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Incentives For Mortgage Bankers And Brokers Are Common
BY MICHAEL KLING
Think your credit card or frequent flier mileage offers good incentives?
Want a new Porsche or a plane flight to Europe? Or maybe just cash back
at the end of the quarter?
Many lenders are using these kinds of incentives to attract brokers.
And for mortgage bankers, retaining servicing is an increasingly likely
incentive as lenders strive to reward volume producers.
"Everybody built huge platforms for volume that's not out there.
They're trying to work with everybody," observes Guy Johnson, president of
Johnson Capital Group of Irvine, Calif., noting that lenders take a range of
strategies from working exclusively with intermediaries to using a mix of
brokers and offices. "There's so much capacity people will do whatever it
takes to do business.
"If you've got deals today you've got all the conduit deals you want.
The conduits are so needy for business, there are no exclusive
arrangements remaining. There's a lot more capital than demand."
Despite the availability of vacations and merchandise giveaways,
retaining servicing remains the most important incentive for qualified
mortgage bankers. While few mortgage banking firms can handle servicing,
most can do subservicing, which entails conducting annual inspections and
collecting financial information, with a relatively small staff, Johnson
explains.
And the volume standard for acquiring subservicing has been
lowered to perhaps zero, he says. Rather than volume results, conduits will
grant subservicing to intermediaries with merely the capacity for volume,
such as offices in multiple markets, rather than insist on actual production
results. "Some reasonable amount" of experience may be all that's needed
to begin subservicing.
"The issue is not capital," Johnson remarks. "The issue is the deals."
Mortgage bankers servicing life company loans receive servicing
strips, but can also benefit from the impound and escrow cashier functions,
Johnson explains. Even if payments are swept daily, mortgage bankers
earn interest from short-term floats of loan payments they hold briefly
before forwarding to investors - arrangements that are not as available
from conduits.
"If you're big, it can add up in a big way," he observes. "One day may
not sound like a lot, but it adds up to a lot of money."
With competition for loans intense, logic would call for underwriting
standards to ease, he adds, but rating agencies and B-piece buyers are
holding the line.
Residential brokers entering market
Many residential brokers, facing a drop in volume due to an increase
in rates and an end to the refinance boom, are attempting commercial
deals and meeting open doors from an increasing number of eager
lenders, according to industry observers.
Most commercial lenders are still unwilling to work with residential
brokers, says Tim Hughes, principal and managing director for United
Conduit Securities, a lender based in Sea Girt, N.J. "Lenders are looking to
be leaner and meaner working with people who know what they're talking
about," he states. "They took the easy way."
Hughes, on the other hand, is open to residential brokers with
commercial deals. To help them out, he can take the process from them,
yet still send them a referral fee.
"They have no idea what the language is," he notes. "They don't know what to ask the borrower."
Many residential firms have stepchild commercial departments with
the potential to become significant profit centers if they find the right
financing source, he notes.
First Fidelity Bank of Tustin, Calif. is willing to guide new brokers,
including residential brokers, through its process. As brokers become more
experienced, they will hopefully learn to complete most of the process on
their own and develop into correspondents, notes Boyd Warner, senior vice
president, marketing and sales. "We're always looking for brokers to try to
reach that level."
With a contractual agreement, correspondents receive better pricing
and use their own forms to complete deals that are nearly ready to fund.
Some may receive property type or geographic exclusivity, and mortgage
bankers may retain servicing in areas where the thrift, which specializes in
lower quality deals that conduits might pass by, is expanding, such as the
Northwest and Texas, he says, noting that those requests are considered
"Our whole system is geared to supporting the broker," Warner
observes, noting that the thrift works strictly through intermediaries. "We
want to expand the number of brokers we're working with. We want them to
be as knowledgeable as possible, and we want the deals. We're willing to
work with them to try to teach them so the next time they have more
experience."
Through its rebate program, the company offers brokers rebates
based on the number of loans closed: $1,000 for generating over $5 million,
$1,250 per loan for $5 million to $15 million, and $1,500 per loan for over
$15 million. Those generating over $20 million are treated to a banquet and
vacations - the greater the volume, the more exotic the trip. The company
expects six to eight brokers to earn vacations this year.
To keep up with broker submissions, the thrift has added two people
to its broker relations department, he adds. "We consider our brokers to be
our salespeople."
Broker training
"Brokers always come across residential deals whether they want to
or not," says Kevin Clark, director of marketing for Kennedy Funding of
Hackensack, N.J. Clark is coordinating a commercial symposium set for Oct
17 to 20 at the Opryland Hotel in Nashville, Tenn. for the Washington, D.C.-
based National Association of Mortgage Brokers. Commercial sessions will
also be held at NAMB's national convention June 23 in New Orleans. It
already held a commercial seminar in April.
"There are brokers out there who are looking to learn the business,"
he says. "Some brokers told me they are scared to undertake commercial
deals" out of fear of doing something wrong.
