There has been a lot of banter about who’s at fault for the collapse of the mortgage market and third party originator segment in general. This can be witnessed in the exchange between NAMB president Marc Savitt and JP Morgan Chase & Co. CEO Jamie Dimon. Just read. Brokers say the lenders made it possible. Lenders say the brokers took advantage. Whoever is at fault, the fallout is apparent. Lenders are closing entire wholesale divisions and walking away from third party origination sourcing channels (JP Morgan Chase & Co.). Fear, risk, fraud, lack of control or the unknown are cited as reasons to cut off the broker’s and consumer’s access to liquidity. Now brokers are crying for lenders. Some are good brokers doing quality loans, but they can’t find a home. Oh where, oh where are tomorrow’s confident new age wholesale lenders?

Enter the new prudent, self-aware wholesale lender. They have no fear because they know what they are buying. They understand the risk of the loan before they purchase it. They use technology to empower the broker and ensure that compliant, eligible, optimal, suitable and most of all quality loans are originated and delivered to them. They automate real time point of sale verifications, eligibility and risk based pricing in a regulator-transparent manner.

These lenders aren’t supporting the wholesale market because they need volume at any cost. They are in this segment because they know that there is good business to be won from good brokers. That is, if the business is prudently managed. Supporting third party originated loans can be done safely if the lender embraces technology.

All along, the successful wholesalers stayed in the market. They may have cut their client base by tightening their broker and product requirements or become more selective with the broker and loan quality. Regardless, these wholesalers had the automated decisioning and technology already in place to ensure that their brokers offered their consumers the most suitable, optimal and compliant loans possible. No surprises, controllable risk and improved pull through.

Now we are seeing new wholesale entrants such as Virgin Money USA (Housing Wire, March 2009) and Pacific Mercantile Bancorp (National Mortgage News March 2009). We hear more lenders, like Union Bank of California, defending their broker channels (National Mortgage News March 3, 2009). 

As lenders adopt automation and decisioning as the safe harbor to informed originations, you will see a rebirth of the wholesale market. But remember what Spiderman’s uncle said: “with great power comes great responsibility.” The offer of access to new funding sources and relationships also requires responsibility to police compliance, risk and suitability. Safe third party originations are possible. However, if you lack control and remain ignorant of what is being delivered to you, THE PAST WILL BE REPEATED, and not in a good way.

"A [person] can fail many times, but he isn't a failure until he begins to blame somebody else."
John Burroughs, American naturalist (1837-1921)