After mortgage lenders shut down, what’s next for loan originators?

Scott Miller, a former mortgage loan originator at Sprout Mortgage, knew the clock was ticking when the non-qualified mortgage (non-QM) lender abruptly closed doors in July 2022. The decision left more than 400 employees without a job, and Miller had two urgent tasks — to find a lender that would close his clients’ loans in the pipeline and would also help him close more sales in an industry that is projected to further downsize

“I spoke with 13 or 14 people that were at different companies – people I had known in the industry, people I had connected with, and probably had about 100 people reach out to me on LinkedIn that I had known from the past saying, ‘Why don’t you work here, we have great rates’,” Miller recalled about the day Sprout announced the shutdown.

“I didn’t want to just jump for money,” Miller said, noting that some lenders with lower rates have complexities of putting together a loan — and transferring over existing clients’ loans is a different process for every company.

Miller, who ultimately decided to place his bet with Sun West Mortgage Company, was one of the thousands of loan officers who lost their jobs with a lender that failed to stay afloat. 

When looking for new lenders, the mortgage product mix, compensation, speed to close the loans already in the pipelines and the cultural fit are all factors that go into consideration, LOs that interviewed with HousingWire said. 

Up to 30% of the 1,000 largest independent mortgage banks projected to disappear by the end of 2023 via sales, or failures. In turn, thousands of loan originators could soon be looking for a new lender to hang their license.

But not every LO will find a new workplace. They will have to pass lenders’ picky standards – with the most crucial question being, do they have the client base to bring over in an industry that is still on the course of rightsizing? 

The right product mix

When Finance of America Companies closed its forward mortgage origination unit in October, Steven Reich, a former COO at Finance of America Mortgage, and some branch managers wanted to stick together as a pack.

Stronger as a group than individually, about 200 LOs presented themselves as a package deal when finding a lender.

Reich and others explored opportunities for transitioning to different lenders, and narrowed it down to a small handful of companies that were looking to hire employees from Finance of America. 

“Go [Mortgage] was on that list,” Reich said. “They were the right size company; they weren’t too big where there is a lot of red tape. They weren’t so small that they couldn’t handle us.”

Go Mortgage, a boutique Ohio lender that originated $1.1 billion in loan production in 2022, saw potential to expand in local markets by scooping up LOs that could bring over their network of local clients. 

Almost three months after Finance of America Mortgage shut down, Reich brought over 21 retail branches to form his own retail division at Go Mortgage.

Reich’s division has a goal of closing $1 billion in loan origination volume this year at Go Mortgage. To do so, they plan on capitalizing on single close construction loans in addition to the conventional, government, and jumbo loans. 

“We have a one-time close construction-to-permanent loan, and we are the largest seller of that product to the agencies. So, we are constantly communicating with builders, and even calling Realtors telling them we have builder products,” Reich said.  

In a margin-compressed environment, where loan originators need to get creative to close deals, LOs are increasingly leaning toward lenders with a niche.

For Miller, who specializes in bank statement loans and debt service coverage ratio (DSCR) loans for investment properties, Sun West’s artificial intelligence platform, Morgan, won him over.

Morgan, launched in September 2022, enables the lender to convert pre-approved, property-specific home loans into tradable non-fungible tokens (NFTs). It also  underwrites conventional loans and works as a marketing tool for LOs. 

“With the AI, I’m no longer having to babysit the more conventional type loans — conventional, VA, FHA loans. I can plug them in with asset income documentation, Morgan figures it out, underwrites it, and provides an approval for me so I can work on some of the complex ones,” Miller said.

His day-to-day schedule is more focused on building relationships with brokers. To do so, he talks about how Sun West can make their systems more efficient and allow brokers to be notified during the loan process. 

“As I looked at the ability to lever the AI, [to] be able to offload more babysitting work onto the leadership team as well as the operations team, I may have left money on the table immediately — but I think it was a better decision long term because I didn’t make the jump for the capital and end up leaving again,” Miller said.

A process of trial and error

Finding the right lender can be a process of trial and error.

