Magazine Feature: The New Wholesale

*The New Wholesale Channel*
**By Andrew Weiss-Malik**

***The wholesale mortgage channel has always leveraged its primary advantage of providing maximum choice to consumers – choice of lenders, products and price. However, in the aftermath of the housing crash, the bailout of the major banks and the decimation of the wholesale channel, the market penetration of mortgage brokers went from 7 out of every 10 loans down to nearly 1 of every 20 loans. But from these depths a new industry is being rebuilt. Broker market share has doubled since reaching its low water mark. The new wholesale industry has the same foundation of maximized consumer choice, yet is framed with a new structure of technology, innovation, flexibility and competition.

****The mortgage industry as a whole lost about 50 percent of its workforce since the highs reached in 2006. While some jobs have been regained, the total industry employment is still more than 200,000 below its record high level. The wholesale channel of the mortgage industry was even harder hit, losing closer to 80 percent of its employees since 2006. Current estimates put wholesale mortgage employment (lenders, brokers and originators) between 40,000 and 60,000, a long way from the 200,000—250,000 it once saw. Accurate figures are hard to come by given the hybrid nature of many firms.

****The US Federal Reserve’s support of a low interest rate environment, the availability of severely discounted foreclosure and short-sale housing inventory and several federal programs designed to facilitate refinancing by consumers, have combined to keep origination volumes high. But as you might imagine, high volumes and a reduced workforce have led to processing delays. These delays have been seen across the origination channels but are more acute in the large retail bank mortgage operations due to the number of employees dedicated to underwriting and loss mitigation efforts. How has the wholesale channel managed to maintain better production metrics despite an even more severe staffing squeeze? While there are likely many reasons, two of the most significant are technology and innovation.

****Our firm, 360 Mortgage Group, is a good example of how the wholesale channel continues to push the envelope relative to technology and innovation. In January 2011, a change occurred in the way in which brokers interact with the Federal Housing Administration (FHA). As part of the FHA’s efforts to reform its process and work with higher capitalized counterparties, they eliminated the ability of brokers to directly obtain case numbers for their files. While this was an understandable change, it created a real hardship for brokers and a real delay in the loan origination process. What 360 Mortgage Group did in response, since we are able to directly interface with FHA Connection, was to create a technology solution that enabled our broker partners to instantaneously obtain FHA case numbers all the while remaining inside of our web platform. This solution has been a huge hit and empowers brokers to better serve their clients.  Additionally, our platform maintains a real-time synchronization with FHA Connection which eliminates the data integrity issues most mortgage banks experience.

****On the innovation front, we have used existing technology in a new way that is paying dividends for us, as well as our clients and their customers. We are using real-time traditional chat tools to enable our broker partners to actively engage our underwriting staff during business hours.  Instead of voicemails or emails that must be queued and responded to, or forwarded to others for response, we have actual underwriters available at a moment’s notice for a quick Q&A. This system greatly facilitates the process and creates high levels of satisfaction for all involved.

****The pressure that the wholesale channel faces to implement or create new technological solutions, or to innovate within, stems from industry competition. Retail mortgage banks servicing exclusive branch offices do not face the competitive and innovative pressures facing the wholesale sector. The flexibility to implement these innovations quickly is the result of not having to resell loans to federal insured depository banks which have a desire to conduct business in the same way it has been done for 30 years. The mid-sized wholesale mortgage bankers that now dominate the space since the retreat of the large banks, are by-and-large unburdened by the legacy technology systems that made the banks unable to adapt to changing market conditions and the needs of brokers and consumers. Cloud computing and flexible technology platforms that can be modified on the fly give the remaining wholesale bankers a real competitive advantage over the banks retail operations.

****Due to this ongoing reality of effective use of technology, process innovation, flexibility and competition, the wholesale channel will continue its resurgence and take market-share from the other origination channels. Wholesale origination may never reach 70 percent market-share again, yet 30 percent plus is a realistic expectation.