Acting as anything other than a broker sets themselves up for a world of hurt, the panel said at the Mortgage Bankers Association-sponsored conference.
“Risk arises from the fact that there’s a lack of guidance from regulators,” Jonathan Jaffe, a partner in the San Francisco office of KL Gates, told the crowd of about 250. KL Gates is an international law firm.
If done right, brokers can move into one of several forms of mini-correspondent, from sub-warehousing to “captive” mini-corr, Jaffe says. “But nobody’s sure what the right way is.”
In the past, said moderator Richard Andreano, a partner at Ballard Spahr, originators could presume that if something that wasn’t said to be wrong must be right. But now, he added, regulators say lenders had to know what they were doing was wrong.
With no specific guidelines, says Andreano, whose law firm has 14 offices nationwide, brokers must “pass the smell test.”
Often its up to regulators’ view of the world, “but often we don’t know what that view is, he says. At some point, you have to line up on one side of the line or the other, but we don’t know where that line is. That’s when things start to unravel.
There if life post-QM for brokers, says Kathleen Vaughan, executive vice president for national third-party production at Stearns Lending. “Their demise has been very exaggerated,” she says. “Brokers have proven to be very resilient.”
In Vaughan’s view as the nation’s second largest wholesale lender, “many brokers can and will continue to operate in their traditional model.”
Based in Santa Ana, Calif., Stearns is a national lender with retail, wholesale and correspondent channels. Vaughan joined the company in October after 19 years with Wells Fargo.
Brokers, she explains, are “great originators” who already are increasing their share of the purchase money market. They also work in niche markets where larger lenders don’t like to operate, she says, and they have locally respected brand recognition.
“The ongoing bludgeoning of the broker has long since passed.”
In another conference session, Gregory Keith, senior vice president and chief risk officer at Ginnie Mae, says brokers have been responsible, in large part, for the agency’s 45th consecutive year of profits. In fiscal 2013, Ginnie Mae made $628 million.
Of the 461 Ginnie Mae-approved issuers, 69% (316) are brokers. Moreover, in 2013, 46% of Ginnie’s business came from independent mortgage brokers. “Only half of our business comes from mortgage brokers, and we’d like to double that,” Keith says.
Fannie Mae and Freddie Mac spokespersons also said their respective companies are looking to generate more business from the brokerage channel. But because they are separate companies, the spokespersons says, there’s little chance that they’ll both offer a more homogeneous approval process or underwriting guidelines
And in yet another session, Kenneth Logan, managing director of warehouse lending at Wells Fargo Securities, says loan producers need to be much more conservative under the new rules set to take effect in mid-January.
“There will be no more scratch-and-dent loans,” he says. “Mistakes can’t be fixed. That’s a pretty scary proposition for lenders.”
Logan also says, “I feel sorry” for independent brokers and bankers. “It seems like everything is becoming harder on you. My sense is [regulators] are just getting warmed up. It’s just a matter of time before they start looking deeper into things.”
Logan says he’s hopeful the regulatory environment will settle down, “But for now,” he added, “it doesn’t feel like it will end.”
Lew Sichelman is an independent journalist who has been covering the housing and mortgage markets for more than 40 years.