Are brokers an endangered species?

by Ryan Smith09 Oct 2013

Is the American mortgage broker becoming an endangered species? 

Although brokers are still going strong in other countries, their slice of the market is getting smaller and smaller in the United States. Over the last few years, the number of U.S. mortgage brokers has dwindled as the housing meltdown pushed many out of the industry and new regulations made it harder to do business. In 2006, the National Association of Mortgage Brokers had about 27,000 members. Today it’s down to about 5,100, according to NAMB President Donald Frommeyer.

Brokers’ share of loan originations has also shrunk. Between 2004 and 2006, brokers accounted for more than 30% of originations. Today, that number is just 10%, according to MarketWatch.

Brokers in other countries are still doing land-office business; in Canada, brokers account for about 31% of loan originations. Australian brokers originate about 45% of the loans in their country. So what’s causing the drop in American brokers’ business?

Well, according to Frommeyer, a lot of loans today are simply brokered under another name.

“About 65% are still brokered,” Frommeyer told MPA Tuesday. “What you have is credit unions, banks that are brokering loans, but they’re not actually ‘brokers.’”

Frommeyer said that many brokers have moved to banks as the licensing requirements for brokers became more stringent under 2008’s Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act. 

“They’re still brokering. There’s a lot of people working for branches and they’re still brokering, but they’re not considered brokers anymore,” he said. “…And the shift did start to come when the SAFE Act came into play.”

And because bank loan officers don’t have to abide by the same licensing requirements as independent brokers, Frommeyer said, many brokers have made the move. Nor do correspondent lenders and bankers face the same regulations when it comes to compensation, he added.

“As a broker, you’re limited on your compensation. … But when you’re a correspondent or a banker you don’t have to have any set compensation with the lender,” he said. “It’s more profitable and advantageous to do that for some companies, but I like the fact that we make a decent amount of money and return the rest to the customer.”

Still, Frommeyer said, he’d like to see some regulatory balance between brokers and banks.

“I would really like to see everybody have to be licensed, and a mortgage is a mortgage is a mortgage,” he said. “…The problem you have is confusion to the consumer. They can go to a bank and get one thing and go to a broker and get something else, because they’re different rules.”


  • by Tim K | 10/9/2013 9:27:20 AM

    It is clear that the regulators in this country do not clearly understand how the business of brokering mortgages actually works. There is essentially no difference between YSP, SRP and Gain on sale. Regulating businesses like there is shows their ignorance.

  • by Charles Stidham | 10/9/2013 9:34:26 AM

    I would like to take umbrage with this article because in Texas and more specifically San Antonio (my market) being a broker for the past 18 years is a sheer blessing. Competing against USAA, Wells, B of A and banks is like taking candy from a baby. We offer lower rates and fees while at the same time offering superior customer service. By the time the third supervisor at a big bank allows a customer service agent to send out a fees worksheet or GFE I have already made the mortgage application, devliered the pre-approval letter to the Realtor and sent the mortgage to an underwriter, fully compliant. I vociferously look forward to the CFPB's 3% rule because the more stringent they make the rules the easier it is for professionals like me (replete with a Master's degree) to garner even more market share.

  • by Paulsmoney | 10/9/2013 10:05:25 AM

    Well I hope all the happy mortgage brokers (with or without MBAs) know how form a PAC to protect the mortgage industry as it is (at best) from continuing bank-favored legislation.

    Mr. Happy Wallet in Texas has to realize that not all regulatory industries understand the value of mortgage brokers. They do understand political contributions and the relative cold shoulder the Realtors have shown the mortgage brokering aspect of the real estate business.

    Glad you got your slice of the mortgage pie out there, yee-haw. Just watch that don't get much smaller cowboy.


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