2021–Mortgage Banker or Mortgage Broker? What is better for your mortgage sales career?
As 2020 comes to an end and we are setting goals and business plans for 2021, what is better for your career, working for/as a mortgage banker or a mortgage broker? Too often, mortgage sales professionals don't know the actual strengths and weaknesses, and therefore work where they are comfortable.
Let's start by examining why mortgage brokers are gaining market share, yet mortgage bankers originate nearly twice the mortgage brokers' volume.
Broker's advantages over retail mortgage bankers include the ability to work with dozens of lenders. The competition among wholesale lenders provides mortgage brokers with access to many loan programs and lower wholesale rates. Brokers tend to have more flexibility in pricing and lower corporate overhead/infrastructure, leading to better homeowner rates.
Retail mortgage banker advantages over mortgage brokers include:
The ability to internally underwrite files
Utilize one process/system for loan origination through closing
Earn higher compensation in basis points per loan
In the past, mortgage bankers had a significant advantage over mortgage brokers in technology and marketing infrastructures, which has changed over recent years. Brokers have access to loan origination software, point of sale applications, marketing resources, and CRM's similar to mortgage bankers, many times at lower or no cost from their wholesale partners.
Compensation and pricing tend to be a big differentiator between mortgage bankers and brokers. Brokers are capped at 2.75% in compensation, which can come from the borrower or the lender, just not both, and cannot directly earn other fees like processing. Bankers can earn upfront fees from the borrowers and secondary market/yield spread premiums, plus often earn/charge processing and underwriting fees. Part of the reason mortgage banker's rates are higher than brokers is that they earn more per transaction. Additionally, bankers tend to have significantly more infrastructure and layers of management than brokers, which can lead to higher rates.
While rates and compensation are important, the ability to close loans consistently on time is essential to growing your business. Mortgage sales professionals should seriously consider the support, underwriting, and operations when determining the best company and business model for their career. Bankers tend to have more internal support, like processors and loan officer assistants, than brokers. However, turn times and capacity issues vary significantly in the industry and often within the same company. In today's market, there are many mortgage bankers and wholesale lenders that are struggling to close purchase loans in less than 45 days, and refinances are taking 60-120 days, while others consistently close loans in less than 30 days. It's important to pay attention to the turnover rates at companies as this can often tell you how well they execute and close loans timely.
So which model is better for your career? The answers lie within you. Start by asking yourself and answering these questions:
What do I need to be successful and grow as a mortgage sales professional?
Where do I want to position myself in the market regarding rates and compensation?
How independent and willing to take risks am I?
What products do I want to focus my origination efforts?
How much support in processing, operations, training, technology, compliance, and marketing do I need?
How important are health and retirement benefits?
How do I want to build my business and team?
How do I feel about the culture and company leadership?
What marketing strategy(s) do I want to utilize to grow my business?
What state(s) do I want to originate mortgages in?
Better is knowing where you want your business to go and what companies/business models will allow you the best opportunity to get there.
Once you have the answers to the above, expect the unexpected. As we entered into 2019, the market was dealing with lower volumes and margin compression from 2018. Companies were merging and loan officers were getting out of the business. Heading into 2020, rates and margins were better, business was rebounding, then the pandemic hit, and the secondary market froze for a couple of weeks. When things reopened, rates dropped, the refinance boom began, and the purchase market strengthened from the work from home phenomenon. The market is more powerful than you. Position your business and career to be successful regardless of the direction it goes. Where do you think you should be when interest rates go up?
If you need help exploring specific companies or opportunities, let us know. Jeff Flees has been in the mortgage industry since 1995 and currently leads a recruiting and consulting firm, Loan Academy www.loan-academy.com, that works with many top mortgage banking firms and a mortgage brokerage company, Flagship United Mortgage www.flagshipunitedmortgage.com. Jeff can be contacted directly at 310-429-1943 or through the websites above.