Loan Brokers

SIC 6163

Companies in this industry

Industry report:

This category covers establishments primarily engaged in arranging loans for others. These establishments operate mostly on a commission or fee basis and do not ordinarily have any continuing relationship with either borrower or lender.

Industry Snapshot

The loan brokers industry is made up of firms principally engaged in arranging loans between borrowers and lenders. Such enterprises commonly earn a fee or commission for their services. Mortgage brokers dominate the industry, although loan agents also arrange miscellaneous business, farm, and personal loans.

Loan agents and brokers have existed for centuries, but the industry received little respect or attention before the 1980s. In fact, as late as the mid-1980s, brokers were relatively insignificant players in the multibillion-dollar mortgage lending business. In the late 1980s and early 1990s, however, several factors combined to propel the industry to unprecedented stature. Low interest rates, a trend toward outsourcing and contracting by financial institutions, and a shift in the structure of U.S. financial markets were the most prominent forces boosting industry success.

Interest rates reached near record lows during the first half of the 2000s, pushing total U.S. mortgage originations over the $2 trillion mark for the first time in 2001 and reaching $3.8 trillion in 2003 before falling off to $2.653 trillion in 2004. In 2004, the mortgage broker industry was responsible for more than $1.8 trillion, or 68 percent, of all mortgage originations, compared to 20 percent in 1987.

By the first half of 2007, the mortgage broker industry was losing some of its market share of subprime loan originations to banks and direct Internet operations. The mortgage broker industry still had the bulk of the market for such loans, however, at 58 percent compared to 72 percent in the second half of 2006.

Roughly 44,000 mortgage brokerage firms operated in the United States in the mid-2000s, compared to none in the 1970s. Mortgage loan brokers in the late 1990s began offering a variety of mortgage options for customers, including the adjustable rate (ARM) mortgage (designed to help customers take advantage of low rates but placing the risk on the customers' shoulders should rates suddenly climb) and hybrid or two-step mortgages. Two-step mortgages offered customers an initially low five- to seven-year rate, with the rate then climbing above the market rate. These loans served to let customers borrow with a lower outlay and the hybrid mortgage qualified buyers for more money than under traditional mortgage qualifying means. During the early 2000smany of these options had become less popular due to falling interest rates, but by the mid-2000s, as interest rates began to edge upward, ARMs once again were increasing consumers' loan choice.

However, when the housing bubble burst in 2006--housing prices dropped and interest rates rose--many homeowners found themselves "upside down" on their mortgages. In other words, they owed more than their house was worth. In addition, consumers could not make the higher payment required with the increased interest rates, and foreclosures skyrocketed to record levels in 2009 and 2010.

Organization and Structure

Although loan agents and brokers serve other markets, mortgage loans make up the vast majority of industry sales. The four-step mortgage lending process includes originating the loan, which entails approving and selling a mortgage to a customer; funding or underwriting the loan; selling the mortgage in the secondary mortgage market, which supplies lenders with cash to make new loans; and servicing the loan, which involves collection, reporting, and administrative management duties. Most mortgage brokers are concerned only with the first step of the process, mortgage origination. However, some brokers facilitate the buying and selling of mortgages in the secondary market.

Brokers, by definition, act as an intermediary between a buyer and a seller in a transaction. They may represent either party and do not take possession of goods or property or deal on their own account. Brokers receive a fee or commission from one or both of the parties that is usually based on a percentage of the value of the transaction. Brokers differ from dealers in that dealers are transacting on their own account and may have a vested interest in the transaction. Brokers fill an important marketing need by bringing buyers and sellers together. They also facilitate transactions by providing expertise and advice to buyers and sellers.

The two basic types of mortgage brokers are retail and wholesale. A retail broker, or third party originator (TPO), takes a loan application from a potential buyer and submits it to a lender. The lender reviews the application to determine whether to grant the loan. If the lender makes the loan to the applicant, the broker secures a commission, usually between 1 percent and 2 percent of the loan amount. Some lenders also pay a fee to the broker for rejected applications.

