Wholesale home lenders, though not yet a dying breed, are falling by the wayside at an alarming rate.
The population of wholesalers dwindled sharply last year, according to a study by Wholesale Access, the Columbia, Md., consultancy run by David A. Olson.
The company said rising costs, less-favorable accounting rules, and rising prices for loans were some of the influences.
The number of wholesalers that provide funding to mortgage brokers at a loan's closing - a process known as table funding - declined 14% last year, to 89, according to Wholesale Access.
Furthermore, fewer lenders bought closed loans in bulk last year, the study found. The number of closed-loan buyers fell 23% in 1994, to 57.
"There is wholesale collapse going on," said Thomas S. LaMalfa, editor of the study.
He said that the decline in wholesalers "reflects significant problems in the mortgage market that are threatening the existing mortgage delivery system." These changes have taken place over the last six years, he said.
The wholesale industry has taken a hit from FASB 65, Mr. LaMalfa said. The amended accounting rule makes holding whole loans more advantageous than holding securities, thus making wholesale loan sales less desirable.
Prices for loans have gone up as supply has declined.
Increasing credit risk has also hurt wholesalers, he said. Looser underwriting standards since the end of the refinance boom have made wholesale lending more treacherous.
The future does not look any brighter. High rates of prepayment, especially on adjustable-rate loans, are hurting lenders.
There is some hope, Mr. LaMalfa said, as new technology is helping some wholesalers chop away at fixed costs.
But lower direct expenses have not protected wholesaling from radical pricing and bare-knuckles competition. Even government-sponsored agencies are often outbid for loans, he said.
"If I were a gambling man, I would say we have peaked in the relative importance of wholesale banking," he said.