Mortgage Brokers Are Reclaiming The Market

July 14, 2022

Control of the mortgage market is quickly shifting.  Thousands of loan originators are choosing to become independent mortgage brokers instead of working for a single, one-dimensional lender. Thousands more are still coming.  

As the industry faces an era of higher rates and fewer transactions, loan originators have found more opportunities to succeed as a
broker. When comparing the two career paths, we found that the appeal of being an independent mortgage broker is easy
to spot. 

 

UNLIMITED OPPORTUNITIES


Traditional loan officers are limited to working with just ONE lender. That means they’re stuck with one lender’s products, one lender’s underwriting guidelines, and one lender’s rates. Being handcuffed by one lender inevitably means fewer opportunities.

If their one lender doesn’t offer the product, or the rate a homebuyer is seeking; that loan officer is out of luck. Even though they worked hard to originate the transaction, they’ll have to watch it close with someone else. A loan officer might have the talent, but that doesn’t help if they don’t have the tools to make that sale or earn that commission. 

In contrast, the landscape for mortgage brokers is much more dynamic. Brokers work with countless lenders who offer a variety of loan programs. Since they’re not limited to one lender, brokers have access to the entire mortgage market at their fingertips. 

Brokers match the individual needs of their client with the right lender. For example, if the client has a low credit score, they have a lender for that. If the client needs a jumbo loan amount, there is an aggressively-priced lender for that. If the client needs a 203(k) or construction mortgage, there’s a lender for that. Put simply, brokers have more options and more tools to help them succeed. 


EASY UNDERWRITING


Brokers have an edge when it comes to traditional mortgage loans as well. They can utilize less restrictive underwriting guidelines when qualifying borrowers. Easier underwriting helps brokers close conventional loans quickly.

Many loan officers are surprised to hear that the U.S. mortgage agencies – Fannie Mae, Freddie Mac, and FHA – all have simple underwriting requirements. This reflects their mandate to keep homeownership easy and affordable for Americans. 

In fact, it is individual lenders who add “overlays”, or extra requirements, on top of those guidelines. Lenders add these “overlays” for many reasons, but mainly to protect against their own losses. This doesn’t help their loan officers as “overlays” only means less qualified buyers and fewer chances to succeed.   

On the other hand, brokers can work with lenders that offer NO-OVERLAYS. With No-Overlays, they take advantage of the simplest underwriting guidelines available and can qualify more clients. Having lenders that don’t have “overlays” lets a mortgage broker say yes more, even to clients who were previously declined somewhere else. 


UNTOUCHABLE RATES


To widen this gap further, Brokers have access to new technologies which allows them to instantly shop lenders, compare their rates, and
offer their clients the best available. They can compare hundreds of lenders with just a click of the mouse. 

Brokers also take advantage of different compensation models. They’re able to choose between Lender Paid compensation or Borrower Paid compensation, which gives them complete control over price and profits. In essence, Brokers can stay competitive at every level, every time, and never have to lose a client over rate. 

This changes the game and differentiates mortgage brokers from loan officers. Brokers aren’t focused on selling high rates. Instead, they inform clients on the best available terms in the market and help them make the right choices. 

In striking disparity, loan officers can only offer rates from their ONE lender. Even when the client deserves a better rate, a loan officer may not be able to provide it. Instead, they must abandon fiduciary responsibility and convince unsuspecting clients to accept their lender’s higher rate.    

Lenders teach loan officers different sales tactics when discussing interest rates. Many choose to completely avoid the topic or dodge rate questions at every turn. Others use elaborate scripts to confuse or mislead consumers about their rates. Worse, some even delay disclosing the true interest rate until it’s too late for consumers to go anywhere else, forcing them to choose between a high rate or not closing on time. 

Industry wide it is becoming increasingly clear that, when it comes to rates, for both consumers and loan originators, brokers are simply untouchable. 

 

STRONGER PARTNERSHIPS


Mortgage brokers are also becoming the preferred choice for real estate agents. Agents understand that homebuyers come from all walks of life, with differing qualifications. Mortgage brokers can work with most of those buyers, regardless of individual circumstances, and find the right lender or loan program. 

This flexibility is hugely appealing to real estate agents because it saves them time and provides a reliable source for their referrals. In today’s market, with fewer refinance transactions, it is critical for loan originators to be an attractive option for real estate agents. 

Brokers can also build strong partnerships with other professionals, like financial advisors, accountants, and attorneys. Whether their client has a tax issue, a difficult divorce, or needs to avoid drawing on their capital; they know a mortgage broker is better equipped to find the right solution.   

 

STRONGER COMPENSATION


Having all this choice and flexibility helps brokers close more loans and earn more income. However, brokers are also earning more on each individual transaction. Since the broker model has a much lower cost structure, they’re able to retain more of the revenue generated by their loans. 

This is especially true when compared to midsized correspondent lenders who, with the highest costs of all, are finding it challenging to compete against broker movement. Some have even started their own broker channels to try and recapture some of this lost market share. 

According to industry reports by SimpleNexus; successful loan officers, on average, earn between 88 and 108 basis points as commission on
closed loans. In contrast, brokerages are free to offer their loan originators more customized compensation models and larger commissions. Brokers can earn anywhere from 125 basis points to as much as 230 basis points as commission on closed loans, almost twice as much as loan officers.


BROKERS ARE THE FUTURE


In a world where consumers covet choice and optionality, the single lender approach seems increasingly antiquated with limited solutions. Within the categories we just explored, the mortgage broker reigned supreme as the optimal choice. In the end, to echo Google’s philosophy; what is the best choice for the consumer will always prove to be the superior product.

We see the future of the mortgage industry as a broker’s world. It seems that many of the country’s top lenders do as well. The number 2
lender, UWM, only operates in the broker space. Now, the number 1 lender, Rocket Mortgage, is clamoring to get in on the action. Countless smaller lenders are also positioning themselves to compete in the broker channel. They see the same future.

Brokers are also getting boundless support from these lenders. Everything from lead management to an entire loan origination system is available to brokers who partner with these lenders. 

So, if you’re a licensed loan originator working as a loan officer, we recommend you explore your options with a mortgage brokerage. There are many well established brokerages, offering the same support and benefits of large lenders. Your future might depend on it.

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