Several barriers restrict smaller originators from expanding their “front-end” origination fee-based businesses into larger and more sophisticated lending operations:

•  The amount of liquid capital required to establish and administer a sophisticated mortgage banking infrastructure is significant. Unfortunately for small company mortgage operators, acquiring the capital necessary to establish this infrastructure is a very difficult and time consuming process.

•  Stringent net worth and capital requirements prevent most small operators from acquiring a warehouse facility that serves any greater purpose other than controlling the origination cycle. Typically, small company warehouse facilities are neither cost-effective enough nor large enough to aggregate product for any reasonable amount of time. As such, small company lenders are prevented from recognizing any form of net interest spread or increased secondary market execution resulting from bulk sales or securitization.

The management expertise required to govern the breadth and sophistication of a full service mortgage banking operation is substantial. It is very rare that small company owner-operators possess the depth of knowledge necessary to establish or administer full service functionality.