The most prominent challenges mortgage bankers must focus on are their ability to maintain market share, minimize our capital constraints and insure each of our employee sectors are properly incented to produce, process, close, and deliver the highest quality product available.
In my last article I addressed a new paradigm for loan officer compensation. To open the debate on how to best establish guidelines for loan officer compensation here and not let some other group, not knowledgeable about our profession is the right position. We may not solve the conundrum in an open blog forum, but better for us to open the dialog than have a new system of compensation imposed without comment. Just as wrong as letting outside groups with no stakeholder position dictate to us how to properly capitalize our firms and retain risk proportionate to our reward.
The capitalization of our non-depository mortgage banking firms is a real issue. Today Ginnie Mae issuers are required to have a significantly increased unimpaired capital account over what was required only 6 months ago. We must now move from a strictly entrepreneurial model with short term gains based on origination volume and an exit strategy based on the sale of some residual servicing rights to a model based on returns on investment (initially be pegged in the mid-teens without some sort of credit enhancement) demanded by investors who may or may not be fully cognizant of the risks involved in the mortgage banking practice.
The first question we must ask is: Are we prepared to accept outside investors into our business?
We have traditionally built our firms based on our own abilities to source the product acquire the right people to take care of all the processing, underwriting, closing, warehouse administration, shipping and servicing. Most of our companies have been founded by great originators who had good business acumen and developed a strong business with little capital. There will be continued pressure to step up our game and have a business/investor centric model rather than the entrepreneurial one we are so familiar with today.
Over the next six to eight months we are going to see rules promulgated for risk retention (a direct driver of capital need), threshold capital requirements for agency and GSE approval and as the warehouse market returns threshold requirements for capital as well as increased levels of interim retention prior to final investor/security delivery. Delaying the preparation of our companies and ourselves for the inevitable need for capital is only going to foreshadow failure.
Preparing for the future and meeting the challenges based on proper preparation is the key to our future success as an industry and each of us as business leaders must be equally prepared to meet the financial challenges now being formed. We must examine our process’, question our use and choice of QA/QC tools, understand whether we have an enterprise system nimble enough to place us at a competitive advantage for the future and finally how does all of that translate into attracting capital so we can make the next step.
Mortgage Banking is an honorable profession and although young is one that can be one of the key facilitators for the future of housing in America. Let’s grasp the opportunity to move forward and deal with the challenges.