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Are Loan Brokers A Dying Breed?

If we believe what we read from various sources loan brokers are facing a bleak future.

A number of reasons are often cited: restrictions on yield-spread premium payments, new national registration requirements and licensing costs, and a general lack of interest on the largest remaining wholesalers in growing their broker channels.

According to one source the number of brokerage firms could be down to 15,000 from a high of 54,000 three years ago. Let keep in mind however, that many brokerage firms are small "mom and pops" employing less than five people, and sole proprietor operations.

There is a ray of hope however in the industry's future. The main reason is costs.

Brokering is a form of outsourcing for lenders; it costs the wholesaler nothing in terms of fixed salary costs, etc. Keeping full-time loan officers is expensive. When a brokered loan doesn't close the broker doesn't get paid by the wholesaler. Time will tell if better quality control systems will give lenders the level of confidence needed to reinter or expend their current wholesale channels.

Until then, it is going to be "a survival of the fittest"

Guy Barre

Senior Mortgage Advisor

guybarre@gmail.com

Office: 310-454-6061

Cell: 310-849-3656

Fax; 310-459-07683

In California www.jumboloans.com

Nationwide www.realprohomeloans.com

Posted by Guy Barre, MBA on 10/15/2009 04:05 PM

Comments (46)

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46 Comments on Are Loan Brokers A Dying Breed?

OCT

Guy...

I think this will blog post is going to spark a lively discussion. I learn so much from discussions like that :)

TLW...ROAR!

I have been a lender for 40 years and sometimes throw up my hands and ask "Why?" Between Congress and horrible underwriting - plus many banks trying to squeeze out brokers it is difficult. But, We will remain !

I would like to see a lot more transparency across the spectrum when it comes to loans: bankers, brokers, banks, so a consumer can easily compare providers. A consumer can easily ask a real estate broker: What is your fee and you get an answer or it may be negotiable, but at the end of the conversation, a home seller knows what their offering will cost. I wish the same were true for loans. This is why I would hope the whole UMB (Upfront Mortgage Broker) concept would really take root.

I don't know. I do know that in the fields, it's so hard to get a deal closed with them right now. I've had 3 now take 3-4 weeks just to get an appraisal because of the HVCC ordering system. I've got 1 being delayed because of the TILA law, thereby causing a pileup of 5 contingent closings. I love my mortgage broker, I do. But even I'm thinking about sticking with banks, it's just so hard on everyone when things go south because of the ridiculous underwriting requirements and governmental interventions right now. I know in theory it's supposed to be protecting the buyer, but tell that to them when they lose their dream house because of the rules, or pay out the wazoo for a closing delay.

I am part of the dying breed. The banks are not required to play by the same rules we play by. We are good for the customers, we assist them in getting better terms on their loans even if they do not choose us. Our proposals strike fear into the hearts of the banks. They can't match us and they won't provide the level of customer service that we do.

Guy,

I started in the Mortgage business 11 years ago. It was complicated at first, learning the law, RESPA, underwriting etc... These days it's a flood of seemingly non-stop changes. As soon as we get the latest updates, there are new ones. Some of the changes I applaud. Holding people accountable to do things the right way is time, money and energy well spent. I just tend to think some of the changes are punishing good lenders for what was outright fraud by the bad ones. Enforce the laws, regulate within reason, but some of these cures may kill the patient.

Dan

I was in that business about 12 years ago to become a Realtor. I don't miss it.

Guy,

My heart goes out to you. I am a mortgage banker, yet I sympathize with what "over" regulating is doing to the mortgage broker world. Don't get me wrong... as mortgage bankers, we are also having to adjust to rules (often ones that we question the consumer benefit, to be honest).

I am a believer that competition is good. We need you!

I was wondering just the same today. But with change comes innovation.

i started 30 years ago. there were not any mortgage brokers, and then there was, and now not so many.

if the market needs and desires them then they will be, if not, they will not.

