12 press release: “Through our separate decision to no longer fund mortgages through independent mortgage brokers, we can control how our commitment [to fund homeownership] is met on every mortgage that Wells Fargo makes.”


Cecala contends there are other practical issues working against originating through mortgage brokers. “When you try to get any originator to buy back a loan that turns out to be bad or goes to default or is fraudulent, it’s problematic dealing with mortgage brokers,” he says.


“Mortgage brokers sell loans ‘as is,’” says Cecala. “There’s no recourse back to them. All you can do is stop buying loans from them. They don’t indemnify you for your losses.”


The accordion analogy


Other industry observers, however, predict a recovery in housing will spark parallel growth in broker originations.


“I see the mortgage broker industry as somewhat of an accordion,” says Dick Bove, senior vice president of equity research at Rochdale Securities LLC, Lutz, Florida. “It expands and contracts with the market that it serves. Unfortunately, the expansions and contractions tend to be relatively violent.”


“In good times you see mortgage brokers all over the place. They spring up everywhere--in storefronts, second-floor offices of commercial buildings, etc.,” Bove says. “And then when the contraction comes, of course, they all disappear.”


Bove believes mortgage brokering will come back, as it always has. “I think this is the time to get into the mortgage brokerage industry, because presumably we’ve got five, six or seven years of very slow expansion until we run into a pop in housing activities,” he says.


A lot of former mortgage brokers have taken up positions as loan officers with larger lenders and, when they see an opportunity to return to the entrepreneurial role they previously enjoyed, they are likely to do so, according to Bove.


“I’ve been doing this thing since the late 1960s, so I’ve gone through quite a few cycles. In every cycle, the theory is that these guys will never come back--that they’ve been wiped out. All those firms get bought up by banks at the peak of the cycle, and there are no more mortgage broker firms,” he recalls.


“But they always come back, because they provide a service,” Bove says. “So, I think you’ll see a lot of people coming back into the business,” he predicts.


Broker origination volume


It has been difficult to measure the exact volume of mortgage broker originations because many mortgage brokerage firms act as both brokers and correspondents.


Inside Mortgage Finance provides origination data on pure broker-originated loans. According to Cecala, brokers represented an average 31 percent market share in 2005. The share fell to an average of 9 percent for 2011.


On a quarterly basis, however, the mortgage broker share hit bottom in the first quarter of 2011 when it was only 7.5 percent, according to Inside Mortgage Finance. From there, it rose to 10.8 percent in the fourth quarter of 2011.


In the first quarter of 2012 mortgage brokers originated $34 billion in mortgages, as their share fell slightly to 9.4 percent, according to Cecala. In the second quarter, however, the broker volume fell to $32 billion, or a 7.9 percent share--the second-lowest broker share ever, according to Inside Mortgage Finance.


Correspondent lending in the second quarter, however, rose 2.5 percent, from $120 billion to $123 billion, increasing market share from 30.4 percent to 31.2 percent.


Meanwhile, retail loan origination rose 9.2 percent from $229 billion to $250 billion, representing a 61.7 percent share -- “the highest share since Inside Mortgage Finance began analyzing origination channel trends” in 1990, says Cecala.


A different take on broker share


From 1991 to 2007, Wholesale Access Research & Consulting Inc., Columbia, Maryland, compiled and published yearly in-depth information on mortgage brokers. Wholesale Access was co-founded and run by David Olson, an economist, and Tom LaMalfa, now president of TSL Consulting, Cleveland Heights, Ohio.


LaMalfa contends that the way Inside Mortgage Finance tabulates its data transfers a lot of the business originated by mortgage brokers into the correspondent category.


In the annual surveys by Wholesale Access, mortgage brokerage firms were included in the survey as long they were predominantly brokers, with 80 percent of more of their business originated without a warehouse line--meaning that 20 percent or less constituted correspondent lending, LaMalfa explains.


According to Wholesale Access, mortgage brokers represented as much as 68 percent of originations at their peak in 2003, when there was a huge refi boom and $3.8 trillion in total residential originations.


Wholesale Access also tracked the number of brokerage firms. In 1990, the first year this was measured by the company, there were 12,000 firms. That number rose to 50,000 in 2003 and 53,000 in 2006, the last year Wholesale Access surveyed.


Optimism about the broker channel


LaMalfa believes the share of originations being done today by mortgage brokers is between 16 percent to 19 percent--almost double the level reported by Inside Mortgage Finance.


