I have blogged about the three channels for mortgage banking several times. The channels include (1) banks and credit unions that offer mortgages along with checking, savings and commercial lending; (2) mortgage banks that only underwrite and fund mortgages (JVM’s channel); and (3) mortgage brokers who only originate loans but package and submit them to other “wholesale lenders” that underwrite and fund them.
The very essence of the broker channel is choice – as brokers can choose which lender to submit loans to, based on rates, service, and relationships.
UWM is one of the largest wholesale lenders in the country, catering exclusively to mortgage brokers. Last year it tried to force brokers to sign agreements that would force brokers to only submit loans to UWM if those brokers used UWM’s tech platform. This seemed very ironic to those of us in the industry because, as mentioned above, the very essence of the broker channel is choice.
Tech So Good, Rates Won’t Matter? (Wrong)
This is a failed concept I have seen tried again and again in the mortgage industry.
Lenders try to offer tech platforms and service that is so good, that they think their clients (loan officers) won’t care so much about rates.
It is not just the wholesale lenders who cater to brokers who do this; mortgage banks also try to do this in an attempt to keep their loan officers from going to other mortgage banks.
BUT – RATES ALWAYS MATTER! Especially now, as loan amounts are climbing, and borrowers can shop for rates online so easily.
The above-referenced lawsuit involves a broker shop in Southern California, where the average loan amounts are very large, so of course rates matter to them too because rates matter so much to their clients/borrowers.
Lenders and loan officers are getting desperate right now because refinance volume has fallen off a cliff due to rate increases.
Many lenders and loan officers derived well over 70% of their profits from refinances alone – so they are now facing huge drop-offs in profits and massive excess capacity.
Hence, lenders will sometimes take desperate measures (like suing customers) to maintain their volume.
As an aside, our compliance attorney warns us constantly that our biggest regulatory risk will never come from regulators (because we are so compliant); it will instead come from competing and frustrated loan officers making false accusations during low-volume periods – something he has seen all too many times. And unfortunately, those false accusations can bring down the wrath of regulators which is very expensive to fend off – no matter how innocent a lender or loan officer might be.
Exacerbating the desperation factor on the part of UWM is the fact that they went public last year, and their stock price is down over 2/3 from its peak (it still amazes me that anyone would have invested in a mortgage company that was so dependent upon refinances for profits).
Mortgage Banks Can Choose Lenders (Investors) Too
I mention twice above that the essence of the broker channel is “choice” or being able to submit to whatever lender offers the best terms.
But, most readers don’t know that we have a similar ability to “choose” within our mortgage bank.
We can not only “broker” to most wholesale lenders (if they offer better terms than any of our mortgage bank offerings), but we can also choose to lock loans among numerous different investors that buy our loans.
JVM used to be in the broker channel, but we left it because we wanted more control over the underwriting and funding process (more speed), because we wanted more appraisal control, and because we wanted access to much better jumbo pricing (that brokers can’t access). But – we also left the broker channel because we figured out we had as much choice in the mortgage banking channel as we ever did in the broker channel.
Take the next step towards finding your best mortgage.
