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The Death of an Industry - updated

Mortgage and Lending with Mortgage Solutions Financial

A few months ago I wrote a blog titled "The Death of an Industry".  To say the least it met with a lot of resistance from the Mortgage Broker community.  The Mortgage Brokers of active rain showered me with reasons why I was wrong.  They contended that mortgage brokers could shop for the best deal for their customers, but of course the HVCC rules that require the lender to order the appraisal cut the shopping off at the knees. Brokers claimed they could deliver loans at a lower price to the consumer.  The new RESPA rules are quickly proving a challenge to that claim!  When junk fees become part of the origination cost, it takes much of the advantage from the broker.  I have a number of broker friends that are really crying about the new GFE.  While many of us welcome the change to hold our competitors accountable, the broker community is crying foul. 

Currently mortgage broker market share stands at about 12% vs. a peak of around 69% 4 years ago.  Maybe not the death of the industry but it certainly is on life support.  In spite of these dismal statistics for the broker industry, there is a ray of hope.  The extreme contraction in the industry has weeded out the vast majority of the weak and unprofessional broker shops.  Those that remain are the cream of the crop.  They are the organizations that approach the mortgage business with professionalism and high integrity.  Most of these companies will thrive in some form regardless of their business structure.  I think there will be further contraction of the wholesale business model but many of the remaining companies will convert to mortgage banking or the net branch model.

The real threat to the mortgage broker industry is the elimination of the wholsale chanel from the remaining lenders.  There has been a virtual abandoment of wholesale for many large lenders and that trend will most likely continue.  Combine that with major movement (both from citizen watchdog groups and legislators) against the number two wholesale lender (Provident Funding Associates) and it spells trouble for wholsale supply.

I now believe that a small shell of the broker community will survive but in a sense you could say the days of the old fashioned mortgage broker are already dead!


Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

You wrote:  There has been a virtual abandoment of wholesale for many large lenders and that trend will most likely continue.

My experience is that the lack of wholesale resources is why broker are having such a hard time.  Their wholesale sources are not brokering, except to each other.

Feb 10, 2010 09:12 AM
Cari Anderson
Danville, CA

Ahh...We are alive and well.  Times are tough right now but there needed to be a "weeding out" as well as additional safeguards put in place.  The wholesale channel is a very profitable origination source if it is managed correctly.  With the MBA placing 2010 originations possibly 40% less than 2009 there will be another shakeout (NMLS will play a part as well).  The bank loan officer can be a very costly employee in a down origination market.  In addition, the non-depository mortgage banking community IMHO is going to have a very interesting 2010.  Fannie/Freddie are sharpening the knives regarding repurchase obligations.  Whether you are are correspondent seller to the money center banks or approved direct with Fannie/Freddie there is a lot of risk involved with the GSE's pushing back loans (and they will be going back many years).  You may not have to repurchase but you will have to fight. Losing Fannie/Freddie seller status is a death knell as is losing your HUD stamp.  Just today Fannie & Freddie announced they are going to be repurchasing loans directly from securitizations for loans 4 payments or more past due.  This supposed 200 Billion dollar deal may be a money saver for the GSE's overall but they will be accelerating the forensic audits and thus the putbacks.  Who knows...it will be an interesting year to say the least.  If I were a 2.5MM+ net worth mortgage banker I'd pull up stakes and take my money to a nice tropical island, sip a cold cocktail and look for the next opportunity ~Doug

Feb 10, 2010 09:26 AM
Brian Anderson
Peachtree SEO - Peachtree City, GA
SEO and Social Media Marketin

Great post on a hot subject for all of us.  Art, I agree completely with your viewpoint here.  I shuttered my mortgage brokerage -- formerly 15 employees, down to 2 as of last fall, and decided to join a Federal Charter.

This move had its pros/cons, but whether I chose "net branch", fed charter, or mortgage banking outfit...the only thing I knew for sure was that for a small, less than 50mm production brokerage the options were dwindling very fast.

Wholesale lenders who I had a great relationship dropped us, many others quit wholesale or shut down, and with new regulatory requirements it was quite obvious where everything is headed.

I agree with Doug as well....if I had 2.5mm net worth, I'd move to the USVI!


Feb 10, 2010 11:32 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Art: You are spot on. With mortgage loan originations projected to be down as much as you say, say goodbye to the small shop. Failures are projected as high as 50% this year. The net branch model is not immune either. The largest net branch company in America imploded recently. If the branch is broke ( I came from a net branch), it won't help the mother ship. In my mind, large banks or privately held mortgage bankers are all that will be left. Either that or the smaller outfits better be very well capitalized in order to ride out the storm. Up here I expect the carnage to be pretty extreme. My strong company is actively recruiting great loan officers with high integrity. We had a great year last year and should surpass this year. Perhaps there were too many of us. Either way, a weeding out is going on. I expect most of it will be done by the end of this year. Thanks for the post!

Feb 10, 2010 02:43 PM
Todd Clark - Retired
eXp Realty LLC - Tigard, OR
Principle Broker Oregon

I used to like the competition that was in the industry and though there is still some competition, with fewer and fewer mortgage brokers as well as banks I think the fees will start to increase for everyone soon and that isn't good for the consumer.

Feb 10, 2010 06:06 PM
Art Marine
Mortgage Solutions Financial - Lake Oswego, OR
Loans that Fit your Life

Thanks for all your comments. 

Doug, there is certainly one this we can agree on and that is the industry presents incredible uncertainty now! 

Brian, the USVI's are nice but I don't care for hurricanes...think I would take Hawaii. 

Todd, I think you have slightly more confidence in a regulated free market than I do.  I have seen so much sales manipulation and fraud in our industry that I think the new RESPA regulations will actually improve pricing for consumers; at least in the short run.  Even though the brokers are folding up like a beach umbrella in a snow storm, there is still plenty of competition to protect consumers.

Feb 11, 2010 03:26 AM