Are Loan Brokers A Dying Breed?

By
Commercial Real Estate Agent

If we believe what we read from various sources loan brokers are facing a bleak future.

A number of reasons are often cited: restrictions on yield-spread premium payments, new national registration requirements and licensing costs, and a general lack of interest on the largest remaining wholesalers in growing their broker channels.

According to one source the number of brokerage firms could be down to 15,000 from a high of 54,000 three years ago.  Let keep in mind however, that many brokerage firms are small "mom and pops" employing less than five people, and sole proprietor operations.

There is a ray of hope however in the industry's future.  The main reason is costs.

Brokering is a form of outsourcing for lenders; it costs the wholesaler nothing in terms of fixed salary costs, etc.  Keeping full-time loan officers is expensive.  When a brokered loan doesn't close the broker doesn't get paid by the wholesaler.  Time will tell if better quality control systems will give lenders the level of confidence needed to reinter or expend their current wholesale channels.

Until then, it is going to be "a survival of the fittest"

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Re-Bloggged 2 times:

Re-Blogged By Re-Blogged At
  1. Donald Bradbury 10/15/2009 09:43 PM
  2. Dom Naidoo 10/24/2009 09:43 AM
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Rainmaker
41,291
Michael Mullin
NMLS 11911 - Banker/Broker, FHA, VA, USDA, Conv
First Priority Financial, Inc. NMLS 3257 , Originating loans in WA, OR and CA.

There's a lot of banter about broker versus banker in the thread - and it's really not a valid comparison nor necessary.  It's the individual loan officer that makes or breaks the deal, not the company they work for.  There are plenty of pros working at credit unions, banks, mortgage banks, and broker shops that all close on time and provide a valuable service. There are also completely amoral, unethical, clueless morons working for all those entities.  You just need to figure out who's who.

To Ted, and others who have said brokers are slower than banks or the fees are higher - it's just not true.  I broker 100% of my loans and I too can close a loan in 2 weeks Ted.  The brokers who are late (this is for Sheree at Realty World Alliance) with their fundings just don't know what they are doing and/or work for a small mortgage banker that has limited lines of funding.

Regards broker fees being too high - what's too high? I can make my fees whatever you'd like. I may have to rebate some to cover the hard costs but the fee argument is smoke and mirrors.  You need to take the interest rate and lock period (and whether the loan can close on time) into consideration along with the fees.  Often time a higher fee/lower rate loan from a broker is much better for the client.

The height of the refinance market collided with the collaspse of the warehouse lending business and I watched online (our firm runs a national lender and realtor forum) as loan officer after loan officer drove their clients into the quagmire that was Wells Fargo Wholesale, Titan Wholesale,and a cast of other funding sources that went to 60 days on their Underwriting turn times.  All the while the professional broker easily moved his or her pipeline to those wholesale lenders who were properly managing their process.

I never once had a refinance go beyond 30 days. How do I know? I lock all my applications upfront during the initial application and I never lock for more than 30 days. ALL  closed.  I think the longest Underwriting time I had during that fiasco was 7 or 8 days - but only because I watched and paid attention to what was going on in the marketplace - like the rest of my coleagues did.

In full disclosure I am both an origantor and a national recuiter for First Priority Financial out of Northern California.  I mention that because, Ted, you almost sound as if you have a similar function for Academy.  We are still 90% broker and we have new branches being added on a weekly basis.  I say this both because I'm proud but also because I think the topic headline should really read "is the small mom and pop broker a dying breed?"  That may well be the case as the wholesale lenders are definitly prefering to work wiith brokers that have an actual balance sheet with liquid assets.

Dee in Philidelphia - sorry you've been burned in the past by brokers.  In a national forum like this you are going to be able to find validation on both sides of the argument. I can tell you that I spoke to a prospective employee today who is coming from Bank of America and he said he was dying because they "couldn't approve a loan if their life depended on it." Do I think that's true? Of course not!  Banks are funding loans ever day and have plenty of professionals within their organizations as well. What I'd like to suggest is that it is the individual loan officer who makes the difference, not the company behind them.  When I worked for a Savings and Loan (remember them?) I very comfortably told clients that an S&L could smoke a bank or broker.  Then when I went to work for a mortgage banker I said the same thing.  Now that I am a broker I can say without a doubt that this business model affords my clients the lowest cost, quickest, and most professional means of obtaining a home loan.  I have affirmation of that on a daily basis as I watch other people's deals fall apart or close late.  Here's the kicker - if I went back to work for BofA what do you think I'd feel? That's right - wherever I AM is the best option for the client.