Wholesale mortgage brokers represent a smaller segment of the industry. They arrange the purchase and sale of mortgages that have already been originally funded. They help bankers find investors for their mortgages, so that the bank will have money to make new loans, for example. They also solicit retail brokers and mortgage originators that are seeking the most beneficial mortgage terms for their clients.

Mortgage brokers can deliver many benefits to lenders and borrowers. For instance, because brokers are able to search efficiently several institutions to find the best terms, they save time for consumers and help them get the lowest rates and closing costs. In addition, brokers often act as their customers' advocate, walking them through the application process and helping them to avoid delays caused by minor technicalities. Sometimes they are even able to reduce closing costs or waive special fees. Brokers commonly speed up the mortgage process by providing a candid preliminary assessment of what a buyer can afford before the consumer applies for a loan. Brokers are also able to offer several different mortgage options to buyers, whereas individual lenders usually have a more limited selection of lending instruments.

Mortgage brokers benefit the lending industry by providing a more flexible and less costly channel for originating mortgages. Brokers can alleviate a bank's or saving and loan's need to hire and support a sales staff, for instance. By outsourcing their origination activities, banks are able to eliminate many management and administrative costs, education and training expenses, facility expenditures, and salaries and benefits required by an in-house mortgage origination staff. Brokers also allow lenders to diversify geographically their lending operations and to enter and exit different markets very quickly.

Types of Brokers.
Most mortgage brokers can be classified into one of four different categories, though "full-service" firms may participate in two or more areas of the business. Traditional mortgage brokers are typically lenders of last resort. Consumers sometimes turn to this type of broker when they are unable to secure a market rate loan through a lending institution. As a result, these agents usually deal with high-risk, high-interest loans and often participate in the fractionalization of mortgages, meaning that more than one investor is involved with a single mortgage.

Conventional residential mortgage brokers represent 70 to 90 percent of the industry. These professionals work with consumers to secure the best possible loan terms for their particular needs. They represent products offered by the largest financial institutions that are indirectly supported by government-sponsored secondary market institutions, such as Fannie Mae and Freddie Mac. Wholesale brokers are also included in this group.

Commercial mortgage brokers arrange loans for nonresidential or multifamily properties. This market differs in that it is not supported by secondary market agencies, and it is not subject to the state and federal regulation imposed to protect residential consumers. Commercial brokerage fees are often three or four times greater than residential mortgage commissions. However, lucrative fees can be elusive because commercial loans are much more difficult to close. Commercial brokers also deal with a wider variety of lenders, including insurance companies, pension funds, and foreign investors.

A fourth sector of the industry is made up of firms that broker government and miscellaneous loans. Federal Housing Administration and Veteran's Administration loans make up most of this market.

Competitive Structure.
In the late 2000s, the National Association of Mortgage Brokers (NAMB) boasted a membership of 25,000, about 60 percent of all mortgage brokers in the country. They also had chapters in all 50 states. The industry is difficult to track because many of its participants overlap into other lending, banking, and brokerage activities.

Most brokerage firms are very small shops with between one to 10 employees. Some firms have as many as 50 workers. Though they are self-employed, some brokers act as agents, working only for a single lender. Such agents and brokers usually operate on 100 percent commission but may also receive health benefits or application fees. Other brokerage arrangements include franchise operations that maintain chains of mortgage brokering shops on a regional or national scale.

The industry is regulated primarily through state laws that are designed to protect consumers against fraud and to discourage financial misconduct. Although some states, such as Mississippi, have few constraints, others have more advanced regulatory structures. In 2005, Florida, for instance, required brokers to take 72 hours of classes on mortgage finance and have at least one year of real estate experience within the five previous years before applying for a license. Brokers are also required to disclose all fees that they received. In Illinois, brokers must pay $2,700 for investigation and licensing fees, be bonded for at least $20,000, and prove a net worth of $50,000. The American Association of Residential Mortgage Regulators (AARMR), which served as a clearinghouse for reports of industry fraud in the industry, continually encourages more uniform state legislation. In addition, according to the NAMB, in the early 2010s the industry was also regulated by 10 federal laws and five federal enforcement agencies.