Guy,

The broker will survive. The cost factor plays a large role in that and it's a well-known fact that healthy competition will provide the best service and reasonable loan costs for the consumer.

hmmmm i dunno and my response may not be like by brokers.

keep in mind that i speak from my own experiences.

i don't use mortgage brokers. i see no need for them. i see no need to encourage my client's to pay their fees and i don't trust them. maybe i've had a few bad apples that left a bad taste in my mouth. but their bogus charges, meaningless jargon that only means my client's home won't close and haven't closed (except once) has left a very bad taste in my mouth. whenever i hear the term mortgage broker, i cringe. there may be really good ones out there but i haven't met any. keep in mind that i've only been licensed for 5 years but my experiences with them have been enough for me. i have a relationship with a bank that i have been using for the last three years. my loan officer is a god send. the banks charges are never outrageous. my clients receive great service. and i have not had a deal fall apart because of financing since i've been using them.

if someone can change my mind about brokers. please do because i really dont like to think negative thoughts about providers in this business that i love so much.

Guy -

There will always be a need for the best brokers - so these times weed out those less competent, or solely in it for the money.

Things will eventually equalize!

Thanks for the share!

DEAN & DEAN'S TEAM CHICAGO

I hope Dean is correct. The brokers that I have used are still able to close loans on time.

OCT

And the amount of funds the mortgage broker will need to have (FHA requirements) in their own reserves is going to go from $250,000 to $1M. A lot of little outfits won't be able to deal with that at all. Personally, some of them helped dig their own grave.

I believe mortgage brokers will continue to be around because they provide real advice to borrowers who really need it. Big banks do not care. Bottom line.

If its up to the big boys brokers are like a well hit baseball. Outta here! In my opinion brokers service is 200% better than most big bank LOs.

I feel your pain. My firm, Commodore Property Group, is both a real estate and mortgage broker in NYC. (Mortgages via Commodore Mortgage Group) Our mortgage business has been squeezed by lenders and regulators for the last 18 months. Many of the major banks have stopped doing business with smaller brokers, and the Feds and the states keep changing the rules. We have limited choices for coop mortgages, and can't get jumbos at reasonable rates (in NYC, we need both jumbos and coops). I am glad that we opened the real estate business a few years back, because the number of mortgages that we are able to originate has gone from a flood to a trickle.

The only way they will go out of business is if the government puts them out of business by passing regulations, laws, etc.

I was considering getting my license next year but all of this debate lends me to think I'll stick what what I know best. There seems to be so much turmoil and uncertainty in the lending industry. it will be interesting to watch it evolve and see how my contacts fair.

I heard something like this in the HUD class that I just took. We were told about all the new disclosure laws and how difficult it might be for brokers

Times for sure are tough for the mortgage broker. I believe PMI Mortgage Insurance Company will no longer insure mortgages originated by mortgage brokers. If FHA requires the minimum net wort requirement of $1 mil it will for sure eliminate many of the mom and pop shops. (Although that net worth requirement does include assets)

I have had a few of my mortgage broker friends move from their own shops to Net Branches of a large Mortgage Bank in order to not get snuffed out by regulatory changes. It is a difficult arena to be in right now and I applaud those that have been able to survive!

Guy: Thanks for the post. I agree with Esko. I think brokers will always be around. Perhaps a thinning of the ranks was needed. What we have left for the most part are the true professionals who are working in the client's best interests. Berfore, I'm not so sure. There were too many loan officers where it was just about the money. Thanks again!

We'll still be around. We might have a few new rules to deal with but I'm confident there is a place for us. I don't plan on going anywhere.

I truly believe that those of us who make it through this witch hunt will be that much better and that much stronger. My clients believe in the service I provide them and my 4th and 5th generation referals speak volumes to that affect.

Dee, it sounds like you've had a bad experience with brokers. I can tell you that a good part of my business is fallout from local banks and credit unions. I suspect you're probably leaving money at the table by not having a relationship with a broker.

