Growing from Broker to Lender (Part 3)

This third blog in a four-part series examines the dos and don'ts for making the transition from broker to lender

By Contributor

16 Jul 2018

by Bob Dougherty

If you still want to become a lender after hearing about all the challenges, then here are a few dos and don'ts to consider.

Do have a written process. If it's not written down, it doesn't exist. You must be able to demonstrate loan quality and loan audit results to a warehouse lender or to any aggregator to whom you sell loans. Many brokers have never audited their loans. Being able to show you have will help you be taken more seriously.

Don’t expect to originate your own non-agency mortgages right away. Why? Your warehouse line relationships will determine much of how you do your business. You must be able to meet warehouse standards, and they may dictate that you can only do conventional or government-sponsored enterprise (GSE) lending. In the beginning, consider brokering non-agency loans. As you grow, there will be opportunities to add more products.

Do know your team. Who is working inside your shop? Are they properly licensed? Have you completed background checks? Who are your partners? What is your process to approve a title company or an appraiser? Who are you using for closing documents and how will you disseminate documents properly? You must have your processes and guidelines on hand to prove to a warehouse provider that you are equipped to handle the job.

Don’t forget to develop a Plan B (and C and D). What is your contingency plan? For example, if you cannot sell a loan to a particular aggregator, you need a backup to buy the loan. Having multiple contingency plans reduces risk and keeps your business running smoothly.

Do audit your book of business at least a year prior to trying to become a lender. Partner with an automated compliance solutions provider to perform audits on two out of every 10 loans, one out of every five appraisals, etc. It is critical to know what your book of business looks like after you have closed and brokered loans. Arming yourself with this knowledge will highlight your areas of proficiency and deficiency, which is mission-critical to improving and demonstrating how you conduct business.

Be sure to come back next month and read my final blog about what happens after you become a lender.

Bob Dougherty is executive vice president of business development at Calyx Software, a leading provider of comprehensive mortgage software solutions for banks, credit unions, mortgage bankers, wholesale and correspondent lenders and brokers. He has more than 20 years of operations and business development experience in the mortgage industry. Previously, Dougherty was vice president of mortgage operations at Merchants Bank and chief executive officer of Timberland Mortgage Services, Inc., a multi-branch lender and underwriter of residential mortgage loans in Minnesota, Wisconsin, Kansas and Colorado.