Ron Butler has some controversial opinions about the challenges currently facing the industry – and he doesn’t care what you think about them.
, founder of Verico
Butler Mortgage, is one of the country’s highestfunding brokers. He relies on a controversial low-rate, high turnaround, commissionbased model that has drawn the ire of his compatriots across the country. And he’s perfectly fine going against the grain. “I enjoy pissing people off,” he says, “and I enjoy being right.”
Butler has worked in sales positions since he was in his early 20s and founded Butler Mortgage in 1997, so he’s lived through various evolutions – and devolutions – of the mortgage industry. Because of this, he recognizes that the industry today is facing its fair share of challenges, despite years of consistent growth.
“We’ve experienced 20 years of straight increases in property values, with a tiny dip in ’08 that lasted about six months,” he says. “People in their 30s and 40s today don’t know a market that isn’t on the up. That may change in the next 24 months. If you’re used to the idea that your house will go up 5% to 10% a year, what are you going to do if it goes up 0%? Or even goes down?”
It’s a situation that many homeowners – and, indeed, brokers – have never had to face.
“For mortgage brokers, we’re all here for activity,” Butler says. “There is virtually no renewal system in this business – people say there is, but it is really 1%. If we rely on day-in, day-out activity, what happens when sales fall?”
That’s a lot of doom and gloom to consider, but Butler believes all brokers should look toward the future with eyes wide open.
“The two things brokers should be thinking about are the possibility that prices won’t continue their continuous ramp up and the possibility that underwriting standards will continue to get tighter and tighter in this business,” he says. “Those two things happening at once won’t be too pleasant.”
Those changes would likely make it tougher to do non-income-verified deals at every major lending institution, Butler says. “There will be pressure to do less rental business; there will be higher standards; there will be continuing pressure on [debt ratio guidelines], continuing pressure on down payment requirements.”
And these changes, Butler says, could force many brokers out of the industry. “Even though the people who are doing not much business now will simply quit, people who are doing a lot of business now will be doing much less,” he says. “It’s not a welcome thing.”
The benefit of buy-downs However, with every challenge comes a new opportunity, Butler points out.
“The reality of life, as indicated by the FICOM proposition, is that people being paid 115-125 basis points to complete a document and fund a mortgage with somebody else’s money does not make sense,” he says. “That’s the future. What is Uber? Uber is something that was simply a better idea, more convenient. All the talk of no licensing, no insurance, is just clutter. If you like the system better, and if it’s more convenient for you, you don’t care.” For his part, Butler has gotten ahead of the game by relying on a rate buy-down model that results in lower commissions but higher volumes. That business is predi- cated on making just 35 basis points per transaction.
“If you spend time with tech people and the people who are changing the world, what
they talk about endlessly is re-engineering from the consumer – starting with the consumer and working out, instead of starting from profit and hoping it touches the consumer.”
It’s a controversial stance, but Butler believes this business structure will become even more prevalent in the future as more and more clients embrace technology and the ease provided by operating digitally.
“Wouldn’t it be nicer if the client just got the best possible deal and didn’t have to meet anybody to do it?” he says. “Someone online or on the phone could meet with them – something that is efficient and easy to do.”
However, he remains skeptical about the average broker’s willingness to adapt to this way of doing business.
“Nine out of 10 brokers are so wedded to their model of earning 125 basis points on every file,” he says. “How is anybody going to function on 35? If you want to give better rates than broker ABC is offering, you can’t cling to legacy models.”