In 2015, purchase mortgage originations were estimated around $900 billion, or 14 percent higher than purchase mortgage originations in 2014. This year, $998 billion in purchase mortgage originations are expected, a number that’s predicted to steadily grow and surpass $1 trillion in 2017. At the same time, the U.S. economy is expected to grow 2.2 percent, the unemployment rate will hover around 4.8 percent, and the 30-year fixed mortgage rate will stay relatively low—between 3.7 and 4.1 percent. In addition, housing sales are strong, and the Mortgage Bankers Association forecasts housing starts around 1,233,000 in 2016.
Amidst these favorable economic fundamentals for mortgage banking, there are regulatory implementation and enforcement actions that are creating challenges for mortgage bankers as they plan to capture the upside of the 2016 mortgage market.
What growth strategies are available to mortgage lenders that REALTORS® should be aware of in 2016?
Branch Acquisition – This tactic leads to rapid acceleration of originations and borrower growth. Branch acquisition is also used for market entry, or to expand a branch’s lending footprint in target geographies. For example, Castle & Cooke Mortgage, LLC, an independent mortgage banker, part of Castle & Cooke, Inc., has already acquired three new branches in three different locations since the beginning of 2016. When a branch is sold, the acquiring mortgage firm has to transfer the employment records of the MLOs within the NMLS. This process is usually seamless, and shouldn’t affect the real estate agent/mortgage banker relationship.
Horizontal Merger between Mortgage Banking Firms – One example from 2015 is the merger between two non-bank lender peers: LoanDepot acquiring Mortgage Master after acquiring iMortgage, Round Point Mortgage and a few other lenders in the previous two years. While mergers can go smoothly, REALTORS® may find a varying degree of delays when communicating with the new corporate structure of their preferred mortgage lenders.
Joint Ventures – In the wake of CFPB enforcement, the major bank players exited the joint venture space—which are a common strategy to grow borrowers fast. However, a handful of joint ventures remain, contributing a small fraction of originations. One example is the Realogy – PHH joint venture, which provides mortgage origination services to 790 real estate offices within NRT LLC, a subsidiary of Realogy. PHH has the exclusive right to use the Century 21, Coldwell Banker and ERA brand names in marketing PHH mortgage loan products through PHH Home Loans. In addition, there are some players that are boosting their joint venture strategy to capture the growth in the mortgage market. For example, iMortgage, a subsidiary of LoanDepot, has announced a hire who will lead joint venture partnerships.
Positive Impacts on Real Estate Brokerage Businesses
- When the preferred mortgage lender, or mortgage branch, has been acquired by a bigger lender, the broker and their agents—as the referral partners—will benefit from the synergies created by the merger.
- When the preferred lender sets up a joint venture with another financial institution, or an industry participant such as a real estate brokerage or builder, brokers and their agents benefit from dedicated originations and fulfillment services, which can reduce the loan origination cycle, leading to more closings.
- Negative Impacts on Real Estate Brokerage Businesses
- Brokers and their agents could be adversely affected by branch acquisition in the cases where trusted MLO partners are terminated or forced to leave the market.
- Consolidation runs the risk of budget shortfalls or cutbacks for real estate agent/broker co-marketing or marketing service agreement spends.
Dave T. Garland is a principal with Rainmakers Group.
For more information, visit www.rainmakersgroup.com.