It would appear that loan brokers can't catch a break. New production figures compiled by National Mortgage News reveal that loans funded through these third-party independent salesmen hit yet another new low in the second quarter.
Figures show that just 10.5% of all loans originated were funded by wholesalers using brokers, down from a high of almost 30% three years ago.
In the first quarter, broker-sourced loans accounted for 12.8% of new production. A year ago the number was 15%.
Lenders increasingly are using both retail and correspondent purchases to manage a nascent refinancing boom and what little there is of purchase-money loans.
But the bad news on market share is only part of the problem.
The broker niche is bracing for what the regulatory landscape might look like when Elizabeth Warren becomes the head of the new Consumer Financial Protection Bureau. (The White House has tapped Warren, a Harvard law professor who oversees how federal money is spent under the Troubled Asset Relief Program, to set up the Consumer Financial Protection Bureau. It’s anticipated that eventually she will be formally nominated to the post.)
Warren is viewed as a controversial pick by many mortgage bankers who still remember comments she made back in 2007, likening yield-spread premium payments to a “bribe” being paid to loan brokers from wholesalers. (Back then, thousands of brokers took to the Internet, asking for her scalp.)
And it’s no secret that the ranks of brokers have thinned.
The National Association of Mortgage Brokers, which represents broker interests in Washington, has seen its membership fall to roughly 6,000, down from a peak of 25,000 during its hey day.
To save money, the trade group has reduced staff and recently jettisoned its permanent headquarters in suburban Virginia.
Still, there’s hope for the sector—that is, if you listen to National Association Mortgage Brokers chief executive officer Roy DeLoach, and Marc Savitt, a past annual president of the organization.
Savitt, who runs a small brokerage operation in West Virginia, believes all the “bad players” are out of the industry and welcomes new testing and licensing because it will result in a smaller industry—but with professionals who “know what they're doing.”
“Back in 2000 everyone and their brother was jumping in,” he said. “In most states you didn't need a test and look what happened.”
Savitt believes that within a few years the nation will actually face a housing shortage because of a lack of homebuilding that is not keeping pace with population growth and demand.
“I think eventually you will see a resurgence in the broker industry,” he said.
Both he and DeLoach claim depositories are showing a renewed interest in the wholesale channel because it doesn't involve the brick-and-mortar costs of retail.
DeLoach thinks his trade group’s membership has bottomed and says it’s starting to pick up again.
He is hopeful that new regulations coming next spring will actually ease up on broker compensation.
“At the Federal Reserve there is a rethinking of on how brokers can be compensated,” he said.
But DeLoach is hopeful that federal pre-emption changes under the Dodd-Frank bill could have the biggest impact.
“The federal pre-emption for operating subs will disappear,” he said.
“For banks, that means they will roll up these entities and that will put [loan officers] sitting on the books of these institutions each month.
“That could get expensive and force them to change the way they originate loans,” said DeLoach.
In short, the National Association of Mortgage Brokers executive expects federal pre-emption will spur more banks to rethink how they fund loans and return to, or increase their presence in wholesale where brokers ply their trade.
