Mortgage brokers fall into the entrepreneur/startup category of the mortgage finance world.
After taking a serious hit in the aftermath of the financial crisis, the industry is seeing a rebound in interest, especially as people think about how much money they can make if they work hard.
Now, potential mortgage brokers simply need to know where to start, and several companies, such as United Wholesale Mortgage and even the National Association of Mortgage Brokers, are working to get more brokers into the space.
One innovative program is NAMB’s KickStart program, which offers grants to loan originators aspiring to open their own mortgage shops, $10,000 to be exact. The money is enough to help cover startup costs such as office space and software technology that make it possible for broker to accept loan applications.
So where to begin? HousingWire asked three recipients of the KickStart grant (one responder asked to remain anonymous) to share what they learned through the process of going out on their own.
What are some common misconceptions behind opening your mortgage broker business?
Lisa Warren, president of LW Financial Services:
I think the financial crisis our country went through had an impact on the consumer's perception of what we do. The small percentage of mortgage professionals who participated in that catastrophe with bad business practices has painted a picture that is far from reality.
I have been in the industry for almost 20 years, in all areas of the business, and have vast knowledge of our business as a whole. I think that my decision to be "on my own" put me in the best position I could be in for not only my professional visions and goals, but most of all for my customers. I am able to find the best lending product and lending institution that fits the need of the borrower with the most favorable terms with complete transparency of the fees charged and income made to produce that loan.
If you are a correspondent lender, you have the same agreements to sell loans for a service released premium adding the commission earned from the originator on top of that, which is hidden from the consumer. I don't have the overhead of several levels of management, corporate staff, advertising for an entire company that doesn't benefit me, and I make the decisions. What better position could I be in?
Robin Gilmore, president of America's Local Lender:
It’s not as expensive as it seems. You definitely need to have savings and be prepared to not have income for four to six months, but the funds required to set up the business are much less than I expected.
Michigan mortgage broker:
I think one of the biggest misconceptions is that most consumers do not understand the difference between the types of mortgage companies that exist, i.e. banks, credit unions, mortgage bankers and mortgage brokers. More specifically, on how it relates to them getting their best mortgage.
If we as mortgage brokers can get the word out there on how we are uniquely qualified to help each client get their best mortgage, that would help them understand why this is a misconception.
What are some of the main roadblocks to opening your own mortgage shop?
Actually, the roadblock was overthinking. It sounds funny but it is true: Keep it simple. You don't need a loan origination system that has a million bells and whistles. It only complicates things. Compliance, reporting, and policies and procedures are a task in itself, but there are many companies you can use to help with a lot of this, it is just picking the right one for you at the right cost for your company.
For me, the roadblocks were a result of my trying to accomplish some things on my own as opposed to immediately finding someone to help. None were major obstacles, just steep learning curves. If I were to do it over again, I would have hired someone early on to help with some of the technology requirements. That said, doing it myself gave me the opportunity to learn and become more effective at troubleshooting on my own.
Michigan mortgage broker:
The state required minimum capital requirements were a roadblock and, additionally, trying to get licensed when you are currently a licensed loan officer was a significant hurdle too.
What is one thing you wish you knew before you went into this field, or advice you would give others?
I wish I would have talked to other mortgage brokers that already went through the steps you need to take to become a mortgage broker/company because I would have been able to be more organized and know what to expect. Another big piece of advice is to do the research you need to do ahead of time on what lender will be supportive of a new broker.
The licensing can take longer than you think, especially if you apply during a quarter or year-end. There are specific things you’ll need to obtain your license (a business plan, articles of organization, surety bond, etc) and many things that can only be done after your license has been approved. The post-license items are things such as lender approval and getting access to technology such as DO/LP and pricing engines.
My advice is to create a detailed plan with all of the tasks that need to be completed (pre-and-post licensing) along with a timeframe for completing them and stick to it. Also, identify the tasks that you’ll need help with as early in the process as possible. This will help cut down on time spent trying to self-service something that’s outside of your skill set.
Michigan mortgage broker:
It does take a lot of time and money to get started. Research all the costs and all the state and federal requirements so you can accurately plan and budget your resources.
A previous article (How much money should you have in savings before becoming a mortgage brokers?) talked a lot about personal expenses and savings and did not address the costs of the business, which can exceed the costs of your own personal expenses. You have to plan for both to be successful.