Why the mortgage broker channel has been gaining momentum

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United Wholesale Mortgage's recent move to go public via a merger can in part be attributed to its fierce competition with primary competitor, Rocket, which recently staged an initial public offering and renamed its third-party originator channel Rocket Pro TPO.

But it also reflects the fact that a growing number of companies expect a resurgence in the wholesale channel.

"The broker market … it's on fire," Bob Brandt, vice president of marketing at loan pricing platform Optimal Blue, said during a panel discussion at Arizent's Digital Mortgage Conference last week.

Several lenders, in particular large banks, left the wholesale channel after the housing bubble burst in 2007 and 2008. Their share of the conventional mortgage market fell from roughly one-third of the market to a low of 7% in 2011 as a result, according to CoreLogic. As of last year, however, that percentage had risen to 16%.

Growth has become even more pronounced since then, said Brandt. Between 2015 and 2019, the number of broker customers at Optimal Blue was equal to about 1.7 times the base; and in the past year, growth doubled, going from 1,250 broker companies to more than 2,500.

Mortgage brokers struggled in the last recession because they were largely blamed for problems with loan performance, but loose underwriting parameters set by lenders and lax standards in secondary markets contributed to as well.

That's less likely to be a concern this time around because technology affords lenders the ability to insure there are more controls and compliance checks on brokers as well as additional efficiencies, Julian Hebron, founder of sales and marketing consultancy The Basis Point, told attendees at the virtual event.

"I think this new era … breaks in favor of wholesale because the technology enables everything that needs to happen," he said.

New digital capabilities have made wholesale attractive because it's helping lenders scale up amid a surge in refinancing now. But it could also do more to sustain the channel when it becomes more reliant on home buying activity, said Phil Shoemaker, president of originations at wholesale lender HomePoint Financial.

"In the next cycle, you've got to have the ability to access the purchase market. There are only two ways to do that: the physical distribution of wholesale through independent originators, or you need to build retail, and retail is a very difficult thing to build at scale," Shoemaker said.

Given the current level of demand in the market, wholesale could return to or even exceed precrisis levels with the help of technology platforms that makes it easy to onboard brokers and manage them alongside other types of originators, said Tammy Richards, chief operating officer at loanDepot, a multichannel lender.

“It'll be even more than 35%,” Richards said, when asked about the potential for market share growth.

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