Broker Rebound Expected to Continue
The mortgage broker pool is increasing and is likely to continue to expand in 2013. But rising rates and uncertainty about compliance burdens could put a halt to that, said some industry experts interviewed by Origination News.
A trend that technology provider LoanSifter has seen from its own data is that the number of brokers who are the company’s customers has increased in the last 18 months, which its vice president of business development Mark Coupland sees as a sign that this channel is starting to revive.
Prior to that time, as a result of the bust, the number of brokers in the system declined. But in the past year-and-one-half the numbers have doubled, he said.
And in 2013, Coupland sees the number of brokers continuing to grow. Now that wholesalers have compliance and controls in place, this channel is rebounding.
Related to that, new investors are coming to LoanSifter asking to be added to the platform so mortgage brokers or those who sell whole loans servicing-released can use the system to price product.
With the continuing regulatory changes impacting the market in 2013, midsized wholesale or correspondent lenders will benefit and have a competitive advantage because they are more nimble and able to react quicker to the new conditions, he said.
LoanSifter has between 160 and 170 wholesale or correspondent investors displaying products on the system.
Furthermore, these investors are putting products in the system where they would be able to retain the servicing rights themselves and benefit from the better secondary market execution from selling to Fannie Mae and/or Freddie Mac and from annuity servicing fee income, Coupland said. In the past these companies would sell to other mortgage bankers on a best-efforts basis.
Furthermore, rather than having to set their organization up with different overlays for different aggregators, selling direct to the agencies requires just one set of guidelines, he pointed out.
But challenges remain for 2013, including repurchase risk involving older loans. Trumping that is the uncertainty of the future of the government-sponsored enterprises.
Regulators are trying to take actions to encourage the return of private capital to the secondary market, but so far have seen no success. Coupland added that at the end of the day, the borrower is the one with the most to lose because of the increase in pricing.
With the government having its hands in so many pieces of the pie (including the Federal Reserve Board’s purchases of mortgage-backed securities and the HARP program), not knowing what direction it will take is creating more uncertainty for the overall market.
The chief executive at Fairway Independent Mortgage Corp., Steve Jacobson, has been in the business for 29 years and “every year it is the same, you never really know what is going to happen. It is so predicated on interest rates and how that plays out.”
The people he has spoken with feel that rates will remain low in 2013, and if that happens it will be another good year for the mortgage industry and the company. The Mortgage Bankers Association has predicted a strong refinance market for the first half of the year, but a strong drop off in the last six months.
Fairway Independent, Jacobson pointed out, has primarily target marketed to first-time homebuyers. And at a time when MBA survey data show refi apps still above 80%, the company’s split in activity is 55% purchase to 45% refi.
One branch has done over $100 million in production three years in a row and 95% of the business is purchase. So given that first-time buyer focus for some of Fairway’s branches, higher rates might not have a big impact.
Jacobson reminds people that in late 2011, the predictions for 2012 were similar to the ones being made for this year; a fall-off in the second half in volume. Because of record low rates, that did not occur.
“For me personally, I always look at four months of the year. How can you do in November, December, January and February? Because those months are always the tough months,” he said.
So far, lenders have had a strong November and December and Fairway’s locks for January are looking good. “I’ve always looked at this business month-to-month,” Jacobson said, an attitude with a lot of validity with all of the uncertainty in the marketplace.
But if the proper groundwork is laid and a consistent marketing plan is in place, originators will attract business no matter the interest rate environment, he continued. These are the things the originator can control, unlike rates.
“What do you want 2013 to be for you? Where are you at and how do you get your business? What are you doing about it?” Jacobson asked rhetorically.
David Zugheri, co-founder of Envoy Mortgage, started off half-jokingly saying, “2013 is going to be fun, because nobody knows what to expect.”
Building on what others interviewed for this article have said, a lot depends on interest rates and in recent years industry forecasts on the movement of rates over the coming 12 months have been “way off.”
In his view, industry production should be relatively flat for 2013 compared with 2012, but the mix will shift to a greater share of purchase loans versus the current predominance of refinancings.
Like a lot of other retail channel producers, Envoy is expecting business to improve. It is a lay-up for everyone to say the purchase market will improve in 2013, he said.
In preparing a business plan, it starts at “the lowest common denominator,” the originator and branch level and works its way up through the company to get the number to develop its business plan. Future growth and attrition is figured in, as well as company historical data.
Envoy is 15 years old, going on 16, and historical numbers play a role in developing the budget and forecast plan.
And plans are for the company to continue to grow. “You’d be hard pressed to find a retail origination outfit which would not take a solid producer, regardless of the marketplace,” Zugheri declared. A top producer with a good, clean book of business will not be turned away.
But what is gone from retail branchers is the mentality of if you build an office, the producers would just show up.
John Walsh, the president at Total Mortgage Services, said the company did record volume in 2012, but it was mostly refis and those are going to stop.
Rates will start to rise in the second half of the next year, possibly even sooner and Walsh said he is not sure all lenders are prepared for that. TMS has put a focus on purchase marketing, including its entrance into wholesale channel, which he termed as being a hedge against refis.
The rising rates and lower volumes will result in the mortgage industry contracting once again. What makes the business difficult is that is so difficult to predict production, he said.
TMS is also working on improving operations and technology as it looks to cut turn times. “Service, at the end of the day, always wins the day,” Walsh said. Service levels will help determine who will survive and prosper.
Another trend he sees is the graying of the mortgage industry. As people get older and leave, there are no younger people coming in to replace them and that will be a challenge for mortgage bankers in the future, he warned