Disintermediation of the mortgage broker
Posted by Pat Kitano at 11/27/2007 9:16 AM 
Categories: Disintermediation, Real Estate Economics, The Future
Categories: Disintermediation, Real Estate Economics, The Future
| Short history of mortgage lending | How mortgages are processed | Innovation driver / Catalyst |
| pre-1970 | Banks and S&Ls (and before that, insurance companies) managed the loans directly with the consumer | |
| 1970-1980 | Mortgage lending extended to mortgage/credit companies (Countrywide started in 1969) as alternatives to banks. Eventually these operations adopted retail branch operations. | New business model |
| 1980's | Banks begin to
offer wholesale rates to the new layer of mortgage lenders and brokers
who could focus on servicing the consumer client. | The "PC
revolution" carved up the vertical operations of mortgage banking. New
business lines are formed to focus on certain aspects of the loan
processing. Loan securitization makes it easy for mortgage lenders to
set up shop. |
| 2001-2006 | By 2004, mortgage brokers are participating in 68% of home loan originations. But banks have realized and regret they lost control of their direct channel to the consumer | The housing boom |
| 2007 | The market correction and the credit crunch (See footnote below on the demise of mortgage broker jobs) | The housing boom after shock |
| 2008 | The new reality - disintermediation of the mortgage broker layer: 11/26/07 - Banks begin to take back their wholesale channels - BofA discontinues wholesale network (h/t Real Estate Undressed) | The internet will begin to make the mortgage sales and marketing processes more transparent with new products including Ratespeed, Zillow's mortgage offering and Cyberhomes, among others. As consumers find these internet data, mortgage brokers evolve into order takers with lower income potential. |
Footnote - have the number of mortgage broker jobs in America dropped by 1/3 over the past year? It's a huge number but not inconceivable...
Statistics on how many mortgage lender jobs have been lost are hard to find on the Internet. But the demise of mortgage lending companies is documented at Mortgage Implode-Meter. Mortgage Daily cited employment figures of 467,000 in May 2007 before the impact of this summer's credit crunch. Since May, Mortgage Implode lists about 150 more imploded lenders... media sources cite that 38,000 mortgage broker jobs have been lost this year up to August 2007. Add to that the number of layoffs and downsizing from lenders who haven't imploded.
'As consumers find these internet data, mortgage brokers evolve into order takers with lower income potential.'
So true Pat...The Mortgage Professional (proper) needs to take a hard look at their business model and evolve, rather than fight the losing battle of trying to sustain the 2001-2006 model.
While there will assuredly be less $ per deal to be made, a mortgage pro who configures their business appropriately can thrive in this 'new' market...
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Pat, here are some Washington State numbers regarding your question about loan officers still in business. As of the 19th of November only 1860 mortgage broker loan officers of the over 13,000 current force have been approved for 2008.
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I can remember back to 1994 as the internet broke and we all speculated on the demise of the real estate agent and here we are in 2007 and realty sales are still in the hands of the agents. I wanted to believe that the LO's role would change
for no other reason that I love the challenge of change. But I have realized the power of the relationship will keep good, transparent loan officers in business. We are sales people and the mortgage industry depends on us and pays us to fill the pipeline. In this market, with all the credit and asset crunches the LO's with integrity will thrive. The product may be a commodity but the service is not.
I do not think the banks taking back the market will create a lower cost environment for consumers. Brokers and Bankers will be here for quite sometime.
Thanks for the post.
Bryant
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I agree with you that ethical mortgage brokers offering quality service will always be in demand, it's just that there will be a dwindling number of mortgage brokers with time. The analogy might be travel agents - there are still many travel agents today but their numbers decrease each year. And banks will try to capture more of the market online as other companies will do; in aggregate, online loan rate transparency will ultimately create a lower cost environment for consumers. If banks create a higher cost environment, then they won't be competitive.
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Banks have successfully "turned the tables" on mortgage brokers and of course mortgage broker unethical behavior helped tremendously.
I agree mortgage broker numbers will dwindle but am enccouraged by the belief that transparency, more ethical and professional brokers will be what remains. Combined that with cheaper services than banks can provide and we have a sustainable albeit smaller piece of the pie. It will take a ton of education...which I started years ago on my blog...to show how these new "transparent" mortgage brokers are in fact cheaper than banks...how banks have legislation written to create an uneven playing field when it comes to disclosure of all income...but that is just fine in a Web 2.0 mortgage world.
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Pat, have you also done any research on how many Realtors have left the market? I am sure the mortgage lending and real estate industry as a whole has been whittled down considerably.
I also believe that most brokers that were pure refinance shops are all but gone. Even mortgage brokers that focused purely on purchase money are exiting very quickly.
For brokers that are going to focus on the Internet, conversion will be key.
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Bryant,
I rode the refi wave of late '92 through mid 1994 and then got out. While a loan officer for a small Wash DC shop, we hired a school bus driver and a garbage man as loan officers on a part time basis.
I felt it was time for a change and moved on.
I was recruited and accepted a job with Trans Union. I accepted because at the time TU was selling credit reports in bulk to many diverse businesses for $1-3 a shot.
After a successful run with TU, I left because I was able to foresee the coming change in the Credit bureau business model.
My former sales management job, my rep job, and all levels of outside business development has been eliminated. Everyone was replaced by call centers and online services units.
Do not be surprised by the coming pressure banks will surely exert, to their benefit, upon broker's warehouse lines and other lines of funding.
I hope everyone is able to thrive and prosper but remember to keep an open mind.
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A couple of follow up thoughts.
The first is I think loan officers should be salaried jobs, no commission but incentives based on service performance. Maybe an incentive light model but all fixed compensation not "skies the limit". This would allow training and a high level of accountability. My second thought is that people still like talking to me and running the scenarios, asking questions and exploring options. I do not see this going away for the majority of borrowers. Home loans are a significant event for people. Those of us the blog, read blogs and are heavy tech users will do online loans all day long but we are not the average consumer. I work with clients all the time who can get a loan any where but they come back to me for the comfort and trust.
We are many years from the automated loan officer free world. But I will be there first in line when it comes.
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One word: Darwinism
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I suppose this is one of the mortgage crisis consequences. Minus 38 000 mortgage brokers is a huge number, this should point us a serious question mark in mortgage industry.
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It's been really nice to know all that much about mortgage, with such a great presentation through this post. As internet became mortgage more accessible globally from one part to the other.Owning a home is one of the best ways to accumulate capital and protect from inflation. However, the interest involves with the mortgage over an extended period of time would be a huge expenses to the family. Could you suggest me some of the most trusted mortgage companies or institutions, who will encourage the weaker sections of the society to make mortgage more accessible.
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RateWindow is a new application (developed by one of our consulting clients) that exposes all the rates to a mortgage.
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Well things are a little more complicated, this is the result of the current economical frame. I can handle my own business without a mortgage broker so I am not directly affected by this.
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