What to do when you're a broker facing margin compression

It takes true grit in challenging times…

What to do when you're a broker facing margin compression

Patrick Stoy (pictured), the owner-broker of Wilmington-based MC Mortgage Group, is under no illusion about the current state of the housing market.

“It’s definitely slowing down. Generally, I do 80 to 100 leads a month, but right now I’m about 60 to 70. We usually average about 3.3 leads per day and right now I’ve got nine for the month,” he shrugged.

“I am definitely expecting a very cold winter. From a business enterprise perspective, I’ve got to be looking at 90 days always, and I’m already looking at what the September and October pipelines look like because I’ve got bills and families that we’ve got to feed,” he added with a degree of stoicism during a Zoom call this week.

Stoy’s gritty determination and no nonsense, pragmatic approach has so far served him well. He was, after all, voted mortgage advisor of the year by the North Carolina Home Builders Association in 2021, an accolade that came hot on the heels of a grueling mortgage deal involving a couple, their eight children and a 2,700-mile drive across the entire breadth of the country to buy a home.

It took Stoy 75 days to close the deal, due largely to the borrower’s complex employment history, but the plucky determination he displayed at the time will also be needed now, during the hard times.

Read more: A long journey’s end – and the mortgage broker who made it possible

Last month he got his fingers singed, if not burned, when Sprout Mortgage went under and he had to walk away from a condo project involving the ill-fated non-QM lender.

“I literally spent a whole month working (on this) because it’s a brand-new condo complex, and it was only the first building of five. So it was a lot of lost effort, money and energy on my side, unfortunately,” he said with no trace of regret in his voice, aware that he was not in a unique position.

“I’m dealing with other companies that I know are laying off people. The forecast for our industry is 25% to 50% of what it was doing a year ago,” he added. “We’re probably like every other company. We probably were down 50% from a staff standpoint, but it is not all because of layoffs. For me, it’s a matter of finding salespeople. We’ve got a new guy and hopefully two new guys starting next month, but I’m hiring more people on the street to go find the deals because, at the end of the day, it’s a market share issue.”

Chasing different mortgage products was not necessarily the answer either, he admitted.

“In our market, the local banks beat us on ARMs all day long. So we’re telling customers to get an ARM from a credit union,” he said. “If rates settle, I say come back to me and get the fixed.”

He said he had detected a trend among people with very good interest rates on their first mortgages to seek home equity lines and second mortgages.

“Nobody wants to ruin that first mortgage rate that they’ve got,” he said. “People don’t generally move during the winter months and get mortgages - most of them are going to be cash buyers.”

Despite the evident headwinds, he is convinced that the difficulties the mortgage industry is currently experiencing will be good in the long run.

He cited an article which claimed that there are about 378,000 loan officers in the US, a number he considers is far too high to sustain in a saturated industry.

“We want them to shake the tree so that the people that are not in this as a career get out - we know what we’re doing,” he insisted.

Read more: Federal Reserve’s inflation-busting tactics slammed

With inflation now running at 9.1% and wildly fluctuating mortgage rates, it’s also home buyers who are trying to second guess the market, sometimes to Stoy’s bemusement.

“We had a conversation with somebody yesterday where they were limited to a $300,000 purchase price, but because rates dropped from roughly 6.5% to 5.25% that now allowed them to go buy a $350,000 house,” he said.

“This winter, unless something happens, there’s going to be a lot of shifts. The good part about me being an independent mortgage broker - and I have a lot of friends that are in retail - is that those retail shops have many overheads. That will allow the independent mortgage broker to actually gain market share.”

You heard it here - unless you prepare, winter is coming.