Although no one has exact numbers, the fallout from the mortgage market morass will be just as devastating for the brokerage sector as it has been for the rest of the industry, according to a long-time analyst who keeps tabs on that part of the business.
"We think the number of brokerages will decrease to 35,000 nationwide by mid-2008," according to Tom LaMalfa, a partner in the Columbia, Md.-based research and consulting firm, Wholesale Access. LaMalfa made his prediction in a speech earlier this month to the Illinois Association of Mortgage Brokers. The talk was re-printed in full in the industry newsletter, the "Holm Mortgage Finance Report." If the consultant's dire forecast proves correct, it means nearly a third of the brokerage business will disappear, leaving the sector essentially where it was in 2000, when Wholesale Access counted only 35,000 firms.
In its most recent survey of the sector, Wholesale Access counted 53,000 brokerage firms at the start of the year. And that was down from 54,000 in 2005, when the mortgage meltdown began.
The company counts a firm as being in business if someone answers the phone or does at least one loan a year. Many companies are one-person operations, but the typical firm has seven employees -- one manager, five loan officers and a processor.
If businesses are going to be hit hard, their workforce is going to be hit even harder, according to LaMalfa, who predicted that the number of brokerage loan officers will drop from 300,000 to 175,000 or so.
He also told the Illinois group that there will be a 50 percent reduction in the number of correspondent lenders, from about 2,000 to 1,000. The number of wholesalers also is likely to be cut in half, from about 300 to 150.
But he expects the number of "mega-wholesalers" to grow, from about five today to 12 or 15 as the share of originations "gets redistributed."
"Given this general environment, survival should be everyone's goal," said LaMalfa, who has been an industry analyst and observer for more than 30 years.
To stay afloat, he suggested that brokers switch to purchase money mortgages that fall within the conforming loan limit, currently $417,000.
"In 2008, mortgage brokering won't pay the bills unless at least 70 percent of your production" is in those products, the consultant.
Brokers "who have been doing 80 percent refis and subprime should probably consider a career change," he said. "If someone doesn't want to operate in the agency space, there's no market for their services."
While those who blame brokers for the current debacle probably believe the business is only reaping what it sowed, LaMalfa laid responsibility for the fallout squarely with Wall Street, which he said has now "pillaged MortgageLand" for the third time in 20 years.
Gordon Gekko, the movie character played by Michael Douglas in the Oliver Stone film, "Wall Street" -- and who popularized the phrase "greed is good" -- "would be proud of the way Wall Street (has) hosed investors," he told the IAMB meeting.
"The increasing rate of delinquency and default (is) evidence that investors ... both here and worldwide got shafted by the guys from Wall Street," he said.
