The mortgage business is shrinking. Why that is good news for those who remain.
About five years ago it was reported that we had around 250,000 mortgage loan originators and brokers operating in America. Then the market began to crash. The housing bubble burst, money got tight, Fannie and Freddie went down the tubes, easy qualifying loan programs went by the wayside and banks lost billions. Nowadays, the number of active originators working in broker shops, insurance firms, financial planning centers, banks and mortgage lender platforms-although difficult to measure-is believed to be somewhere between 50,000 to 75,000.
Indeed, there are fewer players in the business today. And those numbers are about to get even smaller. Why?
1. New state licensing laws for brokers are going into effect. Many independent brokers will not be able to pass their background checks or requirement tests.
2. Changes in regulations and tighter compliance standards are forcing many brokers to go to work for banks, other mortgage companies, or pushing them out of business completely.
3. Most (if not all) large national mortgage lenders and banks are no longer hiring inexperienced people and teaching them the business. They are recruiting only seasoned veterans. Fresh new blood that has been injected into the industry for decades flows no more.
4. Because of big bank buy-outs and consolidations, overlapping territories where branches share the same street corner are being merged, and originators are being let go by the hundreds.
5. Forecasts from the Mortgage Bankers Association predict fewer mortgages will be made this year than last. Banks and lenders are cutting their sales forces by terminating the lower producing loan officers who do little business.
6. Most of the large Internet and 1-800 mortgage telephone centers have shut their doors, and thousands of headset loan officers are out of work. No new players are taking their places.
7. There's not as much money in the game now as there once was. Yes, some still make a great living at originating loans, but the megaproducer generating $100 million in loans a year is now an anomaly.
8. New broker shops and lenders have stopped entering the industry. Remember when everyone wanted to be in mortgages? The market was hot and the money was big. There are not many folks today who are chomping at the bit to get into home loans, for reasons that are obvious to us all.
9. Lenders big and small wanting to grow their ranks are having a difficult time recruiting. Since they don't want inexperienced people (see No. 3) they are forced to steal talent from other shops. With 60% to 70% fewer players in the game, there is just not all that much talent out there any more.
10. Many compensation plans of big banks changed the first of this year. The lower tier pays even less to substandard performers: in many cases as little as 25 basis points on a loan. Added to that, some lenders have restricted their originators from gaining overages on some or all loans. It's hard to stay in any business if you are making only $20,000 a year.
11. The old regime is retiring. Many long-term players who have faired well over the years are calling it quits; the business is just too hard anymore or they are simply unwilling to change with the times.
12. Finally, let's not forget the economy. When a recession hits, people stay put. The idea of investing in rental property, moving up to a bigger house or buying a second home or vacation home is not on your mind when your investments have tanked or you are concerned about having a job. Adding to the slowdown on the purchase side, upside-down homeowners and those living in houses that have lost tremendous value have no opportunity to refinance, stalling that market to a near standstill in many regions of the country.
It's my guess that we'll continue to see our numbers shrink in the coming year. Perhaps it's Darwin's Law of natural selection or nature's way of slowing things down for a while. As the market demand for mortgages stays lower than normal, we will need fewer than normal number of originators to do the work.
There is clearly good news in all of this. If you remain in this business, work for a good company and apply yourself responsibly, you'll do well. Fewer and fewer competitors mean more and more business for those that remain. We'll fund over a $1 trillion this year, and dividing up $1 trillion in mortgages among 75,000 originators instead of 250,000 means more opportunity for everyone. There are about one million real estate agents in America today. Having far fewer loan originators out there means your chances of getting in front of and working with some of the best agents in your market is now much more feasible.
The best news is that as the economy strengthens and the housing market rebounds, you will be in a position to capitalize on the growth, offering your accumulated knowledge and experience to every borrower. Sure, when things improve others will start to enter or re-enter the business to chase the dream. But you will be in the lead and far out in front: a survivor well entrenched in the market with great referral partners and a loyal customer following looking to you every day for help and advice. And you will crush it.
Douglas Smith is founder and president of Douglas Smith & Associates, a training, speaking and coaching firm based in Asheville, N.C. He can be contacted at 877-430-2329 and his website is
