Credit Market Fall-Out #23 – The Effects on Mortgage Companies and Mortgage Brokers
The fall-out from the credit markets is having a strong effect on the longevity of small independent mortgage companies and mortgage brokers. Excerpts from the WSJ article below:
The mortgage credit crunch is tightening its grip on thousands of small to midsize lenders and brokers, allowing giant lenders to grab a bigger share of the market.
Many small mortgage banks that specialize in loans that are out of favor with investors -- anything other than those that can be sold to government-sponsored investors Fannie Mae and Freddie Mac -- are "desperate," said Doug Duncan, chief economist at the Mortgage Bankers Association, a trade group. He added that the credit crunch will cause a larger rise in defaults than previously expected. Borrowers will find it harder to refinance to avoid rising payments on adjustable-rate mortgages, and the difficulty of lining up loans will hurt house prices.
Brokers are suffering too as lenders rapidly change their guidelines and rely more on their own employees to originate loans. "We're seeing record numbers of people going out of business right now simply because there's a lack of programs and products to offer," said George Hanzimanolis, a mortgage broker and banker in Tannersville, Pa., and president of the National Association of Mortgage Brokers. "I've never seen this many people going out of the business or telling me, 'I can't do this anymore. What we used to specialize in is no longer available.'"
Even before the latest turmoil, research firm Wholesale Access projected that the number of mortgage brokerages in the U.S. would drop to 35,000 by the end of 2008 from 53,000 in 2006.