I believe that 2014 will be the year when mortgage broker relevance reemerges and broker-originated mortgage loans reclaim at least a 20% market share—a threshold that signifies that they have once again become a force in the market. At this level brokers will have broad market visibility, the ability to leverage the tremendous power of word of mouth and social media endorsements needed to satisfy consumer’s shopping predisposition.
The mortgage brokers’ share of loan originations reached a high of nearly 80% in the middle of the previous decade. Then there was the housing bust, the mortgage meltdown and major market and regulatory restructuring. The result was an almost instantaneous collapse in brokered mortgage loans to just 5% of the market. But as the market has regained a more solid footing, the market share of mortgage brokers has steadily increased to where it now stands between 12% and 14% of the overall residential mortgage loan market.
For mortgage brokers to be relevant they must be visible and active in sufficient numbers in their community and able to compete for a majority of all potential transactions. Reaching the 20% market share threshold is the tipping point where the natural advantages of brokers become undeniable, and even more importantly, it is the point from which accelerated growth will occur.
Many successful originators who built their careers working as mortgage brokers are returning to this business model. When new regulatory and big bank requirements made the brokerage business extremely difficult several years ago, there was a rapid exit by originators from broker shops and the conversion of broker shops to correspondent and retail branch structures.
However, the loss of autonomy, the clarification of regulatory guidelines and the emergence of efficient and supportive wholesalers has led to a reversal of the flow. Despite serious new challenges arising from new regulations taking effect in early 2014, broker employment totals are growing as entrepreneurially minded mortgage professional return to the origination model that many prefer.
Let’s dig a little deeper. In late 2012 Wells Fargo became the last of the mega-banks to leave the wholesale market. Since then smaller depository lenders including EverBank and SunTrust have also left the space. With the departure of these banks, a new group of mid-tier mortgage bankers has emerged to fill the gaps and service the remaining mortgage brokerage firms and their customers.
While one might have expected that the loss of the major banks would have resulted in a decline in broker market share, in fact; broker market share has continued to grow unabated. Why? Here are the reasons why I believe broker market share has grown and is poised for even faster growth in 2014.
No originator is as “close to the customer” as is a broker. Yes, bank loan officers and retail branch originators may work and live in the same community, but the mortgage broker is an entrepreneur who is totally dependent on, and invested in, his community for his livelihood. Consequently, you find that mortgage brokers tend be actively involved in their communities as volunteers in such capacities as youth sports coaches, civic club members and religious organization participants.
When it comes to making decisions about the largest asset and largest debt of their life, consumers have demonstrated a preference to work with people they know, trust and respect. Moreover, the traditional broker advantages of maximized choice and superior value continue. As the unwarranted stigma that surrounded mortgage brokers over the past few years has lifted, American consumers are re-embracing the professional mortgage broker/originator as their preferred choice for mortgage advice. But there is even more to the explanation.
Many top originators prefer the freedom that the brokerage model provides them. It enables them to build and manage their business to best serve their customer’s needs. With the mortgage origination business still so dependent on personal, face-to-face relationships, many originators justifiably believe that they need to control as much of the process as possible if they are to remain accountable to their customers.
Dedicated Wholesale Lenders
Yet these brokers and returning brokers must have partners in wholesale lenders who have access to the agencies, the financial resources to remain stable and even to pursue new non-Agency business, and have unquestionably efficient, compliant operations platforms.
If you compare the list of the top wholesale lenders from 2007 to today’s top 10 list, you will find virtually a 100% change. Additionally, of the top 10 overall residential lenders in 2010, nine were involved in wholesale lending. Today, none of those lenders are involved in the wholesale lending business. Some were forced out of business and others voluntarily took themselves out of business.
In their stead has emerged a group of mid-tier, primarily non-bank lenders who are a mix of multi-channel originators and wholesale-only (or primarily wholesale) originators. What separates this latter group is an unwavering commitment to the wholesale channel and the business of professional mortgage brokers.
Such dedication and passion for this way of doing business has led to innovation in both style and substance. Today’s top wholesale mortgage bankers are lean, efficient and technologically leveraged organizations that have re-engineered the underwriting process to save time and improve service levels. Never before have the two parties—brokers and wholesalers—been so reliant on one another. Nor has the partnership between them ever been more beneficial to consumers.
Therefore, this will be the year that mortgage brokers regain relevance thanks to partners committed to supporting them and customers who value their personalized service. The best news of all for brokers is that the 20% market share that I believe will be reached this year may only be a fraction of what they will achieve in the years to come.
Al Crisanty is vice president of national wholesale production for 360 Mortgage Group, a privately-owned mortgage banker, with a 100% focus on third party origination. Crisanty is responsible for overseeing regional sales managers. He may be reached by phone at (916) 761-1624 or email him at email@example.com.