As the housing market continues to evolve, the mortgage industry is following suit. And some juicy, front-page news? Mortgage bankers are shifting to brokerages in droves.
The wholesale mortgage industry (think independent mortgage brokers and mortgage brokerage franchises) is heating up as home finance professionals increasingly switch from bankers to brokers. Finally, new and veteran mortgage brokers alike are gaining some serious traction.
Mortgage banker – This mortgage professional works for a bank and only offers the select home loan products available at their bank.
Retail lender – These tend to exist online and offer mortgage loans direct to (future) homeowners. Like a bank, they only offer limited loan options from their company.
Wholesale lender – These lenders don’t work directly with (future) homeowners. They offer their mortgage loan products via mortgage brokers.
Mortgage broker – Does not work directly for a company that offers loan products. Mortgage broker s work with (future) homeowners to compare mortgage loan options from any number of wholesale lenders, meaning they have access to the widest variety of loan types.
Today, mortgage brokers originate around 22% of all home loans, and that figure is unlikely to dip any time soon—quite the opposite. Broker-originated loans are projected to make up a good chunk (33%) of the market by 2026. That means that brokers could be completing one-third of all mortgage transactions in less than three short years. Take that, banks!
Note: Before the Great Recession, brokers accounted for around 50% of the home finance market. Who’s to say a figure that high isn’t also on the horizon?
The Nationwide Multistate Licensing System (NMLS) reported similar changes over the last two years:
- 6,353 loan officers left retail for the independent mortgage broker sector in 2021.
- Over 7,000 loan officers left retail for wholesale lending in the first nine months of 2022.
- The wholesale sector saw almost 18,000 new loan officers between September 2021 and September 2022.
This kind of growth can only be described as “never-before-seen.”
And whether you’re in a recruiting rut or looking for a way to add another revenue stream to your real estate brokerage, this news should pique your interest. Because, well, why are so many home finance professionals increasingly opting for independent brokerages and mortgage brokerage franchises? In their hypothetical exit interviews, many are citing the greater potential for business when accessing wholesale mortgage loan products. In other words, more product types hypothetically equals more clients. And let’s be honest. The same is true for your brokerage’s homebuyers.
Here are some of the top reasons the mortgage brokerage sector is exploding:
Changing Consumer Needs and Preferences
Client preferences in home finance professionals also play a role in the growing number of wholesale mortgage providers.
Consumers are eager to reap the rewards of working with mortgage brokers, who offer diverse products and services. This is important because today’s buyers themselves are diverse, with needs and preferences that are just as unique as they are. And, as you know better than anyone, home affordability is quite the hurdle for many would-be buyers.
That means that mortgage brokers, who have more flexibility than bankers, might be a better fit for:
- Women, who may have less capital than men.
- Ethnic and racial minorities, who may have less capital than their White counterparts.
- Millennials and Gen Zers, who may have smaller down payment amounts and larger student loan debt balances than older buyers.
- Low-income borrowers, who might be turned away by traditional lenders.
- Other borrowers, who simply want increased choice.
Mortgage brokers may be better equipped to address these needs, helping to ensure that homeownership really is for everyone. That’s because (unlike banks and direct retail lenders), mortgage brokers can compare dozens of potential loan options from numerous wholesale lenders. Banks and retail lenders can only offer what they have in-house, minimizing their potential borrower pool.
Borrowers are also making their preferences known when it comes to convenience. As it turns out, 86% of consumers reported that knowing a firm offered one-stop shopping had a positive impact on their selection of an agent. Plus, nearly three-quarters of consumers are also willing to pay a premium for that convenience. That means independent brokers and mortgage brokerage franchises could win out again, as they can often work more closely with real estate brokerages. Real estate bankers are beginning to look into the option of providing mortgage services in-house. This expands their revenue opportunity, makes the purchase process easier for everyone, and promotes customer loyalty.
Finally, working with a broker might mean serious savings for borrowers. Choosing an independent broker could mean $9,400 in savings for the typical consumer and $10,400 for a minority consumer. Talk about a demand driver!
Better Benefits for Mortgage Brokers
Adding mortgage services to your real estate office can mean happier customers and real estate agents. and when it comes to recruiting? You’ve got it in the bag.
The option to work closely with a real estate brokerage like yours is yet another job-related benefit—one that’s so much better than a foosball table. Real estate and mortgage all on the same page means better communication, easier access, and simplified referrals. These benefit both the agents and the loan originators, not to mention the clients.
Plus, almost 90% of job seekers would give “some consideration” or “heavy consideration” to a position with superior benefits. And that’s even if the position pays less. Brokers may not have to worry about that, though.
Saving clients money and connecting them with a loan they love also comes with an inherent sense of satisfaction. Loan officers who have made the switch cite freedom and an ability to better serve their clients as some of the biggest benefits of wholesale over retail. After all, who wouldn’t want to help make dreams come true?
A Strong Purchase Market with Refinances on the Horizon
The mortgage industry might be poised for comeback in 2023. Rates are expected to drop by the end of the year, which means buyers could be flocking back to the market soon.
This is exactly what experts had predicted at the start of the year: latent demand in housing. In layperson’s terms, that means that millions of potential buyers are sitting on the edge of their seats, watching closely for rate drops. If and when those rates go down, many of them—roughly 78%—will need mortgages. That’s where these independent brokers may be able to come in.
But buyers aren’t the only ones keeping an eye on housing affordability. Government-sponsored entities (GSEs), like Freddie Mac and Fannie Mae, have some skin in the game, too. Fannie and Freddie are also focusing on affordability, with potential upcoming policies that incentivize buyers. Between lower rates and all these perks, independent brokers have the potential to have their hands full.
Plus, when it comes to mortgage, you can’t forget about refinances. With interest rates expected to dip, a refinance boom could very well be in the cards. That means brokers could be busy with new clients (looking to purchase) and returning clients (ready to refinance).
Wrapping Up: The Mortgage Brokerage Boom
So, can you blame these former bankers for throwing in the towel and striking out on their own? From more flexibility to increased earning potential to changing consumer preferences, the wholesale boom isn’t such a mystery after all. This trend is one to watch for anyone in the industry, though, as these brokers are sure to continue trailblazing.
Hi. We’re Motto Mortgage — a mortgage brokerage franchisor. That just means we’ve put a mortgage business together for you. With Motto, you can get an additional revenue stream and your customers get in-house home loan services. Plus, we’ll help with the heavy lifting so you can grow your business without having to take your eyes off your real estate brokerage.
Published on May 8, 2023