“My reason for differing with their numbers has been the reason I differed with them over all the years,” LaMalfa says, recalling that Wholesale Access and Inside Mortgage Finance “had this debate frequently.” He adds, “From studies we did, anywhere from 30 [percent] to 60 percent of originations deemed to be correspondent were actually originated by a mortgage broker.”


Like Bove, LaMalfa is optimistic about the future of the mortgage broker channel. “I think that it is going to expand in the years ahead. I think we’ve already seen the bottom,” he says.


“All the bad brokerages--those concentrated largely on nonprime loans--were washed out of the system. We’re down to the cream of the crop today,” LaMalfa contends.


He expects that in five years, mortgage brokers will likely originate 30 percent of mortgages. “The caveat for this prediction,” he adds, “is that the Achilles’ heel in the brokerage industry is regulatory.”


“If these regulators get even harsher, it’s going to take a toll and my expectation of growth among brokers is going to be wrong,” LaMalfa says. So, he tempers his prediction in this way: “absent regulations that do further damage to the industry.”


LaMalfa says brokers were able to become such a big factor in the mortgage industry because they are the low-cost producers of new loans. “They didn’t have fancy offices. They didn’t have well-paid middle and upper management. They had small storefronts. There was not a lot of overhead. There was not a lot of regulatory oversight, as long as they complied with state guidelines for licensing,” he says.


Then came nationwide licensing


In 2008, the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR), both based in Washington, D.C., set up a Nationwide Mortgage Licensing System (NMLS) to track and oversee licensed mortgage originators.


At the end of the first year, states listed 13,936 unique mortgage origination companies and 66,692 mortgage loan originators.


Title V of the Housing and Economic Recovery Act of 2008--sometimes referred to as the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act)--mandated that all mortgage loan originators be either federally registered or state-licensed through the NMLS.


The legislation authorized the creation of the NMLS under the auspices of the Conference of State Bank Supervisors. The NMLS is managed by a subsidiary, a nonprofit organization called State Regulatory Registry LLC, based in Washington, D.C., according to Bill Matthews, the chief executive officer and president of the registry.


In the first quarter of 2012, NMLS reported 15,883 unique entities licensed in states to originate mortgages representing 110,710 individuals, some of whom are licensed in more than one state, according to Matthews. People with state licenses can be both lenders and brokers and, thus, it is difficult to have a strict classification of each entity or individual on the list, he adds.


In the first quarter of 2012, 14,026 or 88 percent of the 15,883 unique entities reported by the states were engaged in first-mortgage brokering, while 3,434 or 22 percent were engaged in first-mortgage lending. This compares with 13,298 or 89 percent of 14,980 unique entities in the first quarter of 2011 that were engaged in first-mortgage brokering and 3,308 or 22 percent in first-mortgage lending.


The separate NMLS report on federal data reported 387,618 mortgage loan officers in federally registered depository institutions, as of the second quarter of 2012. Why so many loan officers? “It is easier to get registered than to be licensed,” explains Matthews.


Both federally registered and state-licensed loan officers face background checks before they are accredited. States additionally also require that applicants pass a licensing test, pre-licensing education and personal credit checks.


Federally registered loan officers include bank officers in retail branches whose responsibilities include many other banking activities, whereas state-licensed mortgage loan officers tend to be exclusively dedicated to the mortgage business.


Struggling brokers


Amtrust Mortgage Funding Inc., Carmel, Indiana, is one of the mortgage brokerage firms that survived the Great Attrition of brokers brought on by the housing crisis and the subsequent regulatory onslaught. Its senior vice president, Don Frommeyer, is also head of Plano, Texas-based NAMB, the Association of Mortgage Professionals (NAMB is the acronym for National Association of Mortgage Brokers).


Frommeyer reports that after Wells Fargo shut down its mortgage broker channel, someone from the bank called him to explain why Wells had made the decision.


The Wells representative told Frommeyer, “Basically they are looking at all mortgage brokers as third-party paper,” Frommeyer says. “They don’t have any way to come back on a mortgage broker except for fraud, and they want to have somebody that can basically buy back a mortgage from them if they, in turn, deem there is something wrong or some decision they made that was wrong,” he adds.


“The bad part about what happened,” Frommeyer says, “was the fact the DOJ came out and said it was mortgage brokers, it was mortgage brokers, it was mortgage brokers” who originated the loans that demonstrated disparate impact on minorities. “In reality, it was [Wells Fargo’s] subprime unit, which they considered a mortgage broker--they bought loans through their subprime unit as brokers,” he adds.


