For a decade, mortgage brokers have seemingly faded out of the industry, written off as nearly extinct. The once thriving community, previously responsible for originating the vast majority of mortgage loans in the U.S., astonishingly lost 90 percent of their market share within a matter of years and struggled to regain traction.
Typically, such a steep nose dive is irreversible. Independent mortgage brokers are making a comeback, however. Through the advancement of new technologies, the broker community now has the resources necessary to regain their position in the mortgage ecosystem. These new broker-specific technology solutions are being deployed just in time for the 2019 homebuying season.
At the turn of the 21st century, mortgage brokers dominated the industry and were responsible for originating 68 percent of residential mortgage loans in the U.S., according to a 2004 study by Wholesale Access Mortgage Research & Consulting Inc. Business was booming and it was a great time to be an independent mortgage broker.
Relationships, especially locally based relationships, and loan options were the driving forces behind borrowers preferring to use mortgage brokers over their banking counterparts. But two storms began to form, which brokers were not well-equipped to weather.
First, tech-savvy homebuyers started demanding a more streamlined mortgage process. Second, the financial crisis hit, which no originator was prepared to handle. As both storms arrived, the broker’s position in the mortgage landscape dropped significantly. According to one report, the independent broker’s market share reached an all-time low of less than 7 percent in 2011 as a new breed of mortgage originator — the nonbank direct lender — began to dominate.
After the financial crisis, banks were reluctant to push forward with mortgage originations, but interest rates were low and nonbank direct lenders put the pedal to the metal by going all-in on delivering the modern lending experience that borrowers wanted. While banks opted to stand on the sidelines, brokers simply lacked the wherewithal to keep up with the pace of innovation. The situation is not dissimilar to that of your local 99-cent video store versus Netflix.
Armed with deep pockets, data scientists and teams of software engineers, nonbank direct lenders started pushing the industry forward with a client-centric digital lending process, which soon became the standard expectation of borrowers. These companies dominated the mortgage-originations landscape, gaining significant market share from their competitors.
Anthony Hsieh, CEO of loanDepot, delivered an eye-opening keynote speech at Digital Mortgage 2018 in Las Vegas regarding the recent dominance of his company, as well as Quicken Loans, the two largest nonbank direct lenders. In 2011, the two companies funded one in every 30 refinances and one in every 199 purchase loans. By mid-2018, those numbers had ballooned to one in five and one in 22, respectively.
Venture capitalists took notice of the changing landscape and invested heavily in digital mortgage-focused vendors such as Blend ($160 million), Cloudvirga ($77 million) and Roostify ($33 million), which helped lenders that preferred to buy rather than build their own digital lending platforms. As the industry made significant technological advances, the average independent mortgage broker was left behind. Buying or building these digital mortgage technologies proved too costly for them to participate, making it increasingly more difficult to compete in the age of the digital mortgage.
In addition to the technological hurdles, brokers also saw their primary source of business, Realtor referrals, begin to shrink. More clients began their shopping journey online, seeking financing first rather than the traditional method of working directly with a real estate agent for their new home purchase. Real estate and lending companies noticed this trend and began expanding their offerings and actively pursuing the same clients online, further up the funnel, in an effort to influence client behavior toward their brand and partners.
Today, Keller Williams Realty has its own mortgage company, Keller Mortgage; QuickenLoans has RocketHome; loanDepot created mellohome; Redfin launched Redfin Mortgage; and OfferPad chose to partner directly with loanDepot. The line between real estate company and mortgage company is now blurred, leaving the broker on the outside looking in.
Feeling the pinch from multiple sides, the independent broker simply lost ground — a lot of ground — to the point of knowing something had to change. Otherwise, the broker would face eminent extinction as behemoths such as Amazon loom in the shadows, waiting for the right moment to pounce into the ecosystem.
As of last year, many independent mortgage brokers still hadn’t evolved. There was, however, a growing trend of mortgage bankers leaving consumer-direct and retail-based companies to become independent brokers, resulting in a modest growth in market share. Additionally, new technologies built specifically for the mortgage broker community to combat their loss in market share had been developed and launched.
There are now platforms that provide a fully integrated, point-of-sale customer relationship management software, pricing engine, pipeline management and reporting tool that allow users to manage almost every aspect of their business from a single location. These solutions also provide the ever-needed fintech experience borrowers have become accustomed to having. What would normally take the broker an hour and require logging into multiple systems can now be done within minutes inside of one comprehensive platform.
Clients can complete an application at their leisure, upload documents and track the progress of their loan every step of the way within a portal. These advancements in technology allow mortgage brokers the opportunity to finally compete against the big, technology-driven nonbank lenders that have been gobbling up business for the past 10 years.
While the broker community pushes to achieve a 20 percent market share by the end of 2020 with their renewed energy and modernized infrastructure, the nonbank direct lenders and big banks have moved on to the next battleground in the war for market share: data, data, data. Gaining a clearer view of a mortgage borrower’s shopping behaviors and knowing when, how and where to engage them will best position originators to be in front of prospects at the moment they are ready to make their buying decision.
This is not lost on the broker community, as some of the new solutions are built to plug in these marketing-automation and data services, which is why predictions are now being made that the broker market share will be near pre-financial-crisis levels, giving brokers the ability to earn back the respect of their counterparts.