[IMGCAP(1)]

|

SAN DIEGO—GlobeSt.com joined hundreds of independentmortgage brokers for the third annual MBAIndependent Mortgage Brokers Conference this week at theiconic Hotel Del Coronado here. While the weatherwas uncharacteristically rainy, attendees didn't seem to mind asthey listened to the panel sessions from deck chairs in theChristmas-decorated ballroom overlooking the beach.

|

During the CEO Forum, moderator StanleyMiddleman, president and CEO of Freedom MortgageCorp., asked the panelists what were the necessaryelements to putting an independent mortgage bank together.William Newman, CEO and president of HomePoint Capital, said access to capital and liquidity arecrucial elements, along with great people who can work together,understand the market and want to build something to meet thefirm's objectives and create value. He pointed out, “There are moreconstraints in financial institutions than in independent banks.”And he added, “Have a partner who understands the cyclical natureof the business and has patient capital.”

|

[IMGCAP(2)]

|

Understanding cash flow is a key element for independentmortgage brokers' success, said Andrew WeissMalik,COO of 360 Mortgage Group. He added, “You need along-term plan, at least two to three years out. Ask yourself,'Where do I have to be?' especially if you're self-funding.”

|

While being a subset of a bank is far different from being onthe retail end of banking, “we're just as beholdento people as anyone who gives you capital.Capitalization is never free, and it's not cheap.Neither is managing capital. The total cost of originating a loanincludes the cost of funding—it affects the bottom line.”

|

Operations management is another important aspect to independentmortgage brokerages. Newman said his firm focuses on building thecompany from the inside out rather than the outside in. While salesrevenue is significant, companies must be positioned for thefuture.

|

When thinking about operational risk, WeissMalik said morevolume doesn't necessarily mean increased profitability. Figuringout how much production you need in order to produce revenue is keyfor any independent mortgage brokerage that doesn't have a parentcompany it can go to for capital. Fowler Williams,president of Crescent Mortgage Co., added, “Youcan grow, but not be profitable or safe. It's hard to do allthree.” And Middleman said you have to first manage risk before youmake a profit, which is a quandary.

|

With regard to RESPA-TILA reform, Middlemanasked the panelists, “How ready are we?” Williams said his firm isnot completely dependent on the LOS provider, and WeissMalik saidclosing agents are one of his firm's biggest concerns, but it'sprobably best for the consumer to have standardized disclosures andto get the attorneys involved to listen to you. Williams added it'simportant to work with attorneys early, and Middleman pointed out,“You have to make sure your technology is wrappedso tight to get everything done before closing.”

|

Newman said, “You need to control the process effectively to getthe level of accuracy needed. Fortunately, the level ofeffectiveness continues to go up as technology is added.”

|

Middleman asked the panel how they value MSRs. WeissMalik said,“You can't buy groceries with MSRs,” but they can be useful. “Welook favorably upon the MSR.” And Williams added, “We have alwaystried to value servicing,” pointing out that it's necessary to knowhow to manage sub-servicers as well.

|

Middleman added, “Permanent capital is really important. Accessto it is critical to growing your business.” He also said he thinksM&A activity and consolidation is going to becomea big part of the business, and Williams agreed. “I think we willsee a big pick-up in M&A, but there will be a lot ofhand-shaking in the smaller lender space, not a lot of bigacquisitions.”

|

Newman said there will be challenged companies in thisenvironment, not because they are bad businesspeople, but becausethere are so many disparate elements of the business. WeissMalikrecommended finding counterparties who are not getting certainservices from other lenders and partnering with them to provideeach other with solutions.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Carrie Rossenfeld

Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.