Background and Development

Mortgage lending in the United States was limited before the 1930s. Savings institutions and life insurance companies were the primary lenders for homebuyers. They often relied on mortgage bankers to originate and service their loans. These lenders typically required a 50 percent down payment on a piece of property and usually offered a loan term of only five years. Because lenders placed themselves at significant risk in these transactions, they charged high interest rates. As a result, the market for mortgage loans was negligible in the early part of the twentieth century.

The Great Depression, which catapulted large numbers of mortgages into foreclosure and bankrupted many lenders, gave birth to a new lending system in the United States. Realizing the need for a stable and accessible mortgage market, the federal government created the Federal Home Loan Bank (FHLB) system in 1932, the Home Owners Loan Act in 1933, and other programs that sought to reduce the risk of mortgage lending and enforce industry standards. These initiatives, along with FHA and VA programs, served to insure mortgages with government funds and to protect consumers.

The mortgage banking industry flourished in the postwar economic boom. Banks and other financial institutions, which bought many mortgage banking operations, integrated origination and servicing activities into their organizations. As mortgage lending ballooned, the secondary mortgage market evolved as a place for lenders to sell their loans to investors. Wholesale mortgage brokers emerged to unite these investors and lenders.

Although some retail brokers also served the industry in the 1960s and 1970s, loan origination remained an activity provided almost solely by mortgage banks and savings and loans. Loan brokers, in fact, were often viewed as seedy moneylenders that charged excessive fees and rates to arrange loans for problem borrowers. Rather than relying on sound credit analysis, brokers usually protected themselves by insuring that the borrower had a substantial amount of personal equity in a property.

Several developments in the 1980s served to alter the mortgage brokering industry, as well as most other U.S. financial services industries. High bond rates and the term structure of interest rates in 1981 caused a massive shift of money from thrift institutions to money market funds. Because they had no money to make loans, mortgage-lending institutions laid off thousands of loan originators to whom they paid salaries. Many displaced originators became self-employed mortgage brokers who worked off commissions or on contract, rather than salary.

In 1982, money market rates plummeted and institutional lenders were again prepared to lend. Rather than hiring new originators, however, many institutions continued to look to brokers to supply their mortgages. As mortgage activity accelerated in the early and mid-1980s, an identifiable, respectable mortgage brokerage emerged to service the origination function. Many brokers expanded their services and even began franchising their businesses. Savvy lenders, meanwhile, concentrated on underwriting, funding, and service activities, causing many organizations that retained the retail origination function to become less competitive.

Increasing the importance of the mortgage brokers' role in the 1980s was the introduction of hundreds of financial instruments that lenders began offering to potential borrowers. Adjustable rate mortgages (ARMs), for example, grew in popularity as hundreds of new ARM options allowed buyers to access a plethora of interest rate structures and payment terms. Before the 1980s, mortgage lenders offered a relatively homogenous product. Borrowers basically had to choose only between government and conventional loans. Inundated with financing options in the 1980s, borrowers began to seek the aid of brokers that could identify the best product for their individual needs.

In addition to increased outsourcing of originations and the development of new mortgage products, a third advancement affected the brokerage industry during the 1980s--the rapid proliferation of new mortgage securities. Among other consequences, these new securities succeeded in luring short- and intermediate-term investors to the market and in lubricating the flow of money for new loans. Although retail mortgage brokers indirectly benefited from these developments, many traditional wholesale brokers found themselves displaced by securities trading and brokerage firms that sold securitized mortgages on over-the-counter markets.

Although changing financial markets gave birth to a respected mortgage brokering industry in the early and mid-1980s, it was not until the late 1980s and early 1990s that the industry rocketed to prominence. Historically low interest rates, which caused massive mortgage refinancings and spurred new originations, contributed to trends started earlier in the decade and pushed industry revenues to all-time highs.

While brokers originated a negligible share of all mortgages before 1981, by 1988 brokers had captured about 20 percent of the market. By the early 1990s, the industry was selling about 45 percent of the more than $800 billion worth of mortgages originated annually in the United States, resulting in total fees and commissions of between $10 billion and $14 billion. Some of the most successful individuals were generating as much as $500,000 per year in fees.

