The survival rate for mortgage brokerage firms last year was much higher than widely expected, according to a new study.

Mortgage Broker Study 1994: Facing Threats and Adapting to Change found that massive layoffs enabled the vast majority of firms to weather the weak market.

The number of firms declined only 10%, to 16,524.

"The surprising thing is that these guys are still around," said David Olson, a consultant whose firm, Wholesale Access, Columbia, Md., produced the study.

Meanwhile, a third of the lenders that buy loans from mortgage brokers went out of business.

The brokerage firms that survived did so by drastically cutting staff. At yearend, only 195,000 people worked in the industry - 28% fewer than in December 1993.

"Low cost is the key," Mr. Olson said. "It is a secret way to make money in almost anything."

He said brokerage companies were able to stay afloat by outsourcing much of their operations. That includes sales, processing, underwriting, and servicing.

Wholesale Access drew its conclusions - most of which were not made public - from questionnaires sent to independent mortgage brokers nationwide.

The study also found that mortgage brokers are the primary originators in home lending. They were responsible for 50% of the $773 billion in originations last year, despite an industry downturn in loan originations of nearly 30%, the study said.

"These guys, they smell out opportunity," Mr. Olson said.

Two niches that mortgage brokers sniffed out: adjustable-rate and credit-impaired loans.

The study found that 40% of brokers' mortgage originations had adjustable rates.

"Brokers appear to be doing precisely what they must to ensure their survival and continued primary market dominance under prevailing market conditions," the study says.

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