The Rise and the Fall of the Mortgage Broker in Three Data Points

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The rise and fall of the mortgage broker in the mid-2000's can be tied to one product: subprime mortgages. Wholesalers and investors were willing to pay more for these loans than for FHA and conforming mortgages and many loan officers came into the industry seeing subprime as a way to make a quick buck.

But to truly understand how brokers rose to prominence, it is helpful to look back to the broker channel's beginnings, when it emerged in the late 1980's after the thrift crisis. Here's a look at three data points that sum up the rise and fall of the mortgage broker.

No. 1: 29%

There was steady growth in broker employment during the period from 1990 to 2001. While the share of mortgage brokers to total industry employees remained at a steady 21% to 22%, the raw number of loan brokers hired kept increasing according to Bureau of Labor Statistics data.

"I think it was the personal service offered by the broker that was the primary factor," for the sector's growth, versus the "crystal glass cage atmosphere" of going to a bank or thrift to get a loan, said Bob Armbruster, who was president of the National Association of Mortgage Brokers from July 2004 to July 2005.

And as subprime lending increased, so did brokers' share of overall industry employment among nonbank origination shops, eventually peaking at 29% between 2005 and 2007.

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No. 2: Six

But the growth of subprime lending attracted a whole new element to the mortgage broker sector. Subprime lenders saw wholesale originations as a convenient way to market a product that filled a need for some consumers. But the attitude among many newer loan officers was that they could make a lot of money with subprime, and that was their primary motivation, Armbruster said.

By 2005, the peak year for subprime lending, six of the top 10 wholesale lenders were also among the top 10 in subprime originations, and eight of the top 10 wholesalers purchased at least some subprime volume from brokers. Total subprime volume that year was $807 billion. At only one of those lenders, Wells Fargo, the wholesale channel did not account for a significant portion of its subprime production.

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No. 3: $586.3 Billion

Just two years later, the subprime bubble burst, with volume plummeting to $142 billion in 2007. In 2008, subprime lending totaled $15 billion. At the same time, broker employment fell, dipping below its 22% historical norm in 2011.

But brokers have slowly been replenishing their ranks. In 2015, the annual average number of broker employees was at its highest point since 2007. This resurgence is because loan officers no longer fear new regulations that could stifle their channel of the industry, said Mat Ishbia, president and CEO of United Wholesale Mortgage.

Brokers have a future, Ishbia said, because brokers offer consumers a better combination of lender, loan product and pricing options.

"It is the best place for a loan officer to be for those exact same reasons. They can make the same, if not more money, as a broker, they get a better deal for their consumers and they give better service to the real estate agents they work with," he said.

Still, there is much work to be done if broker market share is going to rise to the 20% to 25% that Ishbia projects the channel will reach by 2020.

Since the start of 2013 through the end of the first quarter this year, brokers have originated $586.3 billion in mortgages, which accounts for 11.5% of the overall market during that time, according to National Mortgage Licensing System and Mortgage Bankers Association data.

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