Mortgage Broker vs. Mortgage Banker
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 is definitely not the same for everyone.
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.