Frommeyer also noted that the all the loans cited by the DOJ came from Baltimore and not from independent mortgage brokers across the country.


The change at Wells does not mean mortgage brokers have been shut out.


“We’re still sending business to these other regional lenders, and they are still selling them to Wells from us--they are just not buying them directly from brokers,” Frommeyer adds. “So, to say they got out of the broker business, in reality they really didn’t. They are still buying them. They are just not buying them directly from brokers.”


What has changed for Wells, Frommeyer explains, is that by acquiring the broker loans via correspondents, “they can have somebody to buy it back” if that becomes necessary, he adds.


So is the mortgage brokerage business on the rebound? “Yes,” says Frommeyer.


“We reached the point about 18 to 22 months ago, where I think we got to the bottom realm and now you’re finding a lot of people who left the mortgage broker industry and went into the banking industry are now leaving the banking industry and coming back into the broker industry.” Indiana, for example, lost half its mortgage brokers and is now slowly rebuilding its ranks, according to Frommeyer.


One reason for the shift back to brokers is that loan originators can make more money as a broker than they can as a loan officer in a bank, according to Frommeyer.


“The difference between doing what we do now and doing what we did years ago is that now we’re licensed. Now you have to take a test,” he says. “Now you have to have continuing education, and in the banking business you don’t have to do that.”


Frommeyer believes that the current unlevel playing field for brokers is likely to become more level in the future. He expects that the Consumer Financial Protection Bureau (CFPB) will eventually require all loan officers to be licensed. “I honestly think [the bank loan officers] see the writing on the wall that eventually you are going to have to have a license” to be a loan officer at a bank, he says. “So, you might as well make the move now,” he adds.


Loan originator compensation


On Aug. 16, the CFPB proposed a modification of the loan originator compensation final rule originally issued by the Federal Reserve Board.


“The broker is helped because the proposed rule ditches the flat fee,” says Robert Lotstein, an attorney with LotsteinLegal PLLC, Washington, D.C.


“In the past [under the Fed’s Loan Originator compensation rule], in a consumer pay transaction, the rub was that the loan officer [at a mortgage brokerage firm] could only get paid a salary or an hourly rate. In this proposed rule, the bureau cleans up the problem and allows the loan officer to be paid a commission,” Lotstein says. “That’s a huge win for the mortgage brokerage firms.”


The new rule also appears to move part of the distance toward equalizing qualifications among all mortgage loan originators. Specifically, the proposed rule states that all mortgage loan originators must be “qualified,” prompting a lively discussion on what that means within the loan originator community.


Frommeyer says that when the original SAFE Act uses the term “qualified,” it means the loan originator needs to be licensed and tested and meet the qualifications that states now require. “There shouldn’t be any disparity in requirements between a bank loan officer, a correspondent loan officer or a mortgage broker,” he contends.


Importantly, the proposed CFPB loan compensation rule does allow loan officers within a brokerage firm to be paid a percentage of the loan balance amount, but brokerage-based loan officers cannot be compensated based on fees and other charges on the loan.


A problem arose for mortgage brokers who are compensated by borrowers instead of lenders after the Federal Reserve ruled in 2011 that mortgage brokers are both loan originators and brokers and would be seen as receiving dual compensation by borrowers. Thus, while the borrower could pay the brokerage firm, the loan officer within the firm could not receive a sales commission--only a salary or hourly wage, Frommeyer explains.


The new proposed compensation rule was written after CFPB heard from a variety of market participants, including mortgage brokers, according to Pete Carroll, assistant director of mortgage markets at the CFPB.


“Prior to issuing a proposal, we do a small business review panel,” Carroll explains, a process required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. “We’ve included brokers in that process,” he says. “Then we get their feedback and take that feedback into consideration when coming out with a proposed rule.”


The comments from people on the small business review panel, combined with additional research by CFPB, prompted the agency to move away from the flat fee requirement to allow a percentage of origination fees to the loan officer who originates the loan.


“One persuasive element was that the percentage of origination points allows lenders to cross-subsidize small-balance loans,” Carroll says.


The review panel also played a role in ending the prohibition against sharing pay with brokers in consumer-pay transactions. “The new proposal has eliminated that,” says Carroll.


The new rule also “contemplates a more level playing field on compensation,” Carroll says.


