How to Ramp Up Fee Income Part One of a Series
While traditionally this blog covers SBA and USDA loans (just the guaranteed part) as an investment vehicle for credit unions and, yes, banks, I will be sharing with you portions of my next White Paper which is about ramping up your NON INTEREST INCOME and expanding your product lines. We are going to start with a very traditional idea at first then branch out into ten less traditional and more interesting ideas, and I’ll guarantee that you’ll find one or more you can use at your institution to increase the bottom line. Just email tim@silverlineadvisors and I’ll send you the contact information you need to meet an individual who can help you implement this idea. And be sure you opt in Read on!
These are difficult times to be in the mortgage business – but nonetheless, mortgages are an essential member/customer service and there are basically three delivery tracks:
Track 1: Traditional Mortgage Banking
Become a mortgage banker delivering directly to a government loan pooler and to FNMA/FHLMC or their successors. We won’t be discussing mortgage banking here due to the expense, human resources load, credit risk and interest rate risk inherent to the business. The risk/reward ratio in the current slow, tight credit market favors a less ambitious approach.
Track 2: Collect Rent, Let Someone Else Mind the Store
Rent space to a reputable, well established, experienced mortgage banker, creating a fixed income stream from underutilized office space. This rent needs to be at market due to current RESPA laws. Let’s assume a 200 square foot office and the price of $25 a square foot and three separate locations income would be $15,000 a year. Liability to the institution would be extremely low in this scenario and the mortgage banker would do all of the originating, processing and closing of the loan. This option also allows for us to originate all the different types of loans mentioned above.
Megastar Financial is a good example of a company you might consider renting retail space to. Founded in 1999, Megastar has a reputation for quality and integrity and is one of the fastest growing and privately held mortgage companies in Colorado. To date, the Company has funded over 10 billion dollars in loans. Megastar is considered a full service Mortgage Banker. They underwrite and close loans in their own name then sell to the secondary market to lenders such as Bank of America, GMAC, and JP Morgan Chase. The Megastar service proposition includes loan approval within 24 hours of application, in-house closing and document draw; a pricing engine that enables them to choose the best pricing for the customer from multiple investors, and careful tracking for all contract dates and with a commitment to having figures to closing three days before closing. Megastar also has an automated notification system that sends updates to parties involved in the loan transaction.
Track 3: Retailer, Meet Wholesaler
Choice three is to become a retailer and originate for a wholesaler like Megastar. Under RESPA and related legislation, for any institution or individual to earn a fee for a referral there are certain duties and services you need to provide, known in the trade as the Duties of the Originator. Your institution would need to gather information from the borrower and fill out the loan application and perform at least five of the tasks listed below.
- Analyze the prospective borrowers’ income and debt and pre-qualify the client to determine the maximum mortgage that the prospective borrower can afford.
- Provide education to the borrower about the home buying and financing process. Inform the borrower about the different types of loans and products available and explain how closing costs and payments vary with each product.
- Collect all financial information (tax returns, bank statements) and other related documents that are part of the application process.
- Initiate verification of employments and deposits.
- Initiate requests for mortgage and other loan verifications
- Order appraisals
- Order inspections or engineering reports
- Provide disclosures (truth in lending, Good Faith Estimates, and the required Colorado specific disclosures to the borrower)
- Assist the borrower in understanding and clearing credit problems
10. Maintain regular contact with the borrower, realtor, and lender during the application and closing process and inform them of the status of the loan.
11. Gather additional documentation as needed
12. Order legal documents
13. Order a flood certification
14. Participate in the loan closing
15. Share other activities as appropriate to ensure a smooth transaction for the customer and satisfy RESPA requirements.
Megastar has had success with other institutions by selecting the appropriate employees and providing adequate and ongoing training. A referral fee can be paid in this situation.
Megastar and we would require representations and warranties against fraud and misrepresentation. This option requires a wholesale agreement and applies only to conventional loans. FHA and VA transactions are excluded.
Want more on this subject? Just email tim@silverlineadvisors and I’ll send you the contact information you need to meet an individual who can help you implement this idea.