Archives for October 2010

Bank of America Stays Committed to Correspondent Lenders

Today Bank of America announced that it's existing wholesale lending.

"Bank of America  Home Loans will exit the first mortgage wholesale channel to focus more operational resources toward fulfillment capacity for it's…retail channel…. Bank of America will also devote additional resources toward enhancing its leadership positions in correspondent and warehouse lending…" 

My employer, Mortgage Master Service Corporation, IS a correspondent lender.  And we work with Bank of America as well as Chase (who elected not to terminate their relationship with mortgage brokers a while ago).

Why is this happening to mortgage brokers?  The "why" is debatable and not so simple.  I'm sure that loans originated by correspondent lenders tend to perform better than those by mortgage brokers as a whole.   Correspondents have far more liability (aka "skin in the game") than a broker when originating a mortgage as they have the potential for buybacks down the road or a loan not being purchased by the lender, leaving the loan in their line of credit.   

But…even though I'm technically not a mortgage broker, I find this occassion sad.  There are many outstanding mortgage brokers who have originated stellar loans which have benefited banks.  Wholesale Bank Reps have called on mortgage brokers for years explaining their program guidelines with the hopes of gaining more business for the bank.   After the mortgage broker originates the loan and it closes with that bank, they do their best to retain that client.

By the way, I believe the last "subprime" presentation in our office was by Countrywide (now Bank of America)…oh I wish I had my Livescribe pen back then…I would be able to share my old notes.

My Notes from Class

Just over a week ago, I was invited by Professor Richard Green to participate on a panel at USC Lusk Center for Real Estate.   One of the wonderful  benefits about blogging is that I’ve met so many people and have had amazing experiences that without my blog, odds are I would not have opportunities such as this.   Richard and I have had conversations via social media over the past few years but this was our first time meeting “IRL” (in real life).  

This was an evening class with around 100 students of all ages and backgrounds.  Some are full time students, others have day jobs and a few admitted to being former mortgage brokers.  I was on the panel with two gentlemen.  One is a private banker from Beverly Hills with Wells Fargo.  He originates high end mortgages and he has worked in wholesale too (wholesale reps call on non-bank mortgage originators, like mortgage brokers and correspondent lenders to send their bank loans).   The other gentleman is more on the “after” the mortgage is originated scene.  He deals with “scratch and dent” mortgages.  Basically, a ”scratch and dent” mortgage is one that the intended lender/investor refuses to buy due to errors made on the loan or possibly even fraud.  It’s very expensive for banks and correspondent lenders wind up with a “scratch and dent” mortgage in their credit lines.  His company purchases scratch and dent mortgages (at a discount).  They may then review the issues causing the mortgage to be considered “scratch and dent” and may try to correct or improve the issue with the goal of being able to sell the mortgage.   I represented a “classic” residential mortgage originator…almost sounds a little boring compared to my fellow panelist! 

Professor Green had a few questions cued for us to answer and class participated with their questions as well.   The discussion ran from underwriting issues with residential mortgages to how guidelines were influenced by what Wall Street would buy.  By the way, it sounds like reserves (how much liquid assets are remaining after closing) is carrying more weight than credit scores when potential investors are looking at purchasing mortgage backed securities.  Reserves are becoming a more important factor with forecasting the performance of a mortgage (the higher the reserves equals lower odds of default).   This was probably one of the most surprising nuggets of the evening to me.  

Professor Green asked me to address why I never originated an Option ARM when so many other mortgage originators did.    Students question how effective the current credit scoring modules are and if larger down payments should be required with FHA insured loans. 

The closing question caught me off guard a bit.  Professor Green asked if we see ourselves in our current careers five years from now.  I’m very concerned that we could see only a few choices for American consumers with regards to their mortgages–meaning the banks (3 or 4) have it all.  Without competition, mortgage rates and fees will be higher.  Congress all ready holds mortgage bankers to a lower standard than a non-bank originator per SAFE Act requirements.  Many banks are touting the newer compensation structures of their LOs as a benefit to consumers but if the LO is making less and the rate is the same or higher — is it better for the consumer if they pay more (and the bank is making more)?   

My hope is that I can continue doing what am doing.  Originating residential mortgages at a non-bank mortgage company.   Mortgage Master Service Corporation has been a family owned company since 1976–this is where I belong.  My father-in-law, Bob Porter, retired from Mortgage Master Service Corporation in his seventies.  I would like to do the same. 

I am very honored that Professor Green invited me to participate on the mortgage panel for his class.  Over the years, I’ve received plenty of attention and speaking opportunities regarding my social media efforts (which I’m thankful for)… to be selected to share my knowledge of residential mortgages and my opinions with a room of students from USC is a true highlight for me and something I will always remember.  I wish I could have recorded the entire event.

PS:  Be sure to check out:  Richard’s Real Estate and Urban Economics Blog