Importantly, the new rule also looks to better harmonize the “qualification and screening standards” of bank loan officers and mortgage brokers, he says.


Reps and warrants issue a factor


Carroll believes the mortgage broker share has shrunk largely because of litigation concerns around investor reps and warranties. “There’s been so much reps and warrant activity, lenders have moved toward greater control over the origination process,” Carroll says, “and this shrinks the broker channel.”


Carroll says he expects that as the rep and warranty issue becomes clarified and the regulations are clarified, lenders “will put into place new operations and procedures” to manage originations. “If banks feel like they have a greater hold on their origination operations, they may feel more comfortable about how they can expand their retail operations,” he says.


With the CFPB’s new proposed loan originator compensation rule, which is to be finalized Oct. 16, “they’ve opened the door to reclassifying the mortgage broker so they are not classified as both the loan originator and the broker,” Frommeyer explains. This may potentially allow mortgage brokerage firms that do borrower-pay originations the ability to compensate loan originators at the brokerage firm on the volume of mortgage they originate and close, according to Frommeyer.


The business strategy for Amtrust Mortgage Funding has been to rely entirely on lender-pay compensation, and that has worked well for the company, according to Frommeyer.


While mortgage brokers are pleased to see licensing, testing and background checks for those in the broker business, beyond that, Washington’s intense regulatory oversight of mortgage brokers is seen by industry as excessive and creating an unlevel playing field with correspondents and depository institutions.


Frommeyer is pleased to see progress in some of the language in the disclosure rule proposed by CFPB on July 9 to combine disclosure requirements under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).


Under existing TILA rules and the Good Faith Estimate, mortgage brokers had to disclose their profit on a given loan, while loan originators and correspondents and banks did not, Frommeyer says. The new rule requires all players to disclose their compensation.


“Everybody is going to have to show that. That’s a good, positive step. To that extent, [the new disclosures] are becoming more apples-to-apples comparisons,” Frommeyer says.


Hybrid mortgage banking model


Some mortgage brokers have survived current adversities by moving their business under the umbrella of a mortgage banker or correspondent.


One such business is American Family Funding, Santa Clarita, California, which operates as a branch retail office for American Pacific Mortgage, a mortgage banker based in Roseville, a suburb of Sacramento, California. American Family Funding’s staff members are employees of American Pacific.


The name of the branch, American Family Funding, is a dba (doing business as) of American Pacific Mortgage, according to Fred Arnold, who started out as a mortgage broker in 1991 and is now co-manager with Fred Kreger of American Family Funding.


“The number of people who are pure brokers has dropped tremendously, but there are still a large group of individuals who are entrepreneurs at heart who are operating under a mortgage banking system, under the guidelines and requirements of a mortgage banker,” explains Arnold. A mortgage broker who has migrated into the hybrid mortgage banking business “is still an entrepreneur and is still a small business, in many cases, and it’s still brokering some of its business,” he adds.


American Family Funding, for example, does 20 percent of its originations as a broker, even though 80 percent is originated for and funded by American Pacific Mortgage, according to Arnold.


The high cost of regulatory compliance is a key reason so many mortgage brokers have moved away from the pure mortgage brokering model, according to Arnold.


“Compliance is so unbelievably expensive in our business,” he says. “It takes a full-time person working at $5,000 to $6,000 a month, and I would have to have a full-time human resources department. That would cost me [another] $4,000 to $5,000 a month,” he explains. “Just those two [expenses] alone would make it difficult to be open for business.”


Origination volumes are expected to hit a record $125 million this year at American Family Funding, Arnold says.


From broker to banker


American Pacific Mortgage was founded in 1997 and opened its first retail branch and affiliate and then grew to 40 affiliates by 2001, according to Leif Boyd, senior vice president for production. By 2005, the company was among the top 10 largest brokers in the nation.


After the housing crash of 2007 and 2008, American Pacific decided it had to transition from a pure broker model to correspondent, and set out to obtain significant warehouse lines so it could originate and close on loans and sell them to loan aggregators. The company sells its production to players such as Wells Fargo, JPMorgan Chase, GMAC, Penny Mac, and some jumbos to Redwood Trust. The company is currently also selling to Fannie Mae and hopes soon to be selling to Freddie Mac and sell into Ginnie Mae pools, according to Boyd.


