Third Party Origination Pros and Cons

In my world I am considered a third party originator from the wholesale accounts that I deliver loans too. We are definitely an important facet of the business for the companies that we bring the business too. However, many of the companies we do business with now have their very own retail branch. It could be considered a conflict of interest if you really took an in depth look at it.

Why It does not really bother me?

The reason that it has not really bothered me to this point in my career is that they need us. A simple P and L (profit and loss) would show you why we are still needed in this business. Consider some of the largest costs to run a business. Lease Space, Marketing, and workman’s comp insurance are only a few. These are major costs to the company. As a Broker we pay for our space, marketing, workman’s comp and several other benefits. We save time by pre-screening the clients and packaging the files so that their staff can come to a quick decision and decide if this is the business that they want. It is hard for a bank to be competitive and offer a pay structure that would be attractive to originators and pay such costs themselves.

The Problem?

Third party origination is being scrutinized way more than loans within the retail branches. The profit margin on the third party origination business is good enough to keep it in place but buybacks can be a haircut they cannot sustain. If you are receiving several buybacks from lack of quality your profit will be eaten up. The cure is to scrutinize the file so much and over document it. This is what you are feeling today as a consumer. Over documentation. I hear all the time what does that have to do with anything? Nothing but they might as well put it in the file just in case. It may also cause you too seek out a loan through the retail chain driving leads to there business. An alternative form of marketing. However, as brokers we compete for the business. We have to earn your trust and respect on an individual level. We do not have the corporate branding in our back pocket. My personal belief: “consumers by from big banks for the name and they do business with brokers based on a relationship.” Since I am a relational kind of guy I choose to work for a Broker. There is no other reason. If I wanted to come in and churn through the hundreds of calls that my bank receives I would work corporate.

Dollars and Cents?

I could really get into all the details of the differences between the banks and us when it comes to cost. They are more slim in some areas and we are better in rate in many cases. The bottom line is that it all works out in the mix. The #1 reason that I do a lot of deals that were pre-approved from a bank is that I am responsive and I explain things in detail. You may call it a hand holder while I simply explain it as you are my business. If you are not comfortable with the things that I am doing I cannot get referrals. Referrals are the very nature of my business. I dont have hundreds of thousands of dollars to market so customer service still counts for something. You combine that with a well explained mortgage, the personal feeeling and responsiveness and we are left in business. Thank Goodness.

Summary

I think that it will be hard to push the broker out regardless of the rule and the regulations that they impose on us. I think that many people still like the feel that our Grandparents got by having a personal banker. The banks do not give that feel. Their response time is not as fast and they deal with you like a number not a consumer. I also think that for their bottom line it is advantageous to have us in the game. If it were not the case the Mortgage Broker would have been extinct long ago. They are just weeding out those who do not know what they are doing. Keep it up!