Anyone who pores through business and economic news on a daily basis may be feeling like they’ve read nothing but a series of obituaries for the past few months. The twin nemeses of inflation and interest rate increases have led to tangible consequences in the corporate world with companies downsizing or ceasing operations.
The seemingly impenetrable technology sector is showing cracks. A spate of layoffs were announced in the span of two weeks this past November. On the heels of his $44 billion purchase of Twitter, Elon Musk wasted little time in revamping the social media giant by cutting half of its 7,500-person workforce. Meta slashed 11,000 positions as CEO Mark Zuckerberg admitted that post-pandemic growth projections “did not play out the way I expected.” Amazon followed suit with 10,000 layoffs, the largest cutback in the company’s history, even as the lucrative holiday shopping season was set to kick off.
In order to align with my true goal of serving a consumer at the highest level … the broker channel was the only option.
– Matt Gouge, branch manager, UMortgage
The pace of closures and cuts in the mortgage industry quickened around the same time. Finance of America Companies shut down its forward mortgage arm and Athas Capital Group prepared to shut its doors entirely. Mr. Cooper Group, New American Funding, CrossCountry Mortgage and Freedom Mortgage have combined to lay off thousands of employees since the start of last year.
There are ample financial reasons for these decisions. Attom Data Solutions reported that origination volume in third-quarter 2022 declined by $553 billion, or 46%, compared to Q3 2021. This was the largest annualized decrease since the dot-com bust of 2001. Few areas of the country were immune to shrinking demand as the number of closed loans in Q3 2022 dropped on a quarterly basis in 206 of the 210 metro areas analyzed, the company noted.
In a time of widespread distress, however, there are signs that mortgage industry professionals are adapting. According to a recent United Wholesale Mortgage analysis of Nationwide Multistate Licensing System data, more than 6,300 originators who left the retail channel in 2021 became independent mortgage brokers. Another 7,000 did so in the first nine months of 2022. And the retail-to-wholesale shift may provide innumerable benefits.
“I came over to this side and I realized everything that I’d been told and brainwashed about — how it’s slow, how the technology is terrible, how there’s no community to help each other — was just nonsense,” says Brian Decker, who opened Modern Lending in Temecula, California, in 2019.
“I can’t say, ‘I’m a consumer advocate. I want to put you in the best loan for your scenario,’ and then I’m captive working at a retail place where I’ve got to put you in this loan (because) that’s all we’ve got,” says Matt Gouge, branch manager for UMortgage in Sacramento. “In order to align with my true goal of serving a consumer at the highest level and bringing them the best product, the broker channel was the only option.”
A study conducted by NDP Analytics for the Association of Independent Mortgage Experts supports Gouge’s statement. One in five borrowers used a broker to secure mortgage credit in 2021. Across all income levels, the average borrower who worked with a broker that year saved about $9,400 in various fees and interest over the life of their loan. The typical minority borrower saved an additional $1,000.
Decker, who has worked in the mortgage industry since 2004, says there’s a misconception about technology being initially developed for and used by retail lenders, with the wholesale channel adopting it later. He’s found that to be untrue due to the competitive nature of the wholesale model. If one of his 17 funding sources has inferior pricing or technology, he can take his business elsewhere.
An example is a single-click automated underwriting system (AUS) that was offered in the wholesale channel many months before retail lenders latched on. “They have to be leading edge to constantly provide a market advantage so that we want to send loans to them as an investor,” Decker says. “I can run AUS, lock the loan, order my appraisal and disclose the loan to the borrower all in 20 minutes — what used to take me two hours on the retail side,” he says.
Gouge, who became a broker in 2018 and prominently markets himself as “Matt the Mortgage Guy,” has more than 18,000 subscribers on YouTube. That kind of following wouldn’t have been possible, he says, if he didn’t deliver “better, faster and cheaper” service on high-demand products such as 30-year conventional and government-backed loans.
“Ultimately, if you’re a loan originator thinking about making any change, people always work with who they know, like and trust, and that’s the originator,” Gouge says. “Really, no matter what banner is flying behind you, you are going to get business because they know, like and trust you as an individual.”
Decker believes that current market conditions and the notably larger margins that are baked into the retail channel are making these originators less competitive. A year ago, he says, an interest rate premium of 50 to 75 basis points might not have mattered much to a consumer. Today, it could be the major factor in winning or losing their business.
“You’re going to be in a great position to be able to gain market share even when originations are down,” Decker says. “And even though we’ll be down 30%, 40% (from 2021 to 2022), we’re still keeping our doors open.” ●