I think correspondent brokers have a better chance of surviving then mortgage brokers. If I have a client that is working with a mortgage broker, I suggest they get a second opinion from a mortgage lender or correspondent broker. Too much risk working with a mortgage broker these days.

I've had the experience of working in 3 different kinds of lending environments. I started as a retail Loan Officer, selling only my company's own products & limited to their own guidelines. I lost more than a few loans to brokers with better pricing or the availability to obtain different products that were a better fit for the borrowers. As part of a larger company, things did not move as fast as they could, either, but I closed a good deal of loans, due to the ability of my company to provide a lot of leads.

Then, I decided to go to work for a local office of a small regional mortgage broker operation. With access to over 100 lenders' programs, & direct pricing, I had it all. I could offer almost anything a borrower would need. Of course it was a steeper learning curve, - needing to know how 100 places worked instead of one, but having the ability to find the niche product for the borrower allowed me to get the deals done. Of course, I was on my own to find almost all of my business, because the smaller shop could not or would not support us with any leads or marketing.

With the advent of the "new mortgage market" things have changed. Stated income, bank statement loans, no-doc, no ratio, piggyback, 100% financing, etc is mostly gone. Products are actually much simpler now, & the need to find those niche products has evaporated along with the main advantage of being a mortgage broker.

I now own & operate a branch office for a national direct lender. As a mortgage Banker, I am back to mostly offering only our own products, with the main difference being that I now have the same products ( for the most part ) as everyone else. Brokers dealing with wholesale lenders no longer have any real advantage, & in fact, I believe are at a competititve disadvantage because many have little to no control over the process flow of their loan applications. Wholesale lending & third party origination is shrinking fast, & new regulations are putting the squeeze on brokers. I find I can offer superior service to my borrowers & my referring RE agents, because I am not dependant on a third party company, & just waiting in line like everyone else.

Now that I've 'tasted' all 3 of these ways to do business, I am very happy to be where I am. I know several people who still work as a broker, & they are losing wholesale lenders quickly, & are worried about the new rules. I don't mind competing with LO's from banks, big or small, because I think we offer a faster turnaround & often the same or slightly lower rates.

It will be interesting to see what the industry looks like in a year or so, but I know we'll still be here. I think brokers will too, but there will be fewer still.

I really do believe that most brokers will be closing their doors there is too much against them the amount of work to do a loan and disclosures and paperwork as compared to doing a real estate transaction is unreal. The banks the big three I think had some influence on this and have more now then they did before.

I feel its going to swing all the way to one side then after some time and it will come back to some kind of middle ground but for now hell its getting to be too much of a hassle to do loans.

And that whole upfront cost thing, real estate transactions can take so long that the loan locked is worthless and then if you go back and try to relock it will cost you the broker then you try to pass it on to the client they freak out.

I can go on unless you have done loans before you really have no clue of all the hoops the loan officer goes through to make sure it closes on time and gets the rate as promised to the client some loans are slam dunks nothing but a walk in the park and others some serious stress.

Although so many bad apples screwed this up since it was so easy to get in the business although now that is changing but a day late and a dollar short and all the good ones will suffer and have to endure the changes.

I am one of those mortgage brokers that is now a net branch of a mortgage banker. It is interesting the range of comments concerning the service provided by banks and brokers, Some say banks are great, some say banks stink. Some say mortgage brokers are great and others have had awful experiences. I think it is good that the amount of mortgage brokers have decreased. Many were in it for the quick buck. If they came across a loan that required a little more effort, they lost interest which I think explains the frustration that many realtors had with mortgage brokers. Hopefully those people are gone.

Many of the new regulations are not going to hurt mortgage brokers, but the consumer. It just adds time to get a purchase to the closing table, which affects everyone. It just makes an already complicated process more complicated without really helping the borrower.

While many things are changing, I think the strong and honest will survive. If you take care of your clients and referral partners and do things the right way, you will survive.

