Home buying and refinancing are good for mortgage brokers, who match borrowers with loans. Less buying and refinancing is bad.
A 21/2-year housing slump paired with increasingly restrictive borrowing rules and a shift to lenders handling more of their own loans? Very bad.
"Each week it's harder," said Charles J. DiPino, co-owner of Universal Trust Mortgage in Columbia, which is fighting to keep business level. "Mortgage brokers are facing an extreme uphill battle."
Just under 6,700 Baltimore-area homes changed hands in the first four months of the year, about half the number at the same time in 2005, the last year of the housing boom. Prices have been falling, which makes it harder for homeowners to refinance. And lenders, stung by rapidly rising foreclosures of loans made in the easy-money boom days, have been cutting mortgage products and adding restrictions at a frenetic pace.
Some of those changes are specifically targeting mortgage brokers, who have taken heat nationally for their role in the lax lending practices that put too many borrowers into loans they couldn't afford and in some cases didn't understand.
Brokers are a go-between, comparing terms and connecting people with loans offered by banks or mortgage companies. But some big lenders have decided to stop taking loans handled by brokers. Bank of America got out of the business Jan. 1. National City said the next day that it had shut its wholesale arm, too. Washington Mutual is in the process of following suit now.
That is likely to escalate a trend that started last year, when the share of U.S. mortgages handled in-house by lenders rose from 39 percent at the beginning of 2007 to 49 percent at year-end, according to Inside Mortgage Finance, a Bethesda-based weekly newsletter. The increase came at the expense of brokers and "correspondents," who, unlike brokers, close loans on their own and then immediately resell to a lender. Many brokers can also act as correspondents, said Guy Cecala, publisher of Inside Mortgage Finance .
"Both those businesses have fallen off dramatically," he said, noting that this isn't typical. "In past downturns in the mortgage market, lenders have been quick to close down their own branches, which tend to be more expensive, and shift more business to mortgage brokers."
Now, some lenders are saying they get better quality control if they work with borrowers directly. Baltimore-based First Mariner Bancorp, which lost $10 million last year, stopped originating residential mortgages through brokers in 2007 after a big uptick in borrowers of so-called "Alt A" loans defaulting in the first 90 days. The company said in a March report that loans it originated in-house "performed well."
Brokers, for their part, contend that they were simply following the relaxed rules set by mortgage companies. "Lenders threw away their underwriting guidelines," said Roy DeLoach, executive vice president of the National Association of Mortgage Brokers.
Said Cecala, who doesn't think consumers would be well served if the broker industry disappeared: "There's plenty of blame to go around."
Between the decline in new mortgages and the loss of business to lenders, brokers have seen their business fall off 30 percent from 2005 to 2007, Inside Mortgage Finance says.
"Not only are the transactions fewer, but the loan amounts are smaller because property values are dropping," said Matt Zaborsky, president of NORMortgage in Rockville. "So it kind of becomes a double whammy."
For many, it's less money for a lot more work - the reverse of the boom days, when people rushed to get into the broker biz because both credit and home sales were so plentiful. Now brokers must scramble to find new lenders to replace those who have pulled out, keep tabs on rapidly changing rules and work with a lot more borrowers who will end up failing to qualify.
Maryland, which groups mortgage lenders, servicers and brokerage firms under one license, says the number has fallen 14 percent to about 5,300 since last summer. The total number of licensees is dropping by about 100 a month now.
Some mortgage brokers are merging with competitors to deal with the pinch. Some are shutting down and going to work as loan officers for other brokerage shops. And some are getting out of the business entirely.
Plenty of the ones sticking around are leaner.
"If a mortgage broker had a staff of, let's say, a dozen loan officers a year ago, they may have six to eight today," said Charles F. Reid, a wholesale account representative with AmTrust Bank, who works with brokers and correspondents from his Towson base. "It's absolutely one of the toughest times the industry has ever faced in the history of mortgage lending."
Universal Trust Mortgage, which had 35 loan officers two years ago, is down to 30 now. But DiPino's business has benefited from the shakeout, too.
He's hired experienced, out-of-work loan officers to replace some of his newer employees who gave up to take jobs in other industries. And he's gotten business from customers who were planning to get a mortgage through a rival - until the rival closed up shop.
That's the silver lining for the brokers who remain. Less competition.
"I've had to adjust, but I'm going to be fine," said Dawn Holly, president and chief executive of the five-person First Platinum Mortgage in Howard County, which has about half the staff of its housing-boom days.
"I feel very confident that I'll be able to weather this storm, and I will be one of the many brokers left standing."