It's doesn't take a genius to know that the wholesale channel now represents less than the inverse of what it did once control. What remaining players are left have strong business models that are relationship-based and that are not relying on rate drops and market fluctuations.
In an effort to get a handle on how volume has been in the wholesale channel, National Mortgage Professional Magazine polled a group of individuals who really have their fingers on the pulse of the wholesale channel. We start off with Joe Bowerbank, senior vice president, marketing and strategic alliances for Loan-Score Decisioning Systems, a firm that provides decision making software for the most of the top wholesale lenders. We also collected a "state of wholesale" update from a handful of regional wholesale lenders that have a real grasp on their local markets throughout the country.
Joe Bowerbank, Senior Vice President, Marketing and Strategic Alliances
Loan-Score Decisioning Systems—Irvine, Calif.
Whilst the pundits contend that the wholesale channel could weaken to the point of extinction, what we’ve observed in the marketplace suggests the antithesis of that position. As a mortgage technology provider, Loan-Score Decisioning Systems has a lot of wholesale clients that are thriving in this market. Where companies have contracted or closed their doors, opportunity presents itself, and we are seeing lenders capitalize on that. In fact, we have quite a few de novo wholesalers in our stable of clients. What’s more, our wholesale clients are growing by leaps and bounds. We are also watching our customers embark on aggressive hiring sprees for top tier account executives, seeking those highly-sought-after brokers. Wholesale lenders are also investing significant money in broker-facing technologies that help grow the business—a major commitment to the wholesale channel. Clearly, there’s been a lot of regulatory changes and new lending rules for the wholesale world, which caused many mortgage bankers to table growing their wholesale business and to begin concentrating on retail. However, the broker controls that have been put in place are making warehouse lenders and investors feel much more secure about buying broker-originated loans. By and large, we’re almost out of the woods, and we’ll see this channel began to grow again.
Joseph Amoroso, National Sales Manager
REMN (Real Estate Mortgage Network)—River Edge, N.J.
Our industry has been reengineered. Lenders and brokers alike need to accept this, make the required changes in their operations and move on with confidence. The ability for a poorly-run company to succeed in the mortgage business today is long gone. It’s all about quality. Quality loans originated, underwritten and packaged by quality companies. Do it right or don’t do it at all. The opportunity is enormous for brokers and lenders who have made the commitment to play within the new rules the industry has imposed upon us. Bring it on …
Shane O'Dell, Director of Wholesale Production
Bay Equity LLC—San Francisco, Calif.
In the past few months we have witnessed an increase in activity and a positive outlook within the broker community and I am bullish on the future. This has been driven not only by the current low rate environment but by rate and service disparity between what brokers are able to offer and the normally much higher rates and extremely long service levels delivered by the large institutions. We dealt with a lot of fear in the first six month of the year with the new GFE, Loan officer Licensing and multiple HUD changes. Now that those have settled we are seeing loan officers move back into the broker side of the business. As product increases we believe this will be a positive for both barrowers and brokers.
Kevin Marconi, Chief Operating Officer
United Fidelity Funding—Kansas City, Mo.
The Case-Shiller index has indicated that we will see a slower rate of decline in housing values in 2010; with appreciation expected to start starting in the first quarter of 2011. The high inventory of unsold homes still represents a huge potential for downward pressure on home prices in 2010 (due to large foreclosure inventory). A large majority of the purchase business that we are seeing at United Fidelity Funding is distressed home sales and supports these studies.
The Mortgage Bankers Association has forecasted a large decrease in refinance activity from 2009 to 2010; 1368 B in 2009 to 529 B in 2010, and an even larger tapering off in 2011 to 374 B. It was also widely believed that once the fed ended their mortgage-backed securities purchase program that interest rates would rise 25 to 50 basis points. This belief, coupled with declining home prices (comparables) and a tightening of lending guidelines due to an increase in government regulation, would logistically make it impossible for the average homeowner to refinance their home. For this reason, I do not foresee a refi boom or even a mini-refi boom because rates haven't decreased after the Fed pulled out of the MBS purchase program. Instead, I believe more likely, we will experience less shrinkage in the refi segment of production for a short amount of time while rates remain low. There are just too many other factors which would stifle a refi boom of any sort at this time.
I looked at a heat map which showed who in the U.S. even qualified for a refinance based on their current rate. Basically, it showed that the two coasts were completely saturated, and only a very small saturation of people could qualify to refi and the Midwest had the highest number of potential refinance candidates still remaining.
Yes, obviously this map would have to be redrawn if rates dropped down to 4.5 percent levels and the U.S. would be opened back up and a refi boom would possible. But how likely is that? Rates are being held artificially low right now. How long is that going to last? The MBA forecast of dwindling refi numbers until 2011 is on pace, regardless of current rates.
Lastly, the fallout from the passage of S.3217, the Restoring American Financial Stability Act of 2010, will no doubt not help the situation.
Michael Maida, National Sales Director
GSF Wholesale—Brookfield, Wis.
Over the last two years, wholesale brokers have experienced substantial headwind from both regulatory and market-driven challenges. Within this two-year period, business owners have adjusted to the following regulatory changes affecting workflow and profitability: the Home Valuation Code of Conduct (HVCC), Federal Housing Administration (FHA) appraisal independence, Mortgage Disclosure Improvement Act (MDIA), Good Faith Estimate (GFE) 2010 and most recently, the American Financial Stability Act. Each of these changes impact the velocity in which a loan may close, and in some cases, the quality of appraisal review due to poorly managed appraisal management companies (AMCs). The differences in interpreting the MDIA and Regulation Z by aggregated servicers delays the consummation of loans due to re-disclosure requirements. The GFE 2010 requirements differ slightly among servicers affecting the submission process. Most recently, the American Financial Stability Act of 2010, reconciling with the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173) and the passage of the S.3217 bill with components regulating the compensation of yield-spread premiums and up-front charges to the consumer, will now challenge wholesale brokers from a monetary compensation standpoint.