On a final note - there's a big difference between a "bank" and a mortgage banker.  Both entities may calll themselves a "bank" but in my opinion only the depository institutions like Bank of America and Wells Fargo are true banks.  The non-depository mortgage bankers are really just high level brokers who have accepted additional business risk by Underwriting and funding their own loans.  While banks are pretty stuck in the mud a large mortgage banker can be a very efficient and flexible mortgage lender.

Sorry for the rambling reply....I get pretty passionate about this subject. I've been lending in various forms for 20 years and I'm not worried.  HVCC?  Funny, my appriasals have been fine and in some cases faster than before HVCC. Go figure!  MDIA and Sheree's broker who had a closign held up due to a bad disclosure - well, shame on the broker. Should have got the TIL done right and then there's no problem.

I do appreciate all the brokers who have trown in the towel though. It leaves more business for the rest of us!

October 16, 2009 08:19 PM
Rainmaker
184,775
Jirius Isaac
Real Estate & loans in Kenmore, WA
Isaac Real Estate &TriStar Mortgage

What is evident for me in reading all this is that it is the person you are dealing with that makes the difference, rather then where they work.  And just for clarification purposes, let's talk the same language so that non loan originators can understand the dialog here.  I am now a broker, and I have been a mortgage banker as well.  As a mortgage banker, I can use my company to do the loan as a correspondent lender, and then sell it to a bank.  Loan officers that work at actual banks that have places where you can actually have a checking account, etc.  Note the clarification above from Michael, he is right on in his analysis.

One of the problems I have with the guys that work at an actual bank is that they are excempt from all the regulations that brokers and mortgage bankers are under.  I would love to see this change, but the banks just have a lot of clout and do not want to be regulated. 

October 16, 2009 08:42 PM
Rainmaker
792,150
Lyn Sims
Schaumburg Homes
RE/MAX Suburban - Schaumburg IL Real Estate - Northwest Suburbs of Chicago

I was just reading the new FHA guidelines last week and there was some comments on them trying to squeeze someone out. I wasn't really clear on what was going on, but I got the drift of your post. Brokers out. They've said it before and you guys are still here!

October 17, 2009 02:59 PM
Rainmaker
64,747
Ted Canto
Arizonan #1 Mortgage Lender
Amerifirst Financial, Inc
Mike.. Spoken as a true professional. You are a rare bird my friend. I remember when I met LO's before getting in business, and there was certainly some serious professionalism. Can tell you are one of those guys. If you haven't noticed I am not opposed to brokers (use to be one). I just do not see a reason to be broker anymore but that is my preference. I am not a recruiter, I have my own team. I rarely do apps these days thats all. Mostly marketing and education.
October 17, 2009 08:33 PM
Rainer
14,400
Guy Barre

I am glad my blog sparked so many comments expressing such a wide range of opinions.

 Your comments touched not only on the subject of the future of mortgage brokers but also on the relevance of the mortgage brokerage function as a delivery channel to consumers in this post subprime debacle world.

 Some of you gave opinions not only on the industry in general, but also on mortgage brokers.  Depending upon your own experience and biases, mortgage brokers were either defended and praised, or blamed and chastised.  Some of you made blanket judgment, and even expressed doubts on the personal character of mortgage brokers in general.

 In California, a mortgage broker typically holds a real estate license, and he or she is subjected to the same continuing education requirements, standards of conduct and code of ethics expected from any licensed real estate agent or broker. The industry attracts people with a wide range of experience, education,  background, and values.  It is not unusual to run into someone with no formal education, or someone with advanced university degrees. Some originate loans as independent mortgage brokers, while some work for banks, or large retail mortgage lenders. 

 Independent mortgage brokers, also referred to as third party originators, provide a critical function to consumers.  They offer not only a choice of various loan products (which is a distinct advantage from most retail lenders) but they also deliver added value in the form of professional advices, and practical solutions well before the loan application is submitted to the selected lender, thus reducing the possibility of loan rejection.

 Product diversification and service is what I believe the mortgage brokerage profession offers to consumers.  Time will tell what will become of the profession.  What is certain, however, consumers will lose if what is left is a cartel of a few large retail lenders

 

October 23, 2009 10:35 AM
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Rainer
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Guy Barre

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