Despite the number of reverse mortgages endorsed being down 35% in 2010, one broker managed to become a top-10 lender over the course of the downturn. John Mitchell, founder of Reverse Mortgage USA, has continued to grow his company over the past seven years to become the 8th largest lender and biggest broker in the industry according to data from Reverse Market Insight.

With the regulatory outlook for brokers being uncertain at best, the Austin, Texas-based company is making the transition to banker. In preparation, Mitchell increased capital and doubled staff. Sitting down with RMD, he shares some insight into the process.

RMD: From the start of your company in 2004 to today, you’ve grown into the biggest broker in the industry. What made you decide to turn into a bank?

John Mitchell: That came about after the Dodd-Frank financial reform bill. When it was passed, I don’t think everybody fully grasped what it meant. What they basically said was, “We’re not going to let brokers be incentivized in their compensation based on the profitability of the loan. We’re going to make the broker get compensation in the form of a fee or yield spread premium.” That was devastating to us. It means we can’t operate as a broker.

RMD: What has the current regulatory environment done to impact the process?

JM: We initially backed off [from the bank plan] since the meltdown was starting to occur. But when we saw the new law, we thought, “There’s no backing away from it this time.” We immediately went to a warehouse lender and got a warehouse line. We’re in middle of February, now, and I jumped on as soon as I could interpret the law. I’m amazed we’re so close to that April 1 deadline.

RMD: Where are you in the timeline?

JM: Literally right now we expect to get HUD approval today or tomorrow.

RMD: Will others be able to make this same transition?

JM: One of the most significant, but subtle things to note that to be a banker today with HUD, you have to have a million dollars in net worth, in cash or securities. In 2013, the net requirement goes up to 2.5 million. That’s a much higher number. This is really, really tough. If you are at million dollars today and need to add an additional $1.5 million in two years, those are after-tax dollars. You probably need to make close to $3 million pre-tax so that you can add $1.5 million to your net worth. That’s a big hill to climb.

RMD: Does the new organization pay originators differently?

JM: It doesn’t really affect in our case how we pay our originators.

RMD: If you were starting out in the industry as a broker today, is it still possible to build the company into a top 10 lender as a broker in this environment?

JM: I don’t believe a broker could become a top 10 originator as a broker today.

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