Residential loans sourced through loan brokers accounted for just 6.9% of loan production nationwide in the first quarter, the lowest market share reading on record, and another sign that these third-party salesmen face a dismal future.
The broker/wholesale share has been falling steadily for three years with retail funders gaining the most, according to figures compiled by National Mortgage News and the Quarterly Data Report.
The broker share peaked at almost 30% in the second quarter of 2007 — a time when nonprime table funders relied heavily on the sector.
On the surface, the anemic showing in the first quarter looks ominous, but was hardly unexpected, said Marc Savitt, former president of the National Association of Mortgage Brokers, who now heads a small mortgage company in West Virginia.
Savitt blames the decline on the Federal Reserve's new loan officer compensation rule, which prohibits brokers from being paid by both a wholesaler and a consumer on the same transaction.
The regulation also bans pay based on loan terms and prohibits brokers from forgoing compensation and passing that savings to the borrower as an incentive to close with them.
Additionally, loan officers working for a brokerage must be salaried employees and cannot earn a commission based on volume.
"Some people got out of the industry in anticipation of the rule," said Savitt, who also runs a small trade group called the National Association of Independent Housing Professionals. "What happened is what we said would happen: the Fed has decimated an entire industry."
Last month both the NAIHP and NAMB halted their court challenges to the loan officer/broker rule and hope to tweak compensation regulations through the Consumer Financial Protection Bureau. Neither group has yet shared its strategy publicly.
Meanwhile, some lenders are actually entering and expanding in the wholesale space.
In the first quarter, five of the nation's top 10 wholesalers showed a decline in production compared with the same period last year, while the balance registered small gains or no growth — with the exception of one lender: Union Bank.
The San Francisco bank, which is owned by Mitsubishi UFJ Financial Group Inc., is also a top five ranked originator of jumbo mortgages, sourcing a large share through brokers. Company officials told National Mortgage News recently that 2011 may be a record year for the bank in terms of new originations. In the first quarter the bank doubled its wholesale fundings, to $1.4 billion.
Even though Savitt acknowledges that the first-quarter market share number was ugly, he remains optimistic about the business. "I think we'll see a re-emergence of the broker," he said.
