A Tale of Two Mortgage Players

Why Smaller May Be More Successful During Down Economic Times

Doug Page
A small business mans stands tall while a large one has fallen

In these days of increasing interest rates and bad economic headlines, it’s easy to believe the layoff-riddled mortgage industry is teetering on a cliff, soon to descend into a black hole from which it can never crawl out.

Generating much of the headlines are top-end players, like PennyMac, loanDepot and Better.com, to name a few, that have announced layoffs due to a decrease in loan originations and revenues. Even Wells Fargo, a traditional bank, is feeling the sting of higher interest rates, shedding jobs in its home lending division.

With 30-year fixed mortgage rates around 5.25% and likely to increase in the coming months due to the actions of the Federal Open Market Committee , which sets overnight lending rates, it’s no surprise the refi market, which was nearly 60% of last year’s mortgage originations, is expected to drop by nearly two-thirds this year from where it was in 2021. 

“The (mortgage) industry cannibalized itself to some degree by turning $8.4 trillion of new mortgages, which were made in the last two years, with very low interest rates, into loans that will very unlikely refinance in their lifetime,” said Brian Hale, CEO of Mortgage Advisory Partners, a consulting firm based in Newport Beach, Calif. “The people who have low-rate mortgages and who have been living in their house for the last couple of years have seen their values go up 20 to 40%.

“They likely, in many cases, could not afford to buy the house they’re living in today, and they would have to do it with a 5.25% interest rate instead of a 2.5% one. So, they’re not likely to sell their existing house to buy a new one,” he continued.

“Everybody (in the top-end of the mortgage industry) has been lowering their production estimates for 2022,” said the former mortgage executive-turned consultant. “The most recent ones I saw were in the $2.2 to $2.4 trillion level for this year.”

Cut In Half

Hale says that by the third and fourth quarter this year “the annualized pace could be well below $2 trillion and so the industry is likely going to be cut by more than half over the next six months.”

In fact, ATTOM reports lenders issued $892.4 billion in mortgages during this year’s first quarter, down 27% year over year. 

—Brian Hale, CEO, Mortgage Advisory Partners

“There’s not enough volume to feed everybody,” said Hale. “Competition is through the roof for purchase volume.”

As much as it might seem like layoffs are the norm, it isn’t. At least among some of the smaller industry players.

“Mortgage brokers tend to be small,” said Bill Corbet, managing director of Englewood, Colo.-based BlackFin-Group, a consulting firm. “They’re usually composed of a couple of brokers and maybe a couple of operations people. They tend to be nimbler.

“The folks who maintained a balanced referral base, they’re still doing OK. The folks who lived off the refi biz, they’re learning how to do their jobs all over again,” the former banking executive added.

Hale agrees, saying the typical, small mortgage broker doesn’t “have regional managers and divisional managers and corporate folks and accounting and human resources departments and technology departments and all those things. They don’t have fixed overhead.”

Corey Vandenberg, a Lafayette, Ind.-based mortgage loan officer, and Gerald Bliss, who owns a mortgage brokerage in Tampa, Fla., confirm much of what Hale and Corbet said.

Prices Drive Purchase Hike

“So, it’s an interesting thing,” Vandenberg said. “It’s a banner year in purchases. Last year, it was a banner year in refis. It’s like a seesaw. 

“Purchases are going up, and it’s not like it’s because there’s a million homes out there for sale. It’s because prices keep going up. Homes that were once $200,000 are going for $300,000,” he added.

Vandenberg writes fewer mortgages than he did last year but, he notes, “the ones I write are for more money.”
He credits his success to the many relationships he built up as a local banker for 17 years in and around Lafayette.

Today, he works remotely for Lake State Mortgage, which is four hours away in Grand Rapids, Mich., and writes mortgages in nine states, including Florida, Georgia, Kansas, Michigan, Kentucky, Texas, Ohio, Illinois and his home state.

“Florida and Texas are extremely hot markets but they’re all hot markets,” he said. “I don’t have a bad market.”

He describes the typical home that’s being sold as a three-bedroom, two-bathroom house. “Quite a few homes that sell for $500,000 or $525,000 would have previously sold for $350,000,” Vandenberg said, adding that the increase in prices and the shortage of houses in Lafayette is sending homebuyers to communities that are 45 minutes away by car.

It’s the same for Bliss, owner of Tampa, Fla.-based Bliss Mortgage.

“It’s more or less a purchase business,” he said. “Refis are pretty much no longer there although cash-out refis for debt consolidation are still there.”

Cash-out refis became popular  this year because home prices have increased, providing people with more equity in their homes. 

When asked if today’s market conditions forced him to enact layoffs or any other cutbacks, he replied, “Not yet.” His firm is composed of 12 people. “Eleven of us are loan officers,” he said. “Two years ago, we were at seven.”

“We’re staying strong with marketing and pay for SEO [search engine optimization],” he said. “We have 145 Google reviews and almost 100 Zillow reviews. People are calling us.”

Press The Flesh 

Bliss says they did $22.3 million in loan volume two years ago and $35 million last year. Right now, he’s projecting they’ll do $35 million this year and that’s due to the fact that five of the seven loan officers they added are new to the business. 

He attributes their success to pressing the flesh.

“It’s a relationship business. We’re making good connections and are constantly communicating to anyone and everyone selling real estate here,” he said.

They also recently added a tech system called Floify. “It helps you communicate with all parties involved in the transaction,” he said, saying they introduced it last year. 

It also comes with another feature. “Say we approve a client for a $400,000 mortgage and they’re having to increase their bid. With Floify, the Realtor can generate a pre-approval letter for up to $450,000,” he said. “It helped us streamline the process and helps us become more efficient.” 

As for prices, Bliss says, “$400,000 is the new $200,000.  Where it used to be $200,000 or $250,000 for a three-bedroom, two-bathroom house, now it’s $350,000 to $400,000.”

Another factor driving their success is the fact that people are moving to Florida. “People are moving to Florida to escape high taxes,” he said. “We benefit from that.

“There’s also the Tom Brady effect. Sports teams like football’s Tampa Bay Buccaneers, hockey’s Tampa Bay Lightning and baseball’s Tampa Bay Rays are putting the area on the map,” added Bliss.

This article was originally published in the Mortgage Banker Magazine July 2022 issue.
Doug Page Headshot
Doug Page
Published on
Jul 20, 2022
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