In July, American Pacific originated $263 million in mortgages, with 90 percent of its funding through warehouse lines and 10 percent done via broker lines within its 114 branches. The company expects to originate $3 billion for all of 2012, according to Boyd.


American Pacific early this year began retaining the servicing rights for loans it sold to Fannie Mae. “We’re on our way to a half-billion [dollars] in servicing,” Boyd says. Dovenmuehle Mortgage Inc., Lake Zurich, Illinois, subservices American Pacific’s servicing portfolio.


What drove American Pacific to transition to a full mortgage banker model? “We were driven there through regulation, as regulators clamped down on brokers and made it more of a challenge for brokers to succeed, starting in 2005, when they initially released the changes to the Good Faith Estimate and it became clear that it was going to adversely affect brokers in the way that brokers would [have to] portray [their] compensation,” Boyd answers.


The mortgage banker model offered the company some strategic advantages. Importantly, it centralized compliance for all the branches, reducing its cost and variability across the branch offices. Plus, it provides an additional income stream from servicing.


Further, the costs of compliance just keep rising, creating more uncertainty for mortgage originators.


“CFPB is starting to come in and audit all these [regulatory] changes. And so I think over the next 24 months we’ll start to get some clarity,” Boyd says. “But if you are a stand-alone broker having to manage through that sort of regulation, it is darn near impossible--especially with the folks I talk to,” he adds. American Pacific has talked with many brokers who are just getting out of the business because they cannot handle the compliance costs and complexity.


American Pacific has approximately 1,000 employees, and “we employ 30 to 40 people in compliance alone,” Boyd says. A brokerage with 10 to 12 employees may have to run compliance without dedicated compliance staff. “Especially in today’s world, that can be a very daunting and frightening task,” Boyd says.


The high cost of compliance also drives up the cost of mortgages to consumers, Boyd notes. Other mortgage originators tell Boyd they are setting aside $1 million each for CFPB audits that are in the cards, he adds. “That’s a significant hit to any company’s bottom line,” he says. The audits are beginning with large mortgage bankers and are expected to get to mortgage brokers later, according to Boyd.


Boyd believes consumers face higher financing costs and enjoy fewer choices for mortgage products and terms as result of the 85 percent decline in the ranks of mortgage brokers from their peak. “Imagine walking to the mall and finding only 15 percent of the stores are open,” he says to illustrate what the collapse of the industry has meant for consumers.


Opportunity for new wholesale lenders


The sharp decline of the brokerage industry since 2007 also has created an opportunity for new players to enter the market. One of those is 360 Mortgage Group, Austin, Texas, which launched in August 2007--the month the private-sector mortgage securitization market collapsed.


“We started the company [with] the expectation that we would see contraction in the business and a little bit of recession,” recalls Mark Greco, 360 Mortgage’s president. “I’d love to say we knew would be where we are today, but the truth is that we had no idea we would see so much contraction,” he says.


“It certainly has been a greater debacle than I think anybody at the time could have imagined,” Greco adds.


360 Mortgage started with a retail platform then decided to move into the broker channel after it saw larger banks and companies in the business get out. At the peak of its retail operations, 360 Mortgage had 14 branches in the West, Northwest, Mountain States and Midwest.


“In May 2008, we had the official kickoff of our wholesale platform,” Greco says.


By January 2011, 360 Mortgage decided to commit “100 percent of our resources to wholesale, and we got out of retail altogether,” Greco says. “And so far, our gamble has been paying off.”


The company has warehouse lines and sells 100 percent of its mortgages to Fannie Mae and retains the servicing. 360 Mortgage decided to begin servicing two years ago.


Loan originator compensation reform hit in April 2011, further decimating the ranks of mortgage bankers, Greco recalls.


“Ever since the first of last year, we’ve seen a steady increase,” he says. “We were up 12 percent [in loan origination volume] in the fourth quarter of 2011. We continue to see a steady increase in 2012,” he adds.


360 Mortgage currently works with 2,500 mortgage brokers in 31 states, with about 900 to 1,000 active on a quarterly basis, according to Greco.


“Since the first quarter of 2012, we’ve seen our pipeline increase 700 percent,” says Greco. The company expects to close on $2 billion in loans this year, after doing $500 million for all of 2011.


Greco points out that historically mortgage brokers would sell their loans to bigger banks, like Wells Fargo and JPMorgan Chase. “Today, the only channel really left is going to be the agencies [Fannie Mae and Freddie Mac], or into Ginnie Mae pools,” he says.


