PE backed Non-Bank Mortgage Lenders in TROUBLE. Mortgage Brokers Ascending. . .

Over the last couple months I have had countless hours of dialogue with Executives from PE firms concerned about their positions in mortgage entities, patience is running thin & the short term outlook is looking grim. Many PE backed non-bank lenders are scrambling to cut cost by outsourcing technology, downsizing staffing, and shifting the focus of their business model (distributed retail to wholesale) ahead of an expected bottom line blood bath in Q4 18 and Q1 19.... I'm sure my feedback to PE executives about the bloated cost structure of most of these entities is not easing their concerns.

Most of the decision makers at these non-bank PE backed mortgage lenders have been living on a historically longer then normal market cycle with zero strategy for current market conditions. 

Two realities are coming into focus:

1. Many Non-Bank Mortgage Lenders are not properly capitalized: An unexpected spike in mortgage defaults or an unexpected increase in servicing run off as a result of a quick drop in rates would put many of these lenders completely out of business. Almost all of these entities have downsized staffing in their servicing portfolio retention call centers based on the forecast (a bet) that interest rates will only rise over the next couple years. The problem is if rates unexpectedly decline; with reduced staffing to protect against servicing portfolio run off, these lenders will be exposed to a harsh reality (Example: Stonegate Mortgage post Brexit). . .

2. Most mortgage lenders were NOT prepared for worsening market conditions: Many Non-Bank Mortgage Lenders with a focus on distributed retail are losing money due to the high cost structure of supporting this model, which they are blaming on "Loan Originator Compensation" but at the same time are unwilling to address because of concerns of losing loan originators. On the flip side, lenders with a consumer direct high marketing spend focus are finding the cost of customer acquisition to be exploding as rates rise; these lenders are also losing money.

The only model currently winning in the mortgage industry is wholesale. Of the top 10 mortgage lenders year to date; only the lenders in wholesale were up YoY through the first half of 2018. (See Image Above, Far Right Column). With one clear outlier in United Wholesale Mortgage whom is 100% focused on wholesale, up an eye popping 67.7% YoY, moving up to the #4 non-bank mortgage lender in the country. The growth in wholesale is only getting started, as the shift of loan originators from retail mortgage bankers to mortgage broker is increasing substantially each month.

The Association of Independent Mortgage Experts (AIME) has created a dedicate 'transition team' to provide end to end support for loan originators making this transition. Please email [email protected] if you are interested in learning more about becoming an independent mortgage broker. AIME hosts a weekly conference call to answer questions about becoming an independent mortgage broker and to share all of the benefits of becoming a mortgage broker. Independent Mortgage Brokers account for over 20% of all purchase mortgage transactions year to date, and that number is rising quickly! Now is the best time in the history of the mortgage industry to become a mortgage broker, let AIME help show you why!