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Special Reports
Broker to Banker
Street Sees It as a Business Decision
By Jennifer Harmon
In today's warehouse industry the application process delivers a ready-made set
of procedures that is very easy to follow, which gives originators absolute control over the pipeline when brokers
make the move to becoming bankers, according to Stanley Street, president of Street Resource Group here, a national
technology provider for wholesale lenders.
Although regulations have changed, and disclosure requirements were withdrawn,
it has become more of an economic reason rather than a compliance issue to make the primary switch from broker
to banker.
"There are state laws and federal regulations to deal with, especially in
the subprime market with predatory lending. Brokers have to disclose the yield-spread premium; lenders don't,"
he said.
"But now it's more of a business decision. Becoming a lender has expanded
the opportunity to get more business. The available pool of originators has been expanded."
In order to reduce operating overhead, the process has accelerated as the market
has shifted and the refi boom has diminished, Mr. Street said. "It's much more challenging and lenders are
migrating more in this direction. A lot more products can be offered that way. They can shop a loan in the secondary
market as opposed to taking straight commission."
Brokers are inexperienced in running an operation which includes having to deal
with the day-to-day issues involved with a warehouse line of credit. "The brokers need to become experienced.
From the conversations I've had with clients, they say it is very challenging. Many don't understand the mechanics
of what they can and cannot do. They are unfamiliar with the territory, why they need to do this or charge this."
In order to become a banker, brokers must have the ability to take on more responsibility,
and there's more risk associated with being a lender, he added. "There are some who are incapable or unwilling
to take that on. There needs to be a lot of re-education."
Brokers are now taking a great deal of financial responsibility in the secondary
market. Here, they can still be a correspondent lender or have a single investor source, but they take on an added
level of financial risk. "When you add cost of the loan in warehouse plus the processing fee, you have to
be much more astute in proficiency management to be a lender and know what the trust cost is."
Warehouse lending has always been a demand side of the industry, said Mr. Street.
"It's more demand than supply as far as warehouse lenders go. A lot do warehouse lending officially, but there
are 10 or 12 major places. The market is segmented in different tiers."
The company, which has been around for 20 years, is comprised of accounting professionals,
chief development officers, and a programming staff with an extensive mortgage background. Its current warehouse
lending application was written in 1994.
Street Resource has 18 warehouse lender clients and through the Warehouse Loan
System manages the complete warehouse lending process. It automates receiving and validating loan funding requests,
tracking loan transmittal documents, and disburses funds to closing agents, among much more.
The SRG Direct Connect remote client desktop application allows transactions to
be submitted and originators can get immediate feedback. The pipeline management tool is extremely useful, noted
Mr. Street.
"Originators can preload loans, and when they decide to initiate the warehouse
transaction, they can work their own pipeline prior to delivering the request to the warehouse," he said.
"There has been 25%-30% productivity gains in the volume of loans warehouse
lenders can process. It has reduced operating costs of warehouse lenders and increased productivity for the warehouse
and originator."
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