“The risk of a wrong decision is preferable to the terror of indecision.” 

This is a quote from the Spanish Philosopher, Maimonides (1135 – 1204).  I might add that “indecision is a decision”.


Small mortgage bankers have some decisions to make today.

The changes in net worth requirements of FNMA and the 3-year staged increase in net worth of HUD are creating a dilemma for many small mortgage bankers.  The minimum net worth requirement for mortgage bankers is quickly moving to $2.5 million.  If you are a mortgage banker originating loans through mortgage brokers, net worth requirements are moving closer to $5 million.  

Most of the mortgage bankers we’ve reviewed over the past several years have less than $1.5M in net worth.  Until recently that was considered adequate to obtain investor and warehouse credit line approvals.  Over the past several months, we’ve had calls from our clients that fall short of the increasing net worth requirement asking what they should do. 

Let’s look at some options people are exploring today:

  1. Organic Balance Sheet Growth:  Some think they can organically grow their net worth through earnings.  This is a solid strategy if there are decent earnings and the owner takes a cut in compensation.  We see many owner operators making annual distributions as part of their overall compensation and prefer not to down size their life style.  To be honest, I don’t blame them.
  2. Partnering with a Larger Mortgage Bank:  Some consider ditching their mortgage banking platform and partnering with a larger mortgage bank with a strong balance sheet, GSE approvals and multiple warehouse lines.  These folks recognize their financial limitations but have a decent production platform.   They can bolt onto an existing company and probably generate close to the pretax margins they made as a mortgage bank, but without all the risk. 
  3. Partnering with a Bank:  Others explore selling all or part of their company to a commercial bank.  This is another great strategy because it quickly helps operators reach the net worth requirements and possible open up additional warehouse lending opportunities.  The spread banks generate off warehouse lending is very attractive. 
  4. Outside Capital:  And finally, other mortgage banking entrepreneurs seek outside capital to help them meet future net worth and liquidity requirements. These folks want to grow and realize growth is predicated on accessing more capital. 

It’s dicey for small mortgage bankers today.  Indecision is not a good decision.  Figuring out what you want to be when you grow up is more important today than ever.  Hanging out and not developing a plan for the future is essentially making a decision.  Assess your options, model out the risk / rewards and then move forward with a plan and strategy.