from Paul M., at NMN:
The business of brokering residential loans has enjoyed a good run — about 25 years by most measurements — but now there are increasing signs that not only are these third-party salesman facing a bleak future, but that they have no future at all.
Recently, David Olson of Wholesale Access made headlines in the industry press when he predicted that by yearend there would be just 15,000 brokerage firms in existence. Mr. Olson, who has made a good living the past two decades studying brokers, cites a number of reasons: 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. (A few mortgage insurance firms have said they either won’t accept broker loans or put bans on condominium mortgages sourced through them.)
“Chase?” asked Mr. Olson. “They don’t like brokers and are out that channel. Bank of America and Wells are seeing their TPO (third-party origination) volumes going down, down, down.” He added, “Everyone is writing brokers off.”
Three years ago there were 54,000 brokerage firms in existence, which means if Mr. Olson’s prediction comes true, the peak-to-trough decline translates into 72% of the industry going bust over three years, not a pretty picture. Keep in mind, though, that many brokerage firms are small “mom and pops” that employed less than five people. Some were sole proprietor operations.
Every month or so Wholesale Access would hear from 1,000 brokers, picking their brains about the state of the market and reselling that research to some of the largest wholesalers, as well as Fannie Mae and Freddie Mac. But today, Mr. Olson says he’s talking to just a handful of brokers each month and many are “looking for something to do.” Some he said are selling car insurance on the side or doing loss mitigation work.
Yet, Mr. Olson sees a ray of hope in the industry’s future. The chief reason is costs. He and many other mortgage veterans know that it can get expensive keeping full-time loan officers on their books, especially when origination volumes begin to swoon. “Brokering is a form of outsourcing,” he said. “It has to be viewed that way.”
In other words, if a loan doesn’t close, a broker doesn’t get paid by the wholesaler. And because a broker is really just an outsourced employee, it costs the wholesaler nothing in terms of fixed salary costs. Banks and thrifts have to maintain retail branches — another fixed cost.
As for how long it will take the brokerage sector to revive, Mr. Olson is uncertain. There have been scattered reports of regional banks launching small, targeted wholesale divisions, a positive sign for the industry. And recently, Michael Ashley, chief business strategist at Lend America, Melville, N.Y., started to lay the groundwork for a new wholesale channel.
According to Mr. Ashley, there “are still plenty of brokers around that would want to do business if they had a source [of funding].” He said he believes the declining numbers in the Wholesale Access report reflect a “survival of the fittest” dynamic among brokers. In many cases he believes those remaining “know how to responsibly and ethically originate a loan.”
In other words, perhaps all the sector’s “bad actors” have left the building and only the cream of the crop are left. We shall see.
That sucks.I like competition in the business.This new appraisal program seems to be putting a lot of independants out of business too.Pretty soon the whole industry will be run by large corporations.I dont like that at all.I am all about the small business owner.
I will never understand why I have to pay for the honor of borrowing money and paying interest on it. I didn’t pay a broker for my car loan, student loan, credit card, bowling shoes…
Loan brokerage firms need to go-out-of-business.
Period.
They suck money out of the system the same way health insurance companies do.
I hope they die off along with the H1-N1 virus.
I agree with Arizonadude though. Right now we have a criminal financial system run by a small number of gangster banks.
We need to break up these big banks. Get back to regional and state banks. We can still have standards that allow modern technology to interconnect.
A greater number of state and regional banks will eliminate the need for these brokerage “firms”.
Last point. Outlaw securitization. Period. You might as well put every neighborhood in America on a Las Vegas craps table. That’s what happened.
Require any bank that makes a loan to hold onto that loan for at least 5 years. That will keep the mortgage business in the mortgage business, instead of the gambling business.
Require loan recipients to hold on to the mortgage for at least 5 years, with certain exceptions. That will get rid of the flippers, etc.
America, we’re going to have to (re)learn how to make a living the old fashion way-with PRODUCTIVE behavior.
Jim, everybody, have a great weekend.
U.S. Treasury Set To Finalize “Short Sales” Plan
Fri Oct 2, 2009 7:13pm EDT
NEW YORK (Reuters) – The U.S. Treasury will soon finalize a plan to expand its incentives for mortgage companies to include “short sales” as a way to stem a rising tide of foreclosures, according to a Treasury spokeswoman.
“Short sales,” or sales of homes for less than the balance on existing mortgages, are seen as a key way to supplement other efforts such as loan modifications to steady housing. Unlike most modifications, “short sales” eliminate the problem of negative equity that has become a big reason for defaults as home prices have plunged.
http://www.reuters.com/article/gc03/idUSTRE5916X220091002
I don’t get it. The incentives to speed shorts seem like peanuts. If all it takes is a few Ks to convince a lender to short – the system is in a lot of trouble. On the flip side, if the incentives work, I can argue we will see more strategic shorts.
“Outlaw securitization. Period.”
Simple, effective, and cost-free; probably the best idea out there.
I talked with a loan broker originally, but they weren’t able to beat my bank. The only better rate they could offer was a online-only bank that didn’t even show up on google. =O
I guess I don’t get why a lot of folks here want to beat up on loan brokers. The best loans I have gotten have been through loan brokers. It would be a shame if business conditions got so bad that loan brokers disappeared.
I also don’t get the tendancy of a lot of the posters here to suggestive gutshot solutions to past problems which basically amount to an elimination of freedoms. Socializing and overregulating real estate will not lead to more productivity and improved real estate conditions.
I don’t know about others, but I was simply stating a fact. If you used a broker years ago I’m sure they got you a better rate. I used one months ago, and in my case they no longer could. I found the best rate and asked them to beat it, and they actually admitted they couldn’t. They wanted to charge me $400 more to use the best bank and wouldn’t even *match* the price, let alone beat it. Just facts from my experience.