Massive growth in the mortgage brokering industry is reflected in NMBA membership growth. Started in 1973, the NMBA had just a few hundred members by 1980. Membership jumped to about 440 by 1988. By 1991, more than 1,200 brokers belonged to the Phoenix organization. Furthermore, the NMBA estimated that about 16,000 companies were providing mortgage-brokering services in the early 1990s that were not association members. Likewise, in 1988 more than 85 percent of all applicants to the Mortgage Bankers Association (MBA) were classified as brokerage companies--up from a minute fraction of that amount in the early 1980s.

Mortgage brokers had grown to dominate entire regions in some areas of the United States. In California, for instance, more than 70 percent of all mortgages were originated by brokers in 1991. "In 1984, there were not five mortgage brokers in the state of New York," said Ralph LoVuolo, Sr., President of LoVuolo & Company, Inc., in Mortgage Banking. "Now there are almost 2,000."

As interest rates continued to fall in the early 1990s, the mortgage brokering industry expanded. Lenders were seeking increasingly faster processing times, high volume, geographic diversity, and lower overhead that they could achieve by outsourcing their origination activities. Consumers were also becoming more comfortable with the concept of using mortgage brokers rather than traditional lending institutions. By 1993, brokers were originating about 50 percent of all U.S. mortgages. The percentage remained the same through the late 1990s, with mortgage brokers originating approximately $405 billion worth of loans in 1996.

Though the industry faced few obstacles to continued growth, one imminent threat promised to snuff out massive profit opportunities that characterized the 1980s and early 1990s--rising interest rates. Rates on long-term mortgages dipped below 7 percent in the early 1990s, at the same time that ARMs fell to less than 4 percent. Homeowners subsequently rushed to refinance their mortgages or to buy new homes. By 1994, though--after reaching 30-year lows-- interest rates appeared to have stabilized and were even inching back up. In early 1997, the average mortgage rate for a 30-year loan was approximately 8.25 to 8.5 percent, while a 15-year loan was around 7.75 to 8 percent.

Brokers who had been involved in the mortgage industry for long periods were well aware of the cyclical nature of the business. In fact, many brokers left other jobs to participate in the industry during the refinancing boom of the late 1980s and early 1990s. Many of those same workers planned to exit or reduce their dependence on the industry as rates climbed. They would go back to real estate appraisal, commercial brokerage, insurance underwriting, or some other job and wait for the next industry upswing.

Despite the expectation of higher interest rates and waning mortgage activity, the recent surge of growth had served to establish respect for brokers. Once viewed suspiciously by most lenders, brokers were now viewed as potentially excellent sources of originations. Even federal secondary marketing organizations, such as Freddie Mac, were buying brokered mortgages in 1997 and extolling the advantages of such purchases. Greater respect and acceptance of brokers by financial institutions meant that brokers would increase their share of the mortgage market, thereby reducing the negative effects of rising interest rates.

Other factors that buoyed industry earnings during the inevitable down-cycle included a lending practice called "warehousing." Warehouse lenders provide loans for other lenders to use to underwrite new mortgages. In 1993, about 25 domestic banks and a dozen foreign banks were making warehouse lines of credit available to mortgage banks and even mortgage brokers.

Fraud and Regulation.
While most mortgage brokers in the mid-1990s were legitimate, lax industry regulation contributed to widespread abuse by some brokers. Second-mortgage scandals, particularly, marred the industry's reputation in the late 1980s and early 1990s. In one type of scheme, for example, dishonest brokers offered to provide home improvement services to prospects. They convinced homeowners to take out a second mortgage on their home to pay for the repairs. Besides charging interest rates as high as 20 or 30 percent, the brokers sometimes also delivered shoddy construction. Such brokers typically operated in low-income neighborhoods where their prospects did not have access to normal bank credit. A federal law went into effect in 1995 that addressed some of the problems. Other scams involved fraudulent documents and embezzlement of lenders' funds.

