A portmanteau means a blend of two or more words and their meanings into one new word. An example is the word brunch meaning breakfast +lunch. Another is smog meaning a combination of smoke and fog. Some would consider a portmanteau a type of word morphing and we agree. Mortgage lending has had its share of portmanteaus.
Over the last several years mortgage brokers who were transitioning to mortgage banking were sometimes phrased as Brankers. Branker is a morph of a mortgage banker and mortgage broker. A Branker acts and operates as a mortgage broker and doesn’t perform many functions of a mortgage banker – underwriting, doc prep and secondary market --, but does fund and sell loans in their name as a mortgage bankers.
One key similarity with Bankers and Brankers is loan repurchase and regulatory risk. A Branker funding a loan in its name has essentially the same liability as a banker. As the mortgage meltdown evolved, capital requirements increased and a warehouse liquidity shortages occurred, Branking died a quick death.
A new mortgage lending portmanteau has evolved. It’s been here before, but we can’t call it what it really is because HUD doesn’t like the name. I’m calling it Broanching. Broanchers are mortgage brokers who latch onto a mortgage banker and are responsible for the P&L of the branch. All revenues generated from origination activities are credited to the Broacher’s branch; and all expenses specific to operating the branch are the responsiblilty of the Broancher. Sometimes the “mother ship” might assess a monthly administrative fee, fee for brokering out to another wholesaler or even credit the Broancher if a high percentage of loans are funded through mortgage bank.
It is amazing how fast this is taking off. Many wholesalers believe their business may shrink because the overall share of TPO business is expected to shrink below 15%. Out of fear, many have developed a retail channel strategy of recruiting their mortgage broker customers to become Broanchers. These lenders are recruiting existing TPO customers and bringing them in as a branches. Some allow the mortgage broker to use their existing name as a DBA and some want them to take on the corporate name. The bottom line it is net branching – “it walks like a duck and talks like a duck, it must be duck.”
Many mortgage brokers are flocking to mortgage bankers to become Broanchers. Out of fear, many believe the new regulations and headline news may make it difficult to operate as an independent mortgage broker. Some believe HVCC and the new RESPA regulation have made it difficult for mortgage brokers to compete with large retail mortgage banks.
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This week, one of my broker buddies with 10 loan officers and a $10 million monthly pipeline was courted by 4 regional mortgage bankers, two of which were TPO shops only three months ago. My friend is a seasoned professional and asked each banker the following questions:
- What is your net worth and what were your profits last year?
- What is your monthly volume and how much warehouse capacity to you have?
- Who are your secondary market investors?
- What type of technology supports the branches and the bank?
- Are you selling loans through mandatory or best efforts delivery commitments?
My friend is convinced he needs to make this move, but is asking all the right questions to ensure he attaches his operation onto the right company.
This channel is growing as a strategy for both originator and banker in response to the many regulatory changes and potential drop in volume this year. I’m not sure Broancher is the right portmanteau to label the old name of net branching that we can’t use today. If you have another name we might use, let’s hear about it.
