June 23, 2015
By Bob Coleman
Editor, Coleman Report
The good loan broker comments outweigh the bad, but the bad and ugly comments are well, bad and ugly.
Two issues were raised, which I will follow up at a later date. One lender was criticized on their PARRiS review for paying over a $30,000 fee to a broker. Another lender urged SBA to cap lender fees. Finally a lender questioned why SBA will not share loan broker loan performance stats with the industry.
This is good stuff. Keep the comments coming on future polls. Please attach your name to the comment if you want attribution.
The Good Loan Broker Experience
The key to using loan brokers is know your brokers and don’t let the broker control he borrower. With a few simple and logical precautions, this can be a good source of business. We have a small group of brokers with whom we have done business for many years with no problems whatsoever. This just takes a little common sense.
Brokers do work we can’t – they scour and market in and to areas we just don’t have resources or time to do.
There are a lot of good brokers out there. I stay away from the ones who are dishonest. Brokers who give me a complete package with all docs and credit report will get 1.5%.
We don’t accept brokered loan packages at this time. I’ve worked for an institution in the past that did and would say proceed with caution on that front — a competitor bank once lost their PLP license due to this issue. That being said, if solid controls are in place and the bank verifies the underwriting and other information within the package, it can makes sense as part one element of a bank’s overall development. I would not recommend it as a major component for most institutions, as I would much prefer to see organic growth.
We deal with a select number of brokers who know the program and assist during the entire process.
Bank reviews all brokered loans same as self-sourced transactions. Do not take loans directly from broker to processing.
Always work directly with the borrower; not the broker.
We typically only involve loan brokers unless the borrower or a seller brings them into the transaction. We do not pay brokers for referrals. If the borrower or seller chooses to do so that is okay with us.
As with most things, there are good brokers and bad. In my experience, most of them try to be helpful and do the right thing. At the end of the day, lenders have to take responsibility for their customers. Most of the problems occur when a broker starts to do things In the process that the lender should be doing.
Our brokers are selected and vetted carefully prior to accepting any referrals. If they do not maintain our standards, or we have reason to question their integrity (i.e. refusal to allow us contact with borrower directly, evidence of non-disclosure or creative financial reporting), they will be quickly disqualified from our approved list.
The Bad Loan Broker Experience
I cannot recall the last time I closed a loan referred by a “loan” broker. Maybe 10 years? My experience with loan brokers overall has been extremely poor. By and large, the deals I have seen are substandard; the presentations are poor; the tax returns have been copied over and over; credit issues; projection-based repayment; the brokers submit the same packages to multiple lenders, etc. And, yet, loan brokers often lead with “will you pay me 2%”? And it’s always the risky start-up, projection-based, new construction, special-purpose 7a that requires a ridiculously high referral fee. That has always amused me. No thanks. I will stick to employing pre-web, old school, 20th century marketing strategies by continuing to network the “commercial real estate” broker industry one-on-one. Those deals work. And I don’t have the referral fee pressures. But that’s just lil’ ol’ me.
The Ugly Loan Broker Experience
Loan brokers bring in the worst deals- most viable candidates do not need a loan broker, so you get junk. Most brokers could care less about the client, and you can never find the broker once the deal closes and they get paid. 9 out of 10 brokers leave me feeling dirty after speaking/meeting with them- they offer nothing and their character is always questionable.
We do very little with brokers, but there is a reason for that 🙂
Sometimes I wish the brokers would put the borrower first in their mind rather how much is in it for me.
Relying on brokers is a statement that you are a transactional not relationship bank. In competitive markets, there are no “unbanked” businesses. Brokers are shopping marginal, rate focused credits that relationship banks don’t want.
We find “brokers” all the time trying to split fees even though SBA prohibits such. We are told by them there other banks do so and “hide” the fee in some other way. VERY disturbing because I know it’s true.