Broker fraud lawsuits were filed in Alabama, California, Georgia, Virginia, and many other states in the mid-1990s. In 1996, the state of Idaho, for the first time, passed legislation regulating mortgage brokers in an effort to protect consumers. According to FBI and mortgage professionals, 10 to 15 percent of all loan applications in the mid-1990s involved some kind of fraud.

In an effort to stem fraud and protect the reputation of legitimate operators, several states attempted to regulate the fast-growing industry. New regulation was aimed at requiring brokers to prove a minimum net worth and to secure bonding. Some states in the mid-1990s were also striving to develop fee limits and to mandate written agreements between brokers and customers. In general, regulators were seeking increased disclosure requirements for borrowers and investors and stricter licensing requirements.

Many legitimate brokers were wary of what they viewed as federal and state government intrusion. Some observers believed, for example, that a lack of uniformity in state regulations would severely impede the efforts of some lenders to establish national networks of brokers. Other brokers believed that regulation would squelch profits. In 1993, brokers in Illinois, one of the more heavily regulated states, were already spending an average of $4,000 to $8,000 annually on license and audit fees, examinations, and state spot-checking programs. Likewise, brokers in Arizona were required to pass a course, two exams, and post a $10,000 bond before they could operate.

Regulation also occurred at the federal level in the mid-1990s. Fannie Mae, for instance, required participating lenders to spot-check 10 percent of all the mortgages they produced and revise discretionary samplings of brokered loans. Likewise, the Department of Housing and Urban Development was pressuring the industry to disclose its fees. Other brokers welcomed new regulations as a way to exterminate illegitimate operators.

Mortgage interest rates remained low in the late 1990s, and reforms instituted by Freddie Mac and Fannie Mae helped loan brokers offer the customer more for their mortgage loan dollar. In 1999, Freddie Mac created options to lower the cost of mortgage insurance, required for homeowners with less than 20 percent of a down payment for the total mortgage amount. Such reforms could save a customer with a 30-year, $100,000 mortgage anywhere from $1,302 to $2,800. For larger mortgages, loan brokers could offer customers savings of several thousand dollars.

Fannie Mae worked with loan brokers to make mortgages available to underserved customer populations, under the institution's Trillion Dollar Commitment, an endeavor with the goal of "pledging a trillion dollars in housing finance to serve underserved families, and offering lenders cutting-edge mortgage products and technology," according to Fannie Mae CEO and Chairman Franklin D. Raines. Between 1994 and 1999, the initiative targeted $700 billion to fund such mortgages. Fannie Mae worked with the loan brokering industry under the initiative by creating partnerships with lenders and making use of technology to provide flexibility to the lending process.

In the early 2000s, the U.S. Department of Housing and Urban Development (HUD) proposed several reforms to the Real Estate Settlement Procedures Act (RESPA), which included the Guaranteed Mortgage Package (GMP), which would have required lenders to give buyers a guaranteed price prior to receiving a purchase commitment. The proposal, roundly rejected by the industry, was finally dropped from the HUD agenda in 2004 due to lack of congressional support.

It is this ability to compete that has propelled the mortgage broker segment to its position in the mortgage industry; in the 2000s mortgage brokers represented the single largest segment of the U.S. home mortgage industry. In 2001, with interest rates lower than they had been since the 1960s, the mortgage industry originated more than $2 trillion in loans for the first time ever. Mortgage brokers handled roughly 55 percent of these loans.

During 2003, mortgage originations hit a record high of $3.81 trillion. Brokers were aided by a robust mortgage market: for the three years from 2001 through 2003, conventional single-family mortgage originations totaled almost $8 trillion, more than the combined total for the previous nine years. However, during 2004, mortgage originations dropped off nearly 30 percent, to $2.653 trillion. Mortgage brokers, who were involved in 68 percent of mortgage originations in 2004, wrote $1.8 trillion in business.

