Two wholesale mortgage lenders on how they’re thriving at present
It’s been a rocky road for many in wholesale mortgage lending, with many negative headlines about the segment lately, largely due to the economics within the segment.
Among the most recent high profile exits, the third-largest player in this channel, publicly traded Home Point Capital, decided to sell its business to a smaller, privately held firm, The Loan Store.
Meanwhile, Impac Mortgage Holdings shut down wholesale altogether and elected to move to the other side of the table as a mortgage broker.
National Mortgage News recently spoke with executives at a pair of wholesale lenders, Flagstar and Deephaven, about how they’re surviving and even thriving while interest rates rise and a pricing war rages on.
Flagstar was recently acquired by another depository, New York Community Bancorp. Deephaven is an independent mortgage banker with a niche in non-qualified lending.
Several leading wholesalers, led by United Wholesale Mortgage, are notable for offering pricing discounts, roiling the competitive metrics of the business. Meanwhile at Rocket, TPO production made up a larger share of volume on a year-over-year basis in the first quarter.
Left, John Gibson, Flagstar’s SVP of TPO lending and right, Tom Davis, chief sales officer of Deephaven.
The Flagstar take
Flagstar stays well balanced in its approach when it comes to pricing, said John Gibson, senior vice president of TPO lending.
“We take an extremely disciplined approach in our pricing compared to the volatility we see from competitors in the space,” he said. “We manage our economics, which has allowed us to be a consistent partner to our client for over 30-plus years in the TPO space.”
The pricing wars are coming about because companies are not right-sizing fast enough — as wholesalers are trying to keep their pipelines full — as the market continues to decline to an expected $1.7 trillion according to Fannie Mae or $1.8 trillion based on the Mortgage Bankers Association’s estimates.
“Institutions in general have been slow to make that change in restructuring and taking out capacity,” Gibson said. “I think there’s still a lot of that that needs to take place in the marketplace.”
Yet Flagstar right now is hiring account executives to help cover certain markets around the country. “On the TPO side of the house, we’ve continued to expand and grow, to hire in sales to expand our coverage and add talented individuals to our team,” he added. The downsizing that took place after the merger was completed was on the retail side.
The company’s account executives work in all delivery channels, whether the originator is a mortgage broker or a mortgage banker that delivers on a non-delegated or delegated underwriting basis. The delegated delivery includes both single-loan and bulk transactions.
Flagstar is also the second-largest warehouse lender and the sixth-largest subservicer, and all these businesses fit together, Gibson noted. Having these different lines also allows Flagstar to diversify its risk in order to operate in any environment.
It’s been a staple at Flagstar, even going back prior to Gibson’s time at the company, to assist its customers “are looking to evolve right to the different levels of sophistication,” he said.
That includes working with the account executive long-term. The typical AE has about 15 to 17 years of experience at Flagstar, Gibson pointed out. It is that longevity that is the company’s “secret sauce” when it comes to bringing in business.
“We have a tremendous tenure and knowledge base, not only of products, guidelines and everything else that is associated with dealing with business partners, but the overall process and how the loans get manufactured at Flagstar,” Gibson said.
But Flagstar is also noticing that because of the current economic environment, entities are going from broker to non-delegated correspondent, to delegated correspondent, or evolving back from correspondent.
Deephaven has been “hyperfocused” on non-qualified mortgages since it entered the business in 2012, said Tom Davis, its chief sales officer.
“When you look at the underserved market that we target, there’s about 16 million self-employed people in the United States that account for close to 20, 25 million private businesses,” he said. “Our expertise, our knowledge and focus in this space, really help us set ourselves apart and provide just a strong offering to our clients, with dedicated resources to help their business grow.”
Non-agency borrowers are everywhere, whether they are investors, self-employed, high-income earners, or at the other end, those affected by credit events.
“These are borrowers that the agency products don’t really serve,” said Davis. “If it doesn’t fit the agency box, it doesn’t mean that the borrower is not a good borrower.”
But many mortgage brokers are not familiar with the intricacies of the various non-QM offerings.
“Deephaven offers our clients our expertise, our knowledge and our focus in this space,” and the brokers themselves become the product knowledge experts, Davis said.
“They become masters of non-QM, then it allows them to become the go to broker in their market,” he continued. “People will do business with them because they are the ones that have all the tools to serve all borrowers, not just the agency borrower.”
Another tool is a scenario desk that mortgage brokers can access for help. “And last month, we did close to 3,000 scenarios, which is an all-time record for our company,” Davis said. “So it’s a resource; we don’t just give our clients just a rate sheet.”
Deephaven also offers its brokers white-label marketing services. On the training side, it hosted over 700 training webinars and 31 global webinars in the last six months. This includes custom-tailored presentations such as product overviews, deep dives into product and features, sourcing non-QM and Realtor webinars.
Historically, plenty of loan officers have turned to non-conforming mortgage products when rates rise and originations slow. But when the cycle turns again, these new to non-QM originators will still actively sell the product, Davis said, making a baseball analogy.
“If you’re a pitcher, if you only have the fastball, it’s going to be hard to be dominant versus having a pitcher that has three or four different types of pitches that can really help them win more games,” he explained. “As a mortgage professional, if they have more tools in their toolbox, and they’re really good at all those different tools, that’s going to help them differentiate themselves and help them win more loans.”
Even though Deephaven has separate AE staffs for wholesale and correspondent, it too supports originators that decide to move up the licensing chain.
“We have clients that are one man or one woman shops, to originators that have 3,000 to 4,000 loan officers,” he said. “And I think whether you’re a broker or you’re a big banker, working with someone that has a proven track record is extremely important, someone that has been able to navigate the volatility in the market.”
While Deephaven is a specialist, Flagstar offers a diverse product menu, including HELOCs, portfolio products and non-agency loans, which it was not doing when Gibson came on board.
“We’re doing them today because our business partners have shown us that that’s a viable market and that there’s a need there,” Gibson said. “Because you certainly need to be able to provide for your business partners a depth of product that allows them to be successful in this type of market.”
And for wholesalers, that partner is not just limited to the mortgage originator.
“Everyone involved in the transaction is actually a customer. Not just our broker, not just the borrower, but everyone — their Realtor, the title company, the seller even,” Davis said.
Furthermore, the value proposition is that mortgage brokers have choice when it comes to wholesalers.
“That’s what allows a broker the ability to do right by their borrower from a standpoint of being able to meet their financial needs,” Gibson noted. “It’s the optionality that a broker has and then we’re competing for their business on our end in price, in service, in relationships and turn times and everything associated with that.”
Davis added it is important for the broker to have a relationship with a lender that has a proven track record. “You want to make sure that you’re working with someone that has experienced the expertise that is going to be a strong partner in all markets,” he said.