The wholesale mortgage business is taking on the likeness of a Wild West barroom brawl, with pricing competition so fierce some companies are being left for dead.
"I was born and raised in New York City, and I tell you I'm about ready to get a knife and a gun when I make my way through our brokers' offices," said Bob Hedley, executive vice president at Union Financial Corp., McLean, Va.
With originations shrinking so rapidly, there is increasing demand from mortgage bankers for the reduced amount of loans being generated by brokers and correspondents, so the pricing wars continue to heat up.
There's no question that wholesale production is down. Just ask Robert Garman, senior vice president at Directors Mortgage Loan Corp., Riverside, Calif.
"Is it down? Yeah, it's down. The whole market is down."
Jeffrey Evershed, president of Keycorp Mortgage in Albany, N.Y., said his company's wholesale volume has fallen 35% from the level this time last year.
"We have chosen not to subsidize as deep as we used to," said Mr. Evershed. "We would rather take less volume than be in a price war."
But many wholesalers have resorted to bargain-basement pricing and, according to some, drawn everyone into a bidding war.
"The teaser rates are back, and it's really been aggressive," said Mr. Hedley. "Our lowest rate is 3-7/8 on a Libor-based loan, which is pretty crazy."
Eating the Losses
Steven Skolnik, executive vice president at Countrywide Mortgage Conduit, Pasadena, Calif., said many lenders on the West Coast are so hungry for business they're eating the losses just to boost loan production.
"A lot of people here are doing a lot of negative amortization on COFI products," Mr. Skolnik said.
He said the competition is so fierce that wholesale buyers cannot afford to ignore any movement in price.
But Mr. Hedley of Union Financial Corp., said aggressive pricing hasn't helped his business much.
"The price doesn't seem to matter," Mr. Hedley said.
"We have been doing kamikaze pricing now and then," he acknowledged. "But we're really pushing the product now."
