When the 15-, and 30-year mortgage rates reached a record-low on Nov. 8, following the Federal Reserve's ninth rate cut of the year, mortgage professionals around the industry suddenly found themselves in the midst of another refinance boom. Just prior, the economy had officially been declared recessive, prompting the unprecedented plummet. However, nearly paralleling the explosive Afghanistan crisis, mortgage rates have since been on a veritable seesaw, causing brokers to ponder the future of both their country and industry, and wonder how 2002 is going to shape up. Consequently, many brokers should start saving some of the more than $1.5 trillion in total mortgages closed in 2001, while preparing for a significant downturn in originations. Even the smallest of shops should weigh the strength of the Internet with some heavy enthusiasm in 2002, as technology will play a more significant role in the coming decade.
There will certainly be a decrease of refis in 2002. After this year's record-setting marks and historic rates, it is unlikely that rates will fall much lower, and less likely that there will be another boom, even with the off-chance of further Fed rate cuts. A rise in home purchases could help offset the refi revenue loss, but that depends largely on an already precarious economy. However, assuming no other major incidents like Sept. 11, consensus forecasts are generally for a strong economic rebound in 2002, especially in the third and fourth quarters.
However, even with a stimulated economy, brokers will potentially see a drop in both their collective and individual market shares.
"Financial markets remain quite volatile at present, and this volatility will continue to influence mortgage rates through the end of the year," says Robert Van Order, chief economist for Freddie Mac.
With the comfortable blanket of recent refis warming the industry, many brokers could be in for a cold rush, once the refis level off and home sales begin to rise.
After four weeks of steady rate hikes, 30-year fixed rate mortgages finally dipped back below seven percent for the week ending Dec. 7, up sharply from the six-and-a-half percent posted on Nov. 9. What this boils down to is decreasing refis and a probable 2002 Mortgage Broker market share loss, a share which currently stands at approximately 60 percent of the overall market.
This is due, in part, to a bolstering economy. As it continues to strengthen, rates will rise, refinances will decrease and housing sales will increase. But no matter how strong the real estate industry becomes, it is improbable that the broker share during a home buying boom will be as strong as that of a refi boom.
"Brokers are a bit like an accordion. In periods of increased demand, such as during refinancing, the number of Mortgage Brokers providing the services expands, due to retail shop overflow," says Tom LaMalfa of Wholesale Access, a company specializing in proprietary research on the mortgage industry. "However, when the aggregate demand for mortgage services decreases, so does the broker market share."
Moreover, with the recent anthrax scare, more consumers are poised to make the jump to the Internet; if brokers do not enhance their Web presence, they will lose a large percentage of online orders.
While consumers will always utilize brokers for the personal interaction that they provide, the contract itself may become largely automated, perhaps sooner than later.
In fact, according to Meridien Research, by 2005, online home mortgage closings will account for somewhere between 10 and 15 percent of the total share, as compared with approximately two percent today. In a trillion-dollar-plus origination market, and considering the percentage of referrals and refinancing, that equals a share too large to ignore.
"Technology is here to stay. It will be the companies that combine the Internet with their in-house personal lines operations that will survive once the refis drop," says Mr. LaMalfa.
The housing market will undoubtedly remain strong throughout the coming years, but brokers will need to expand beyond traditional paper-and-pencil loans to take full advantage.
Right now, there seems to be enough applications to go around. In 2002, that may no longer be the case, and it remains to be seen how this will affect the broker's stake. As Franklin D. Raines, CEO of Fannie Mae vouches, "Our nation has proved its resilience time and time again. That will not change. Nor will the fact that the desire to own a home is a powerful driver, one that lies at the heart of the American dream--yesterday, today and tomorrow."
With some strong connections and a DSL broadband connection, Mortgage Brokers can ensure a considerable piece of that dream for some years to come.