In the first quarter, the market share for brokers (and therefore wholesalers) fell to an all-time low of 6.8% of industrywide production compared to 20% three years ago. But in the second quarter the broker share jumped more than a full point to 7.9%, according to new figures compiled by this newspaper and its data affiliate. Is this is aberration, or are brokers still toast? The answer to that question probably won't be decided for two to three more years, but there are a few positives in the market.
Even though B of A has exited the sector and megabanks the likes of Wells Fargo, CitiMortgage and U.S. Bank Home Mortgage showed sizeable declines in their wholesale volumes during the second quarter, others showed increases, most notably CBC National Bank, Beaufort, S.C. (up 60% compared to 2Q 2010), and Union Bank, the San Francisco-based jumbo portfolio lender which increased broker production by 40%.
Added to that select group of gainers for the second quarter is Provident Funding Associates, Burlingame, Calif., the nation's largest wholesaler with $4.5 funded through brokers in the second quarter, a 9% gain.
Of course, there were plenty of sizeable declines during the period, including a hefty 50% plunge by Wells Fargo. Although Wells appears to be committed to the channel, rumors abound that it might be the next to go.
And it should be noted, too, that even though the broker/wholesale share increased by more than a full point, the gain came in the midst of lower overall production. In other words, brokers captured a larger share of a declining market.
But give the sector its due—thousands of brokers are still active and operating despite firms like Bank of America and Wells Fargo.
And it's no secret why brokers can keep their doors open: they don't get paid unless they produce. It's no skin off the nose of the bank table funding the loans.
There are some positive developments out there. Over the past year a handful of companies and new entrants are targeting the sector, some with big plans, some with modest plans.
Companies that plan to expand their wholesale presence, if they haven't already, include 360 Mortgage Group, Austin, Texas; Total Mortgage Services, Milford, Conn.; and Carrington Mortgage Services of Irvine, Calif.
But perhaps one of the most positive developments for brokers is a new willingness on the part of warehouse lenders to extend credit to them. The movement is in its infancy, but lenders the likes of Southwest Bank, Fort Worth, Texas, are targeting small brokerage shops provided they have at least $50,000 in net worth.
According to David Frase, senior vice president of warehouse lending at the bank, the idea is to transform well-managed brokerage firms into what he calls “mini-correspondents.”
But first these broker/mini-correspondents must have a committed investor willing to purchase its production.
And these investors must be approved by Fannie Mae or Freddie Mac.
