Open Season: The Third-Party Origination Flip-Flop

In early 2007, Mark Greco co-launched 360 Mortgage Group LLC out of Austin, TX. In this edition of Open Season, Greco sets his sights on third party originations. TPOs, as Greco calls it, have frequently come under scrutiny because of a broker/lender’s lack of any ongoing and lasting responsibility for the performance of the mortgage. Here’s his take: “We are of the opinion that TPO has gotten the black eye because all of the wholesale companies, all the big mortgage companies, didn’t know what expect, performance wise, from TPO products. The fact of the matter is we feel that opinion is very much skewed in the sense that in the 7 years leading up to the implosion of the industry, the big retail mortgage banks, the big retail shops and even the little retail shops, would broker all of their questionable business. In fact, they would broker them to the Countrywides of the world and whoever else they could sell loans to — with the lower credit scores and the stated income, stated assets and all of that business — and we feel like there has been a flip flop recently where TPOs are falling out-of-favor. There is a hundred and eighty degree turn in the trend of TPO versus retail. And we feel very strongly that in another two or three years, when everybody evaluates retail versus TPO their performances will flip flop again. The reason for that is because TPOs have gotten more scrupulous about the loans they put in the pipeline and fund. At the big retail shops, those guys still will have to fund those loans. I think that what’s going to happen is a lot of secondary market companies, a lot of the correspondent lenders, that will allow retail to give them a little longer leash on the types of loans that they will actually purchase. However, the TPO model right now is under such incredible scrutiny that we’re confident that in another 24 months, we’re going to look back on this time period and realize that TPOs far outperformed the direct retail model. Mortgage brokers, in general, are a good group of people that can stay within the boundaries, when they are given boundaries. And today the boundaries have narrowed greatly and the TPO market has adapted and the brokers are adhering to the boundaries of good mortgage lending principles.” Write to Jacob Gaffney.