Although overall mortgage originations were down in 2004, subprime lending (i.e., lending to homebuyers with less-than-perfect credit, usually at a higher interest rate) was up during the year by roughly 50 percent to $587 billion. Mortgage brokers conducted 63.8 percent of all subprime originations in 2004, up from 24 percent in 1998. Because many subprime loans are interest-only, balloon loans, or other payment options including negative amortization, there was concern that the lending practices were artificially driving up housing prices because consumer were able to make lower initial payments and thus qualify for a larger loan amount than if they were applying for a traditional 30-year fixed-rate mortgage. These concerns were borne out into the late 2000s during the subprime mortgage crisis.

However, during the housing boom of the early and mid-2000s, the role of mortgage brokers increased dramatically, as did concern about fraud in the industry. According to a Federal Bureau of Investigation report issued in May 2005, about 80 percent of all mortgage fraud was a result of insider collaboration or collusion. The report pointed specifically to brokers: "The increased reliance by both financial institutions and non-financial institution lenders on third-party brokers has created opportunities for organized fraud groups, particularly where mortgage industry professionals are involved." Common scams included equity skimming, property flipping (buying, falsely increasing the appraisal, and reselling for an artificially inflated profit), and mortgage-related identity theft.

One move by the Federal Reserve Board to protect consumers from unfair or deceptive home mortgage lending and advertising practices involved changes to Regulation Z (Truth in Lending Act). The rule required certain mortgage disclosures to be provided earlier in the transaction. Among the provisions regarding mortgage brokers, lenders were prohibited from compensating mortgage brokers by making payments known as yield-spread premiums unless the broker had previously entered into a written agreement with the consumer disclosing the broker's total compensation and other facts.

Aside from even the appearance of impropriety, mortgage brokers were facing stiffer competition as the mortgage industry muddled through a period of high delinquency and foreclosure. Direct Internet lenders originated 6 percent of subprime loans in the first half of 2007, up from 4 percent in the latter half of 2006. Besides this relatively new way of financing, consumers also turned to an old form as retail lenders grew their market share of such loan originations from 23 percent in the second half of 2006 to 36 percent in the first half of 2007. This largely accounted for mortgage brokers' share dropping from 72 percent to 58 percent in the same time. Moreover, when measuring the number of loans made rather than dollar volume, direct Internet originations accounted for 8 percent of subprime loans in the first half of 2007.

More evidence of a shrinking market came from Countrywide Financial Corp. The company funded $3.2 billion in mortgages through loan brokers during October 2007, a decline of 57 percent from October 2006. Countrywide Financial Corp. President David Sambol noted that 90 percent of its production was funded through Countrywide Financial Corp.'s thrift affiliate. "Mortgage brokers will continue to be an important channel but the ultimate financing will come from banks and thrifts or conduits directly related to their activities," added Angelo Mozilo, Countrywide chairman and chief executive.

Meanwhile, conditions in the housing market deteriated quickly once the housing boom of the early and mid-2000s had spent itself. With housing prices falling and interest rates rising, homeowners found themselves unable to afford their mortgage payment. Thousands defaulted and foreclosures hit record highs. In addition, banks and other financial institutions suffered enormous losses, with several major firms going bankrupt. The federal government bailed out some of the larger companies when it purchased $1.25 trillion in mortgage backed securities.

Current Conditions

In 2010, one of the major challenges facing mortgage brokers involved implications of the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in July of that year. The act called for a massive overhaul of financial services regulation in the United States. Some of the changes included the creation of a Consumer Financial Protection Bureau to enhance and oversee consumer rights issues. While some supported the increased government involvement in the industry, the NMBA stated that the bill would "deprive consumers of their existing choices and options to finance mortgage closing costs." Sam Morelli of Eagle National Bank (Pennsylvania) noted at the fall 2010 Northeast Conference of Mortgage Brokers that some options for mortgage brokers when dealing with the new regulations included gaining access to a warehouse line or other source of funding that will enable them to have "the ability to fund loans at the closing table," according to National Mortgage News. Other possibilities for individual mortgage brokers, according to Morelli, were to work for a federally chartered depository or become a branch of a larger firm. A "state-of-the-art loan operating system" was also cited as a vital component of a successful mortgage broker in the new financial services environment.

