Time For Mortgage Brokers To Pivot

Ongoing subdued mortgage originations are forcing mortgage brokers to move beyond just agency originations to other loan products such as non-QM, home-equity and investor financing. Such alternative offerings provide a lifeline to additional income avenues for originators. So, how do they do that? Megan Castleton, Chief Credit Officer at Constructive Capital, talked with our editors about this and much more. Here’s what was said:

QUESTION: How would you describe the current mortgage market?

MEGAN CASTLETON: With soft origination demand and not much optimism about the outlook for overall residential lending, mortgage brokers are in a rough market. Per-loan profits remain low as lenders continue to right-size. Margins are compressed, and competition for qualified borrowers is fierce.

That leaves some brokers searching for the next opportunity so that they can provide not only for their families, but for their customers. In this environment, brokers who can quickly pivot to meet new market demands will have the best shot at staying profitable.

QUESTION: What is the solution?

MEGAN CASTLETON: Brokers must be able to evolve, or they will wind up going the way of the dinosaur. They need to look beyond traditional agency offerings to alternative products that are in demand. This might be non-QM lending, business purpose investor financing, or home equity originations. Brokers who take the time to understand these markets can position themselves as essential partners to creditworthy borrowers and real estate investors who may fall outside the more traditional agency box.

For example, given current market trends and the anticipated ‘rightsizing’ of property values across metro areas, residential real estate investors will be well-positioned to capitalize on properties in distressed markets, creating new opportunities for Brokers to transact.

A key to Mortgage Brokers evolving is expanding their financing toolkit to serve a broader, more resilient customer base.

QUESTION: Where do you see the biggest opportunities?

MEGAN CASTLETON: At a time when inventory has swelled to record highs, opportunities are growing for investors. There is a huge aging stock of single-family homes that can benefit from residential transition loans, also known as fix-and-flip financing. We’re seeing strong demand from individual real estate investors looking to acquire distressed or outdated properties, improve them, and resell or rent them in a relatively short time frame. For this reason, the investment market represents a valuable opportunity for mortgage brokers.

QUESTION: Why is it so valuable?

MEGAN CASTLETON: With a typical refinance borrower, they are financing one property. But most residential property investors are repeat customers who acquire, improve, and unload a home and move on to the next transaction. Investors also tend to be active throughout the year and aren’t necessarily affected by seasonal cycles or interest rate swings.

In addition, investors are generally more familiar with the financing process and can be easier to work with for an originator. They often operate with speed and decisiveness, which makes them an ideal client base for brokers looking to increase their loan volume and maintain a strong pipeline. They come to the table prepared and understand what documentation is needed, which helps reduce friction and makes transactions smoother and more efficient overall.

QUESTION: Is it hard for a traditional broker to get into business purpose lending?

MEGAN CASTLETON: For the most part, there is a lower barrier for traditional brokers to enter the investor lending space. That said, mortgage brokers do need to be educated about the investor lending products, how they work, and the key drivers that determine success or failure.

For instance, the underwriting process is different than traditional loans. Real estate investment financing is asset-based, with a strong focus on property income and resale value rather than the investor’s personal income. That means brokers need to learn how to present deals that highlight the strength of the asset and the investor’s experience. Still, brokers who are willing to put in the effort will find plenty of resources and support available to help them ramp up quickly. Leveraging strong relationships and diversifying products, markets, and cost is a win-win for both mortgage brokers and wholesale capital providers. Aligning with a provider like Constructive Capital can help brokers reduce costs to manufacture loans and with technology.

QUESTION: How did you land in the investor financing business?

MEGAN CASTLETON: I left college and went to work at a bagel shop, where I met a group of loan originators who were regular customers. They recruited me to join their business, and that’s how I got my start.

During my career, I’ve worked at both traditional lenders and private lenders, and have been involved in all phases of credit, including bank lending and subprime originations. Over time, I gravitated toward investor financing, which appealed to me because it’s dynamic. There’s constant change, and you need to be quick on your feet. It rewards clarity, discipline, and the ability to make smart decisions at speed—all things I value.

INSIDER PROFILE

Megan Castleton is the Chief Credit officer at Constructive Capital, a leading wholesale capital provider for mortgage brokers and real estate investors, where she oversees credit policy and drives innovation to ensure sound, efficient lending practices. Megan has nearly three decades of expertise in credit, risk management, and fraud prevention across both commercial and residential markets. She specializes in building and scaling mortgage operations and implementing risk-based strategies that focus on maintaining credit and operational integrity. Reach Megan at mcastleton@constructiveloans.com.