After Sprout closed its doors without warning, Michael J.  Barnes spent about six months at AmeriFirst Financial Inc before landing as a branch manager at Mann Mortgage.

The former vice president of mortgage lending and origination branch manager made the transition to AmeriFirst in July, a company that had the local support to close Barnes’ existing clients’ loans in the pipeline. 

“Because I had clients that needed to get their loans closed, I didn’t have a tremendous amount of time to make a decision,” Barnes said. However, had said he kept his ears open for an opportunity to move over to Mann Mortgage, which closed construction and renovation loans in-house.

“One of the things that they do well is construction and renovation loans in-house,” Barnes said. “For an independent mortgage bank, they did 192 construction loans in-house last year. In-house is key. Many companies either have to broker it out or they only have the process in-house.”

Barnes finally made the jump to Mann Mortgage following a short stint at AmeriFirst Financial, which stopped funding loans in December. American Pacific Mortgage hired about 150 employees from AmeriFirst Financial, which consisted primarily of LOs, as HousingWire reported in January. 

The employment terms

Lenders see recruiting LOs from shuttered firms as an efficient and cost-effective way to expand market share. 

After learning in December that AmeriFirst Financial’s branches were ceasing originations, APM spotted an opportunity to recruit branch managers and loan originators to make up for the lost production in 2022.

The California-based lender, which has 445 branches and 2,587 loan officers across the country, saw production volume fall by more than 55% to $12.13 billion in 2022 from the previous year’s $23.6 billion.

“When their companies are ceasing originations, you don’t really have non-compete issues,” Bill Lowman, CEO of APM, said regarding the benefits of bringing over LOs that shut down. 

When a lender shuts down, the company releases the loan originator’s license and a new entity can sponsor the LO, a process that could take up to 30 days. 

The standard for scooping up employees from AmeriFirst Financial was “high-producing and profitable branches,” according to Lowman. Loan officers who were part of those branches were brought over, he said. 

Expansion-hungry California-based lender APM acquired Arizona-based lender Sunstreet Mortgage in July 2022. It then brought over 35 to 40 retail branches from Finance of America Mortgage in October and purchased more than two dozen retail branches of Minnesota-based Lend Smart Mortgage in January 2023.

When it comes to scooping the high-producing LOs, everything is negotiable – from LO compensation, signing bonuses and clauses for additional pay, a public retail lender executive said. Bottom line is that a lot of lenders are still willing to pay for top talent. 

However, the general consensus for LO comp seems to be similar to what they were getting at their previous lenders.

“It’s essentially the same,” Barnes said. “The higher the LOs’ comp, the higher the rate is for the customer, so we have to keep it in check. We have to be paid, but we also have to be fair to the consumer.”

“To the extent possible, as long as it’s compliant, we try to bring them as close to the comp as they were at their previous company,” Lowman said. 

The cultural fit

Making sure every loan originator closes a minimum of two loans every month is an important standard that Nick Suwanvichit, senior managing director of national production at Sun West, has when recruiting LOs. 

Sun West, a California lender with a production of $1.49 billion in 2022, is in expansion mode. Despite origination volume declining 75% from 2021, the firm launched branches in New Orleans, South Carolina and Florida last year.

“We’ve been pretty picky on who we bring on,” Suwanvichit said. 

As former senior vice president at Sprout and head of the distributed retail channel, Suwanvichit brought over about 30 LOs from Sprout’s retail channel in July. He noted cultural fit is as important as bringing on a high producing LO. 

“It’s got to be a cultural fit. We were able to find people with high drive, drive for results, empathy, problem solving and patience –  all the core competencies to successful loan officers especially in this market,” Suwanvichit said. 

The cultural fit is often the most overlooked factor, but in the end, it comes down to how long an LO will stay with the lender. 

“Really look into the leadership team, being able to give you direction is I think key,” Miller said of his advice for LOs looking for a new firm. 

Every lender underwrites differently, and asking questions on the process of closing loans — and how the firm will help close certain loans — is more important than how low the firm’s rates are, according to Miller.

 “When you first make that move, every lender has their nuance, and if you don’t have the ability to understand those nuances, you’re going to get frustrated and leave,” Miller said.