A convergence of various forces and industry trends have come together to favor a hybrid mortgage banking model relying on mortgage brokers for originations, according to Greco.


He says his company has seen a steady migration of loan officers out of banks, where many went, back into the mortgage brokerage business. A surge in refinancings around the Home Affordable Refinance Program (HARP 2.0) was also a boost to mortgage brokers, he adds.


Greco believes the outlook for mortgage brokers is “very positive.” He predicts that “over the course of the next 12 to 18 months, [mortgage brokers] are going to ride the refinance boom that HARP has created.”




Mortgage industry veteran John Robbins, CMB, chief executive officer and president of Bexil American Mortgage, San Diego, thinks that a bright future for mortgage brokers is about to dawn.


“In my thinking, this is an extraordinarily opportunistic time for the mortgage brokers,” he says. “More and more loan officers who have worked for large banks are going to move over to the mortgage brokerage community,” he says.


A lot of mortgage brokers closed shop and moved to the banks to survive the Great Recession, Robbins says. Now that “the storm is passing, the opportunity to actually earn greater commissions and more income resides on the mortgage brokerage side,” he says.


Bexil American, which started up in the fall of last year, has put together a mini-correspondent program for mortgage brokers and calls this program its American Mortgage Network. (Robbins had an earlier successful company by that name.) However, as of press time, the mini-correspondent program had not yet been launched.


“It’s been my understanding that the CFPB wants to take a look at the mini-correspondent program,” says Robbins. “So, since they are our new regulator, we will not release a new program like this until we are sure it is approved by CFPB.”


Under the proposed mini-correspondent program, Bexil American will buy loans closed by its mini-correspondents for Fannie and Freddie, following GSE underwriting and product guidelines, and sell them to aggregators and not directly to the two enterprises.


“The mini-correspondents would rely on our balance sheet, our equity, our capitalization, and would rely on our ability to repurchase a loan if necessary,” he says.


Under the mini-correspondent program, the mortgage broker “literally underwrites the loan before it closes,” Robbins says. “We physically see it, see all the attributes, impose additional conditions, and all that has to be in the loan before it closes.”


The mortgage broker actually closes the loans as a mini-correspondent, and Bexil American “buys it off the closing table,” Robbins says.


The mini-correspondent approach does not have the same risk the traditional mortgage banker takes with delegated underwriting, Robbins explains.


Even without the mini-correspondent program, Bexil American is already working with mortgage brokers in California, Oregon, Washington and Utah to originate mortgages and sell to aggregators after Bexil closes them and funds them with its warehouse lines.


Bexil American currently has 75 mortgage brokers in 16 states in its mortgage broker program and is still finalizing filings needed in eight of the states to get operations up and going beyond the initial four states where it already operates.


Robbins says that onerous underwriting and documentation standards are slowing the ability of all originators in the market to extend mortgage credit, and that limits the amount of funding available to the market. “It’s certainly an albatross [around the neck of] the real estate recovery rather than being a benefit,” he says.


“If you look at Fannie and Freddie announcing they are going to accelerate and concentrate on more repurchases, the continued litigation regarding servicing at banks, the host of new regulations coming out of CFPB and both local and state governments, the overall effect of that is the mortgage lenders--whether independent or bank-owned--are becoming more and more conservative,” says Robbins.


“They are being scared to death that they might do something wrong, unintentionally. At a time when there’s a cry from both the federal government and legislators that we need to ease credit and make credit more available, the actions of regulators are imposing the opposite effect on industry.”


While Robbins acknowledges that all the rules were put together “with the best of intentions,” the problem nevertheless remains that “nobody looks at cause and effect on the entire industry and what’s being regulated.”


Robbins is confident that reason will ultimately prevail. “The country has always shown resiliency--after it sees it has gone too far, it comes back toward the center,” he says. “That’s where we need to push the pendulum--back to the center line, so we can make homeownership available to people who want to acquire a home.”  MB



Robert Stowe England is a freelance writer based in Arlington, Virginia, and author of Black Box Casino: How Wall Street’s Risky Shadow Banking Crashed Global Finance, published by Praeger and available at He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..


Copyright © 2012 by Mortgage Banking Magazine. Reprinted with permission.




Robert Stowe England is an author and financial journalist who has specialized in writing about financial institutions, financial markets, retirement income issues, and the financial impact of population aging.

Visit Mind over Market:

Mind Over Market

Click Here>>