Are Mortgage Brokers Doomed or Are Origination Models Evolving?

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“In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed” -Charles Darwin

Last week I debated one of my Management Advisory Program (MAP) clients who operates a mid-size retail mortgage banker. The topic of dispute: Are mortgage brokers a dying breed?

He felt passionately that top-producing independent mortgage brokers would soon be forced to attach themselves to a regional mortgage banker.  I believe markets ebb and flow and human nature tends to follow the crowd. Retail is vogue today. Wholesale is not.  Being a contrarian, I stated there may be an opportunity to develop a modified Third Party Originator (TPO) strategy in anticipation of the origination model changing in 1-2 years.  He disagreed and said emphatically, brokers are walking dead.

After a few more jabs, he provided some support for his opinion:

  1. Regulatory Changes:  Numerous regulator changes have made it more difficult for independent originators to compete with regional bankers.  Whether its HVCC or disclosure of certain fees, brokers don’t have the control they once had  Moving a file from one wholesaler to another is very difficult today.
  2. Profitability:  Without the owner originating a lion share of the loan volume, most mortgage brokers lose money.  Many owner/operators are strong producers, but poor business managers.  They lack skills in accounting, HR, IT, marketing, compliance, etc.  Furthermore, my client felt brokers don’t know how to effectively recruit, manage or fire loan officers. 

He believes these issues will eventually force broker originators toward working for a strong regional mortgage banker. 

According to my client, these originators are looking for the following attributes in a mortgage banker:  

  • Strong Balance Sheet
  • Few Legacy Issues and Limited Repurchase Risks
  • Must Sell Loans Through Mandatory Conduit
  • Cutting Edge IT Department. Web Based Technology is a Must
  • Most Importantly, a Loan Officer Centric Culture and Management Team

I don’t agree that mortgage brokers are a dying breed.  I do believe mortgage originators and mortgage bankers are creating new ways to do business though.  A growing strategy for many wholesalers is to convert some of their better broker customers to retail branches. Is this the wrong move? Will these originators maintain this retail relationship in the future?  Only time will tell. 

The mortgage business is a study in Darwinism.  Mortgage participants that learn to collaborate and adjust to the business environment will prevail.   Those that don’t may become road kill.