Death of the Wholesale Lending Business

Even before the current meltdown, mortgage brokers were beginning to die off (not literally) as the refinancing boom, due to rising rates, was winding down. Much, probably most, of the mortgage broker business was the refinancing of existing mortgages (often initiated by the broker, not the customer), not the "purchase" business. And the move by many states to register / license the mortgage broker firm AND the individual loan officer / salesperson has also driven many characters out of the business.

Mortgage brokers have always been a godsend for people with "issues" (no-low down payment, no or "light" documentation, late payments, pre-foreclosure, past bankruptices), but that hand-holding and guidance came at the cost (usually) of higher fees AND higher rates. And in the current turmoil, I don't know how well they'll be able to help these folks going forward - although I know there will be those who say that marginal borrowers should NOT be helped.

Creditworthy borrowers still have access to the banks, even though standards have tightened. And the rate advantage that mortgage brokers were able to get (buying wholesale) seems to have largely disppeared over the past year or so (assuming the broker passed that rate advantage on to the client in the first place).

Reduced competition HAS to be a factor that at least marginally puts upward pressure on rates. Higher rates mean higher mortgage payments, and that has to keep some downward pressure on prices. But many more factors impact the current level of mortgage rates than number of lender channels, so that should be a relatively minor factor.

Will there be pressure on Chase & Citigroup to stop funding mortgage brokers do you think? Chase is pretty big (tho not Citi), but BofA/Countrywide, WaMu, Wachovia, and Indymac are really big.

It's definitely bad right now, there are very few lenders left for us to work with. That being said, Ive been working with the same 3 lenders for years so I don't really care about all these other companies closing. Rate are definitely higher due to less competition however. The Boa/CW merger is a sh@tshow. They cannot manage the staff, the volume is going to fall off because the rates suck and right now I hear its a big mess. Chase does an enormous amount of business in its wholesale lending division i would be surprised to see them discontinue it; it does result in a disproportionate amount of delinquencies compared to the retail division though.

I think that there will always be brokers, albeit not in the same capacity. If an individual has plenty of time to go branch to branch and nickle and dime they probably wont go to broker; you are correct. The average Joe will probably not be using a mortgage broker in the future. He will go to Chase, pull the ticket, wait in line and eventually get his loan closed in 2 months. He'll save $500 and come out feeling like a winner because he didn't get swindled by one of those BROKERS. However, there are plenty of people who don't have time to do this and I provide them a great service. They can call me, get a competitive rate with very few hassles and get their loan closed-quickly.Time IS money too. Yes there is a fee, its a service based industry, there should be fees.

Don't fully understand the move of lenders getting out of the wholesale business. In theory, the mortgage brokers bring in business the lenders might not have gotten otherwise - so in exchange for the brokers doing much of the "upfront" work, the lenders often quote rates lower than what the end user could get on his / her own - seems to make sense for all parties involved. Of course we know of the excessive fees, inappropriate products, etc., that SOME mortgage brokers were involved with. Every industry has its share of less-than-scrupulous types.

All I can surmise is that the quality of the broker-initiated loans were substantially inferior to those generated by the banks directly. Brokers, for example, were heavy players in the sub-prime sunami. Still, I'm surprised by the number of banks that have decided to bypass this additional source of business.

A mortgage broker does have a good grasp of the relative advantage of one bank over another as to fees, policies, qualification parameters, etc. As mbrokerNY says, he can "make things happen", often a lot quicker than you or I could. And a good mortgage broker (like a good Real Estate broker) can serve as your advocate as "issues" arise. My sense, though, is that the mortgage market will stay tight, and banks will continue to eliminate the myriad flavors of loan products they introduced during the good times. If all lender's loan products are essentially the same, that's a strong argument against needing a broker, whose job has always been to find the best rate for the best loan product from the best lender.

We're entering a "full doc" environment. Eventually most loan products will probably be the same. Mortgage brokers are becoming obselete and so will some loan officers who work directly for the bank. There is just less business out there because now only people who should be buying is buying and can buy. Those who have been in the industry for many years will stay and those who came in to make a quick buck will be out (there are many).
As far as service, whether one works as a broker or works directly for the lender, it always comes down to the individual. We all take phone calls, give competitive rates, and try to close quickly. Ive been on all ends of the mortgage industry and its really the individual loan officer that makes the difference. Not really who he/she works for. Wholesale will start to disappear because all the risk is taken by the lender and none of the responsibilty is taken my the mortgage broker. Although I hear about some law theyre looking to pass about this.

From what I can tell from what the experts say, this is a sea change. Major money supplier = Chase, and that's it. It seems to be like the investment / merchant banks: they need liquidity, they get it from commercial banks, commercial banks won't lend it, so what's the use of having an investment / merchant bank?

Anybody care to comment? B/c I see this as having a huge effect on the credit market.

BTW when I worked at BofA as an auditor I experienced a lot of the pain of downsizing / integration. The Countrywide "mess" will work itself out in 6-18 months, with every Countrywide branch becoming a BofA branch.

Stevejhx; I think you're correct RE: credit market. Interest rates are at a 1 year high today and if you look at the bond markets the yields are not at historic highs at all.

Companies like Thornburg; they have NO liquidity. They have gone through all their reserves, Chase and Wells are not going to lend to them, Citi cant close their own loans and BOA has CW to worry about. Who is left? The local S&L's have been picking up a lot of the slack in the mortgage market but they are SWAMPED(great article in Crains this week about them). I think we are only about half way through this crunch. With higher rates, tighter UW standards and less lenders for the consumer to go to we seem to be in a perfect storm.