Should I Be a Mortgage Broker or Mortgage Banker?
We hear this question a lot – both from people starting brand-new mortgage
companies, and from people who have been in the business for years. The
answer, however, is not simple -- and it definitely not the same for
Everyone has a different reason why they might want to be licensed as a
mortgage banker or a mortgage broker.
Some mortgage brokers find that their lenders are disappearing, and they
want to protect themselves by having the option to close loans in their own
names. Other mortgage brokers are interested in becoming a mortgage banker
because they are attracted by the lure of generating additional income on
each mortgage loan. There are a surprisingly large number of brokers which
mistakenly believe that acting as a mortgage broker under a mortgage banker
license will avoid the need to disclose yield spread premiums. Finally,
there are those mortgage brokers that are not ready to be a banker today,
but want to be licensed as a mortgage banker now in order to be able to
start lending when they are ready at some time in the future.
Notwithstanding the above, we have represented very successful mortgage
brokerage companies, which have been in the business for decades and have
absolutely no desire to become mortgage bankers. They enjoy the ability to
broker loans to many different lenders, and they especially like the fact
that their lending risks can be effectively managed.
At the other end of the spectrum, we have represented mortgage professionals
which have a crystal-clear vision of their future as a mortgage banker. They
have been in the industry for years, they know all the issues that affect
mortgage bankers, they know the different operational considerations, they
understand the potential for additional revenue generation and, most
importantly, they know and appreciate the additional risks.
Factors to consider
As can be seen above, the answer is different for everyone. There are many
factors that must be considered in order to make the mortgage broker versus
mortgage banker licensing decision: capital resources of the company,
bonding capacity of the company, the number of states in which the company
wishes to be licensed, whether the company has audited financial statements,
level of company net worth, mortgage lending and brokering experience of the
company’s principals, tolerance for risk, credit history of the company’s
principals, the ability to obtain warehouse lines of credit, and knowledge
of mortgage banking-specific operations including warehouse lines, quality
control, underwriting, funding, closing, post-closing, secondary market
operations, among many others.
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