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.”