Mortgage Industry News

Ruth Lee

As several of our posts have indicated, there is a cost to the lack of liquidity in the primary market. Mortgage bankers, underfunded due to a lack of capacity in warehouse lending, are forced to ration services and fundings. The largest banks in the country are not constrained at all… as they can just go to the Fed and get an extremely favorable rate and lend away.

The good news?  Well, those struggling banks are making an absolute killing in mortgage origination… with little pressure to expand credit permissiveness or make riskier loans.  The bad news?  The borrowers – the tip of the spear in shoring up a flagging housing market – are paying the entire price…on a macro level by bailing out those banks and underwriting the entire secondary market…on a micro level with ten times the cost for each individual origination.

A recent study by the Mortgage Bankers Association showed that the industry was making a profit of over $1,088 per loan in the first quarter of 2009, as against just $148 in the last quarter of 2008. (see article)

With a competitive primary market, the larger lenders wouldn’t just have “carte blanche” to increase fees….because remember:  competition is good.  The warehouse lending climate is definitely opening up…more participants are having real discussions about entering the market every day; however, a tenfold increase in profitability in a single year just underscores why it is so important…why it is so urgent.

I read an article recently that posited an interesting question…does the market need 8000 mortgage bankers?  In reality, that is only around 160 mortgage banker per state.  When seen in relation to the 1.3 million realtors in the US, who only handle purchase transactions and the news evidenced in this article, I think the answer is a resounding yes… and perhaps 8000 isn’t enough.