I think that the personal touch and need for relationships will keep the brokers alive!! Not everyone is a big bank website shopper!!

I am an LO with a large lender. I have come from the Broker world long time ago and there was a time and place for them. However, replying to some of the comments in here about better terms and rates come from brokers, is not true anymore.

1st) For the most part wholesale lenders are not providing the turn times for brokers to compete with lenders,

2nd) Wholesale lenders don't trust their brokers anymore due to the large losses they have incurred (ie: Taylor Bean & Whitaker). They are looking for anything to deny the loan. I have experienced this first hand. My team receives at least 4 deals a month from broker/ wholesale fallout. Once I look at the reason, it is something very minor and can be fixed to approve the loan.

3rd) As of a year or two ago, most lenders changed their pricing models allowing their LO's to crush brokers on rates and fees. I know because I have seen this first hand and I am in a way better place than my local competition. (ie: Better rates, better costs, better turn times, better service)

My personal opinion is that as broker, you are in a much better place to accept that the market has changed and change with it. Banks are not bad and believe me, there are 100's of lenders paying more than your wholesale lender and also allow you the ability to provide superior service to your partners and clients. The grass is really greener on this side. The problem is that most are resisting change.

One more thing in response to someone who stated "BANKS DONT CARE".. That is not true. Service in this business comes down to the individual Loan Officer. It is really not even a accurate idea to say that "banks" are the enemy. LO's are the enemy when they fail to provide service and conduct themselves unprofessionally.

I am a real estate agent and a loan originator and I have seen firsthand the banks lower their pricing to the point where they can almost match my rates and terms. I would not be interested in being a loan originator at the point whre they can easlily match me as a stand alone business, but, in conjunction with real estate, it allows me to give full service to my clients. As to all the new regulations, I see no problem with them. I just think it would be only fair if all the regulations and licensing requirements applied to the loan officers at the banks as well!

Jirius, my professional opinion is that you are better off doing one thing. For the most part, consumers don't like the idea that you may be making $$ on both ends. B) You can likely double to triple your income if you put all your efforts into the real estate side and let a LO do the loan work for you. C) Not that the banks have lowered their rates to isolate you rather they are now paying experienced LO's the money they merit on their sales, customer service and professional skills. There was a time when the lenders did not pay experienced LO's well. They have now switched gears and understand the importance of a true salesperson and professional. Our rates pay more than a wholesale rates by 1/2 to .75 percent more on the same given rate. This allows us lenders to extend lower rates and make just as much if not more compared to a broker.

However, we all need to be clear.. Rates and costs are not everything. If you truly have no sales skills andreal knowledge of the mortgage industry, your days are numbered no matter what.

These things run in cycles. Brokers will make a comeback. They are an important part of the business.

Ted, I repeat that 2-3 years ago there was such a spread like you are talking about. But today, the loan officeer at Wells Fargo can and does often match my rates. That Is happenning here, but maybe not where you are. And I do not do both jobs to make more money, but to have control over the entire transaction whenever possible, It is better for my client as they only have to deal with 1 person. And better for me since I do not have to depend on the loan officers schedule.

Personally I don't think the mortgage brokerage community is going away. My hope is the bankers will be required to disclose like they are pushing the broker to do so there is a level playing field.

Fees are not the issue when a client chooses to work with a broker or a realtor or a doctor or a lawyer. They choose to work with a professional because they have a good reputation and they exceed expectations. If you want to buy fast food you go to a drive-thru. If you want a good steak, well you get my point.

Brokers will stay in business because, in theory, we are the professionals that take our borrowers to that next level of service. I'm not saying bankers can't do that, but they're working with volume numbers, for the most part, and really don't focus on the "relationship" end of the spectrum. I know there will be disagreement with this, and I'm not trying to turn this into a "I'm better than you," discussion.