Special promotions such as a free trip can give an edge to conduits
that might otherwise be indistinguishable and need to do anything possible
to get deals, Clark says. "It can't hurt. It's not going to cost much," he
observes.
However, private lenders like Kennedy Funding rely on their niche
financing programs and points given to brokers and don't need extra
incentives.
Receptiveness to new brokers depends on the lender. Some continue
to hold closed door correspondent meetings at conferences and to insist
that intermediaries know how to underwrite applications. Others are willing
to accept referrals and do the underwriting themselves.
"We've always been broker-friendly," he says. "Brokers are the
livelihood of our business. We're very attuned to brokers."
E-commerce incentives
MortgageSelector.com, a lender-sponsored online originations site
produced by Cargan City of Chicago, offers brokers incentives ranging from
a Pentium IIIC computer with a flat panel monitor to a Porsche 911
Cabriolet for arranging deals through its site.
"The Cargan Rewards Program is a marketing tool intended to
motivate brokers to learn about the benefits of e-commerce," says Fred
Fellows, CEO, noting that the incentives, modeled on airline frequent flier
programs, are designed to encourage regular use of the site.
Brokers, he adds, can still gain incentives from lenders in addition to
the MortgageSelector.com inducements.
"We're the technology between the broker and the lender," he says.
"It's the most efficient way to exchange information. MortgageSelector.com
replaces the fax machine and FedEx in the commercial real estate finance
process."
The incentives are designed with demographics of the broker
community in mind. "The incentive program was designed to appeal to the
diverse population of brokers across the country," he says. "Some brokers
are excited about receiving the hottest PC on the market, while others are
focused on the hottest car on the road."
The site, according to Fellows, can help residential brokers break into
the commercial market by teaching them about the process and providing
financing sources.
"Lenders are eager to educate brokers about their programs through
the most efficient means possible, the Internet," he says, noting that
lenders post information on their programs on the site. As an educational
resource, MortgageSelector.com also furnishes industry news, spreads, e-
mail accounts and a mortgage calculator.
"MortgageSelector.com, as a portal, is the Yahoo of commercial real
estate finance," Fellows says.
Unique loan programs
For some lenders, the uniqueness of their loan program is in itself an
attraction for brokers. Miami-based BayView Financial focuses on small
amounts for a wide variety of special purpose property types, avoiding
competition against the plethora of conduits offering similar programs,
explains Michael Sorenson, senior vice president. The program itself, which
differentiates the company, is an incentive for brokers, he says.
"We're willing to work with new brokers and encourage brokers to
understand commercial product," he says. "We don't have an education
program per se, but we're willing to help brokers put deals together and
educate them about what we need."
BayView offers separate tracks for correspondents and brokers.
Brokers are charged two points, but correspondents can close in their own
name and sell the loan with reps and warrants to BayView which buys the
loan at par.
Lenders typically prefer working with correspondents, who
understand their programs, rather than unfamiliar brokers, Sorenson notes.
"Once you've educated your correspondent it's much easier."
While two or three years ago, lenders commonly awarded
intermediaries fees in return for volume, thin margins now make that
impossible, according to Mitchell Sabshon, president and CEO of Archon
Financial of Irving, Texas, a Goldman Sachs Company. "Mortgage bankers
understand that."
Releasing servicing
While not having an incentive program paying brokers, Archon does
release primary servicing to its qualified mortgage bankers, especially if
they have relationships with their clients. Unheard of among lenders issuing
commercial mortgage-backed securities only two years ago, releasing
primary servicing to mortgage bankers is now common, Sabshon says.
It also raises the quality of CMBS servicing, he asserts. After master
servicers suffered criticism for being remote, staffing inadequately or
accepting fees that were too low to fund decent servicing, conduit issuers
began delegating primary servicing to local mortgage banker originators.
Many in the industry believe that has increased the quality of CMBS
servicing.
"Primary servicing is most important from the borrowers'
perspective," Sabshon says, pointing out that the primary servicer has
direct contact with the borrower. If the primary servicer has adequate
authority, the master servicer will never need to become involved in a
performing loan.
Archon, working with larger mortgage banking firms as well as a few
brokers, attempts to create correspondent relationships. Lenders that
make a point to keep their mortgage banker continuously informed will win
the allegiance of intermediaries, he predicts. "We've been dong it all along,"
he says. "We have always taken the position of developing deep
relationships with our mortgage bankers."
The conduit lender has contracts with servicers but not its originators.
Those relationships are understandings that the mortgage bankers are
preferred originators in their region and that the lender is their preferred
conduit lender, Sabshon explains. "When we can and need to, we will bend
over backwards for them."
"Brokers now more than ever need to feel very comfortable that
they're recommending a lender who has a very smooth and efficient
process for holding quoted spreads irrespective of volatility in the market as
much as possible," he advises.
Lenders who do that, he adds, will receive an increase in both
quantity and quality of deals.
This article was previously published in the June 2000 Issue of Commercial Mortgage Insight.
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