Origination News Feature Story

Some Observers See Hope for Loan Brokers

By Brad Finkelstein

NEW YORK-There is pessimism in many quarters about the future viability of the mortgage broker industry. The industry has come under fire from many sides with the result that a large number of wholesale originators have shut their doors or significantly cut back on the number of brokers they do business with.

But to some who closely follow the broker business, the channel has a viable future, and one observer even welcomed the winnowing of the ranks in the past year.

Daniel Jacobs, the chief executive of 1st Metropolitan Mortgage, Charlotte, N.C., is one that believes the mortgage broker is not going away. However, he thinks the business is being redefined and might go into "an apparent state of hibernation" before it re-emerges.

But they will survive because lenders want a variable cost distribution model. Right now, lenders have not reached the point where they need that variable cost model, he said, nor have they redefined it.

In the new world, the mortgage broker will be more of a "lead dog," Mr. Jacobs continued, and less involved in the verification and processing part of the business. This is because of the focus on quality control and fraud prevention.

It has not been the successful mortgage broker that has left the business, but the mediocre mortgage brokers and mortgage bankers that have pulled up stakes.

The limitation in products available has contributed to the fall off in market share. The mortgage broker's role had been as a shopper for the consumer of the various products in the marketplace.

Mr. Jacobs said, in the end, there was just too many mortgage broker shops out there. "The concept of variable cost distribution was maybe too successful in that you had too many small shops out there taking up small pieces of the pie but they were getting enough to live on."

When their business fell off by as much as 50% in the past couple of years, those just barely getting by couldn't make it. Thinly capitalized businesses could not handle the significant downturn as well as those companies with much more capital, which allows them to weather the storm better.

"But I don't think it was the worst thing in the world," he said, reiterating his point about too many shops in the business.

Ellie Mae chairman and chief executive Sig Anderman has already gone on the record as being bullish about the future of the mortgage broker.

As there is further consolidation at the top, the large banks will not be opening offices in small towns and other underserved areas.

Mr. Anderman, in an interview conducted at the Mortgage Bankers Association annual convention, said that was part of the dynamic that propelled the growth in the mortgage broker industry.

Brokers are entrepreneurs, and because they are entrepreneurs, they are the low-cost channel for loan production. Add in the willingness to work all hours and go to where the customer is, he said.

The current increase in refinancings, Mr. Jacobs said, has helped all originators, regardless of their channel. 1st Metropolitan has seen a 50% increase in applications.

But it remains to be seen how many of those close quickly.

Consumers have a "hurry up and wait" attitude. They are looking to be approved quickly, but as media reports about rates falling continue to make headlines, the consumers want to see how low rates will go before they lock and close.

"We are supposed to be the experts and we are supposed to advise the borrower about market relationships to let them make an informed decision about locking or floating," Mr. Jacobs said. The past year has knocked all the past assumptions about the normal relationships between various parts of the markets out of line.