Despite what Mr Barney Frank desires, brokers will continue to do business. There may be some new rules and some changes in the way we do business, but the YSP changes, TIL changes and every other change they are proposing will also have to be maintained on the banking side too.

I agree that brokers will not go away and they shouldn't have to. However, if you are a broker, you will find it pretty nice on the lender side. TRUST ME!!

Scott, you are correct. People like doing business with people that they like. SIMPLE! However, you are wrong about bankers. I do not have to do volume to make my living and my relationships are very very important to me. My business is all about my relationships, that is why I work for a lender now. I can close FHA loans in 2 weeks time (Not kidding). This allows more time for me to strengthen my relationships vs. chasing down paper and waiting for the wholesaler to make up their mind. We should probably mention that I am a correspondent lender which is the best of both worlds.

Mortgage Brokers are a dying breed because of the consolidation of the banking system and tightening lending requirements. I see many Mortgage Brokers having a harder time closing loans because their lending sources are becoming more and more demanding and capricious... In contrast to the lax lending practices during the boom...

There's a lot of banter about broker versus banker in the thread - and it's really not a valid comparison nor necessary. It's the individual loan officer that makes or breaks the deal, not the company they work for. There are plenty of pros working at credit unions, banks, mortgage banks, and broker shops that all close on time and provide a valuable service. There are also completely amoral, unethical, clueless morons working for all those entities. You just need to figure out who's who.

To Ted, and others who have said brokers are slower than banks or the fees are higher - it's just not true. I broker 100% of my loans and I too can close a loan in 2 weeks Ted. The brokers who are late (this is for Sheree at Realty World Alliance) with their fundings just don't know what they are doing and/or work for a small mortgage banker that has limited lines of funding.

Regards broker fees being too high - what's too high? I can make my fees whatever you'd like. I may have to rebate some to cover the hard costs but the fee argument is smoke and mirrors. You need to take the interest rate and lock period (and whether the loan can close on time) into consideration along with the fees. Often time a higher fee/lower rate loan from a broker is much better for the client.

The height of the refinance market collided with the collaspse of the warehouse lending business and I watched online (our firm runs a national lender and realtor forum) as loan officer after loan officer drove their clients into the quagmire that was Wells Fargo Wholesale, Titan Wholesale,and a cast of other funding sources that went to 60 days on their Underwriting turn times. All the while the professional broker easily moved his or her pipeline to those wholesale lenders who were properly managing their process.

I never once had a refinance go beyond 30 days. How do I know? I lock all my applications upfront during the initial application and I never lock for more than 30 days. ALL closed. I think the longest Underwriting time I had during that fiasco was 7 or 8 days - but only because I watched and paid attention to what was going on in the marketplace - like the rest of my coleagues did.

In full disclosure I am both an origantor and a national recuiter for First Priority Financial out of Northern California. I mention that because, Ted, you almost sound as if you have a similar function for Academy. We are still 90% broker and we have new branches being added on a weekly basis. I say this both because I'm proud but also because I think the topic headline should really read "is the small mom and pop broker a dying breed?" That may well be the case as the wholesale lenders are definitly prefering to work wiith brokers that have an actual balance sheet with liquid assets.

Dee in Philidelphia - sorry you've been burned in the past by brokers. In a national forum like this you are going to be able to find validation on both sides of the argument. I can tell you that I spoke to a prospective employee today who is coming from Bank of America and he said he was dying because they "couldn't approve a loan if their life depended on it." Do I think that's true? Of course not! Banks are funding loans ever day and have plenty of professionals within their organizations as well. What I'd like to suggest is that it is the individual loan officer who makes the difference, not the company behind them. When I worked for a Savings and Loan (remember them?) I very comfortably told clients that an S&L could smoke a bank or broker. Then when I went to work for a mortgage banker I said the same thing. Now that I am a broker I can say without a doubt that this business model affords my clients the lowest cost, quickest, and most professional means of obtaining a home loan. I have affirmation of that on a daily basis as I watch other people's deals fall apart or close late. Here's the kicker - if I went back to work for BofA what do you think I'd feel? That's right - wherever I AM is the best option for the client.

