Stocking A Full Line
Why leave the hard-to-fit borrower to the brokers? Times are changing and that income could be coming into your shop.
If anyone ever needed proof that change is unceasing, they only would need to look at the year 1990. Change was unprecedented in the year just passed, both in scope and in global effect.
Eastern and Central Europe were thrown kicking and screaming into a emergent new order based on personal freedom and the concept of free enterprise. The Soviet stranglehold on a fifth of the world's population simply vanished into a morass of fiscal chaos. The Soviet leader was named Time's man of the decade and winner of the Nobel Peace Prize.
Western Europe marched toward a hoped-for economic rebirth as unification will bring with it a virtual "United States of Europe." The Middle East erupted, with another international bully attempting to hold the global economy hostage by dominating its energy reserves.
At home, the thrift crisis worsened daily, as the cost of closing ailing institutions escalated beyond all prior estimates in the country's worst financial scandal. And once again, America faces a recession, with all the accompanying hard times for housing and finance that we shook off a mere decade ago.
Who could have predicted these events and their magnitude? At the 1990 Mortgage Bankers Association of America's convention in Chicago, Dr. Henry Kissinger said he never would have foreseen the rapid collapse of Soviet communism. But he added that in a year or two, he probably would convince himself that he had.
It is tempting to observe that people just naturally have short memories, which of course they do. But as mortgage bankers looking at the complex changes that affect us in this new year, we have to keep Dr. Kissinger's perspective in mind; none of us has a crystal ball.
Today's market is unlike that of past recessions in several ways. First, mortgage bankers aren't faced with the same kind of competition as last time--there are fewer S&Ls to dominate their markets in senior mortgages, even though those institutions that remain are stronger. Second, the so-called "creative financing" techniques, largely using junior liens, eluded most mortgage bankers last time around. They were largely the province of the small, local, second mortgage broker who sold his or her loans to individuals or groups of individual investors. Today, there is a way for the mortgage banker to play a much larger role.
How are mortgage bankers making their money?
It wasn't that long ago that a mortgage banker's primary mission was to acquire servicing. The larger the servicing portfolio, the more successful the mortgage banker--rather like the size of the asset base painted in gold on the door of a savings & loan.
Flash forward to 1990, and even the term "savings & loan" is considered pejorative--a punch line in comedian Jay Leno's monologue. And mortgage bankers have learned that not only is the servicing spread insufficient to make a profit, it is increasingly difficult to sell servicing profitably because the market becomes more bloated with every visit by the Office of Thrift Supervision (OTS) to a troubled institution.
Origination becomes the obvious place to turn. But origination is so competitive in a shrinking market that everyone's "same-old, same-old" agency programs barely suffice anymore. The salespeople have to be aggressively recruited and paid, while the surviving giant institutions flex their muscles by cutting non-refundable fees and giving away other services normally counted on to raise revenues. And borrowers are more canny than ever...