Changes in the Truth in Lending Act also affected the mortgage brokerage industry. Updates included restrictions on loan officer and mortgage broker compensation, such as yield-spread premiums, in order to prevent these consultants from steering borrowers into higher-priced loans. According to Origination News, "The rule prohibits payments to these mortgage originators based on the terms of the loan, such as interest rates or prepayment penalties." The NMBA supported the ruling because it "clears up the controversy about the payment of indirect compensation to brokers," according to CEO Roy DeLoach.

Amid the sweeping changes occurring in the industry, mortgage brokers continued to provide what many considered a valuable service. According to the Council of Mortgage Lenders, in the first quarter of 2010, 71 percent of first-time buyers used intermediaries to obtain a mortgage, as compared to compared to 67 percent during the same time period in 2006.

Industry Leaders

The loan and mortgage brokering industry is highly fragmented. Because of its localized nature, no firms dominate the industry on a national, or even regional, scale. Because most participants are privately held and are not required to publish operating results, little financial data exists about firms within the industry. In the early 2000s, the average brokerage firm operated a single office and used roughly 25 employees to handle 125 loans per year.

Industry leaders in 2010 included Meridian Capital Group, a leading commercial and multifamily mortgage broker located in New York. The firm brokered $17 billion in loans in 2006. Norwest Mortgage Inc., a leader in mortgage origination, merged with Wells Fargo in 1998 to become Wells Fargo & Co. Wells Fargo's revenues grew to $98.6 billion in 2009 after it acquired Wachovia at the end of 2008. Lehman Brothers was a retail lending giant that posted revenues of $17.5 billion in 2006. After 160 years in business, the firm fell to bankruptcy in 2008 after losing about $7 billion in the financial crisis of the late 2000s. Other giants in the industry that managed to survive the meltdown--albeit with some help from the government, in some cases--were Bank of America, JP Morgan Chase, and Citigroup.


Although the mortgage brokering industry lacks statistical data that is available for most industries of its size, a study released in 2005 by the Wholesale Access Mortgage Research & Consulting of Shaker Heights, Ohio, indicated that the average brokerage firm had 8.7 employees and produced an annual average of $32 million. According to the NMBA, the industry had roughly 53,000 brokerage firms that employed about 418,700 people in the mid-2000s.

Refinancing activity in 2010 helped boost employment in the industry. According to the Bureau of Labor Statistics, mortgage companies added 2,300 full-time employees to their payrolls in July of that year, resulting in a total employment figure of 246,700 in the mortgage banker/broker sector. Refinancings accounted for about 78 percent of mortgage applications that month, according to American Banker.

Many brokers earn in excess of $200,000 or even $500,000 per year, and the average industry income is very high at peak times. Brokers also enjoy independence and flexibility in comparison to many salaried employees. The business has its drawbacks, however. For instance, mortgage brokering is a highly cyclical business. During periods of rising interest rates, many brokers experience rapid and significant declines in income levels. In addition to cyclical downturns, brokers usually work long hours and spend many nights and weekends meeting with prospective clients at their convenience.

Research and Technology

The mortgage brokering industry is highly dependent on modern office technology and, in effect, is a corollary of the information age. Almost all brokers are heavily dependent on technology, including a heavy Internet presence to advertise, provide information, facilitate sales, and access computerized loan originations systems.

In addition to creating an environment that allowed brokers to efficiently originate loans, information technology was also driving increased efficiency of the financial markets, on which mortgage brokers depend to buy their originations and pay their fees. Successful lending institutions were using complex information systems and software to eliminate overhead and reduce administrative costs. Such advances were a driving force behind lender consolidation.

In the 2000s, the concentrated use of technology in the industry also benefited the consumer, who had access to an unprecedented amount of information, which created a more competitive environment within the industry. On-line loan applications, access to credit reports, and loan shopping were all widely available. All major brokers--as well as many smaller ones--maintained Web sites with property search options and on-line applications processes., a Canadian company, was successfully using a multichannel distribution strategy to unite regional broker teams across Canada and the United States. began operating in the United States in May 2005. was pursuing a unique plan to unite 40,000 small- and medium-sized brokers under one brand name, thus combining traditional "brick and mortar" operations with an overarching Internet presence.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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