On a final note - there's a big difference between a "bank" and a mortgage banker. Both entities may calll themselves a "bank" but in my opinion only the depository institutions like Bank of America and Wells Fargo are true banks. The non-depository mortgage bankers are really just high level brokers who have accepted additional business risk by Underwriting and funding their own loans. While banks are pretty stuck in the mud a large mortgage banker can be a very efficient and flexible mortgage lender.

Sorry for the rambling reply....I get pretty passionate about this subject. I've been lending in various forms for 20 years and I'm not worried. HVCC? Funny, my appriasals have been fine and in some cases faster than before HVCC. Go figure! MDIA and Sheree's broker who had a closign held up due to a bad disclosure - well, shame on the broker. Should have got the TIL done right and then there's no problem.

I do appreciate all the brokers who have trown in the towel though. It leaves more business for the rest of us!

What is evident for me in reading all this is that it is the person you are dealing with that makes the difference, rather then where they work. And just for clarification purposes, let's talk the same language so that non loan originators can understand the dialog here. I am now a broker, and I have been a mortgage banker as well. As a mortgage banker, I can use my company to do the loan as a correspondent lender, and then sell it to a bank. Loan officers that work at actual banks that have places where you can actually have a checking account, etc. Note the clarification above from Michael, he is right on in his analysis.

One of the problems I have with the guys that work at an actual bank is that they are excempt from all the regulations that brokers and mortgage bankers are under. I would love to see this change, but the banks just have a lot of clout and do not want to be regulated.

OCT

I was just reading the new FHA guidelines last week and there was some comments on them trying to squeeze someone out. I wasn't really clear on what was going on, but I got the drift of your post. Brokers out. They've said it before and you guys are still here!

Mike.. Spoken as a true professional. You are a rare bird my friend. I remember when I met LO's before getting in business, and there was certainly some serious professionalism. Can tell you are one of those guys. If you haven't noticed I am not opposed to brokers (use to be one). I just do not see a reason to be broker anymore but that is my preference. I am not a recruiter, I have my own team. I rarely do apps these days thats all. Mostly marketing and education.

OCT

I am glad my blog sparked so many comments expressing such a wide range of opinions.

Your comments touched not only on the subject of the future of mortgage brokers but also on the relevance of the mortgage brokerage function as a delivery channel to consumers in this post subprime debacle world.

Some of you gave opinions not only on the industry in general, but also on mortgage brokers. Depending upon your own experience and biases, mortgage brokers were either defended and praised, or blamed and chastised. Some of you made blanket judgment, and even expressed doubts on the personal character of mortgage brokers in general.

In California, a mortgage broker typically holds a real estate license, and he or she is subjected to the same continuing education requirements, standards of conduct and code of ethics expected from any licensed real estate agent or broker. The industry attracts people with a wide range of experience, education, background, and values. It is not unusual to run into someone with no formal education, or someone with advanced university degrees. Some originate loans as independent mortgage brokers, while some work for banks, or large retail mortgage lenders.

Independent mortgage brokers, also referred to as third party originators, provide a critical function to consumers. They offer not only a choice of various loan products (which is a distinct advantage from most retail lenders) but they also deliver added value in the form of professional advices, and practical solutions well before the loan application is submitted to the selected lender, thus reducing the possibility of loan rejection.

Product diversification and service is what I believe the mortgage brokerage profession offers to consumers. Time will tell what will become of the profession. What is certain, however, consumers will lose if what is left is a cartel of a few large retail lenders

OCT

Thanks Guy for a most interesting post, and the comments were also educational. No need to repeat the same viewpoints - but I agree, as a mortgage broker, we need to be "nimble" to adjust to the changing landscape. I also believe there will always be room for the professional, caring L.O., who offers complete transparency. I applaud many of the changes being made industry-wide.

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