Why Some Regional Banks Stick with Wholesale
Some regional banks happily stuck with the brokered-mortgage business abandoned by the largest financial institutions, saying they have the control over loan quality the big players found lacking.
"We've never lost interest," says Art Saitta, an assistant vice president and residential business development officer at Ridgewood Savings Bank in Queens, New York. Ridgewood knows its brokers and the neighborhoods they operate in well enough to feel confident it has enough control over loan quality in this channel, Saitta says.
"We don't lend everywhere," he says. "We know our community and our lending areas, and all our brokers are doing business in those areas." The bank and its brokers work hard to reach first-time and underserved homebuyers, Saitta says, but Ridgewood is very careful not to stretch underwriting too far.
Wholesale nationally has been far smaller than retail as a percentage of the market, statistics from National Mortgage News' Quarterly Data Report show. Big players like Bank of America and Chase quit the channel. At one point some even predicted wholesale's demise. It survived, though. And over the course of 2013, it gained about a percentage point of market share.
At the recent New York Association of Mortgage Professionals conference and elsewhere there has been buzz about brokered wholesale and closed-loan sales rebounding a bit, but primarily on the part of non-depositories.
"The bulk of our competitors in the wholesale market are not financial institutions, they are mortgage bankers," Saitta says. "I don't mind [the banks] not being in the business, it's more of an opportunity for us."
Banks could be doing a better job of serving borrowers and selling mortgages, he says, though wholesale may not be the answer for all of them if they lack strong local controls. He pointed to TD Bank survey data showing that almost half of borrowers did not get their loan from an institution they have their deposit account with.
"I see a shift from retail in terms of the walk-in banks, Bank of America, the Chases, individuals that go to them for loans," said Lou Borsellino, the president of the New York Association of Mortgage Professionals, during a roundtable discussion with Origination News. "I see a shift in more people going to bankers and mortgage brokers because they're basically more regionalized."
Larger banks remain wary of mortgage volume in general given legacy liabilities from too-loose underwriting in all loan channels between 2005 and 2007.
"They are not crying over lost market share," says David Lykken, managing partner of the consulting firm Mortgage Banking Solutions in Austin, Texas.
However, wholesale is a little more attractive right now in some respects. One of its traditional advantages is heightened by the shift toward purchase mortgages, which cost more to originate, and a more competitive market where lenders are more willing to lower loan prices to compete, Lykken says.
"Costs are going up, and when looking at reducing your costs, the wholesale channel is the most efficient channel. It has been for decades, and we're starting to see a return," he says.
Wholesale is an option for mortgage banks that want to cost-effectively expand volume and increase cross-selling opportunities by adding more mortgages or mortgage servicing rights, says Matt Maurer, a managing director at MountainView Servicing Group in Denver.
"Depending on market volume and comparative pricing in all the channels in which they retain servicing, they will bounce back and forth from participating in the MSR bulk and flow market to participating more in wholesale and correspondent," he says, noting that depositories have different considerations.
Below is an excerpt of the roundtable discussion, which was moderated by Bonnie Sinnock, capital markets editor of SourceMedia's mortgage publications. The panelists are Borsellino; Irene Amato, the association's vice president; Bonnie Nachamie, its treasurer; Deborah Robertson, director; and Gene Tricozzi, also a director.
SINNOCK: There has been talk over the years of wholesale may not survive. Certainly, that doesn't seem to be true. What do you see in wholesale today?
BORSELLINO: I see a shift from retail in terms of the walk-in banks, Bank of America, the Chases, individuals that go to them for loans. I see a shift in more people going to bankers and mortgage brokers and their shelves because they're basically more regionalized than local institutions, mom-and-pop shops, and they provide a different service.
We're educated a lot more. We have more education requirements. We have testing requirements that the major banks do not have. And that translates into, I believe, better service and better overall products that we can give our customers— individuals that are looking for mortgages.
AMATO: I think it is stability. You read all these articles that the larger lenders are laying off people any time there is a little shift—a little tiny shift in the industry. They are laying off 2,000 to 3,000 people. With a mortgage broker, we don't—I haven't done that through the whole course of this mortgage meltdown or anything. So we provide a service to them. We're held accountable individually for our actions. It affects not only our licenses, but our business as a whole.
So if Irene Amato promises something, Irene Amato delivers it, versus a lender that sends out an MLO and the MLO can blame the larger lender if something goes wrong. We have no—it's us. So I think the service level that we provide is—you can't even compare the two.
NACHAMIE: There has been a shift back. A few years ago after the economic implosion, I think that mortgage brokers were an easy target for people to point out and blame the world on. Yet mortgage brokers have always been resilient. I think that the pundits have come to realize that mortgage brokers do an excellent job in the communities in which they're located and provide the service, and they provide it at the least expensive cost to the consumer.