Boston-based Summit Mortgage opened a new loan office in Norwell six weeks ago, joining a number of loan companies that are expanding despite a slowdown in the mortgage market.
The local mortgage market has slowed considerably, but the number of licensed lenders and brokers in the Bay State has risen sharply in the past year and new loan offices are still being opened. Some industry professionals say adversity sometimes presents opportunity.
The number of single-family home mortgages in the state dropped 7.34 percent to 67,048 loans closed in the first quarter of 2006 compared with 72,358 loans in the first quarter of 2005. Meanwhile, total dollar volume of single-family home loans, including purchase mortgages and refinance loans, decreased at an even sharper pace. Dollar volume dropped 9.03 percent to $13.22 billion in the first quarter this year compared with $14.53 billion in the first three months of 2005, according to statistics compiled by The Warren Group, Banker & Tradesman’s parent company.
As a result, many industry watchers expect the number of mortgage companies in Massachusetts will decline through consolidations and mergers and the number of mortgage professionals will lessen in the process. But not everyone is seeing signs of a decline. Although lenders are competing more fiercely for a smaller pool of customers, there is still room for mortgage companies to thrive and even grow.
Boston-based Summit Mortgage increased its sales force by 20 percent in the past 60 days, and six weeks ago it opened a new office in Norwell. Rick Fedele, president of
Summit, said 2005 was a better business year for his company than 2004 despite interest rate hikes and a slowdown in the housing market. He said he also believes 2006 will prove to be even more successful for his firm.
“I am of the opinion that now is the time to grow,” said Fedele. “I am actively seeking new recruits.”
Larry Army, vice president of Sunset Mortgage’s New England operations, agreed that growth is still possible for mortgage firms, noting that Sunset opened a new office in Newton in January.
So if the loan market is shrinking, why are some firms expanding?
“The industry is definitely shrinking,” said Fedele. “In January, business was definitely off. It was off across the board with the entire industry. In the face of a shrinking market you have a choice, downsize and lose quality people or grow. I am not willing to downsize.”
“It [expansion during a slow loan cycle] seems utterly logical to me, but it seems like it’s not the way most companies act,” said James Dougherty, executive director of the Massachusetts Mortgage Association. “If people are in a position to have a growth plan, it’s an ideal time. It surprises me because it is so infrequent that people arrive at the right conclusion.”
Dougherty said he believes companies that do seize opportunities to grow will be stronger and better prepared when the lending market turns around. He said it is also easier for national lenders to get into new markets when business is slow. Most Massachusetts lenders acknowledge that higher interest rates and a cooling real estate market have curtailed business sharply compared to the days of the last refinancing boom. Some downsizing and consolidations already have occurred within the mortgage industry this year. However, current mortgage licenses in the Bay State belie the prevalent notion that the number of lenders is falling.
David Cotney, deputy commissioner at the state Division of Banks, said the industry does not appear to be shrinking based on licenses in the state. As of February, there were 1,554 licensed lenders and brokers in Massachusetts. In February 2005 there were 1,367. And there does not appear to be a shortage of new applications coming into the division, with 112 licenses approved since January, said Cotney. But everyone still seems to be talking about a shrinking mortgage industry, he said.
“That’s what we keep hearing, but it hasn’t proven true in the numbers,” said Cotney.
“We are hearing more about the market shrinking than anything else,” said Dougherty. “From our perspective the market isn’t shrinking. Everybody is talking about it, but it’s hard to see the evidence.”
The MMA is not losing members, and in fact is ahead of last year’s pace in terms of new memberships and renewals. Dougherty said the association currently has about 300 members. As of last week, 90 percent of the group’s members had renewed their memberships for 2006. He said the association is used to having companies renew their memberships or join up from the beginning of the year right through the summer. At this time last year the association had about 80 percent of its expected members on board.
Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said his organization’s membership renewal rate is also around 90 percent. He said he is not sure if the remaining 10 percent will return, but he does believe the strong membership renewal rate is a sign of a healthy industry.
However, Cuff is not convinced that the local industry will not lose some of its players. He said he expects to see mergers, consolidations and a few companies pulling out of the Bay State.
“The industry expanded so dramatically in the last five years that we have to see some retraction,” said Cuff.
Although Pennsylvania-based Sunset Mortgage plans to grow in Massachusetts, it will most likely be buying or merging with a few smaller local companies to do so. Right now the company has agreements in the works to merge with or acquire three smaller mortgage companies. It also has new offices picked out in Beverly, Plymouth and Providence, R.I.
“It’s part of our strategic growth plan,” said Army. “Our goal in expansion is to increase market share.”
However, organic growth is still something the company sees as appropriate in Massachusetts, as well. It opened a new office in Newton on Jan. 15.
Sunset is a fairly large lender with 255 offices nationwide. However, the Newton branch is only the firm’s second Massachusetts location. Army said the company has managed to do well in the state even if it hasn’t had a large presence. He said Sunset’s Auburn office has been the top-producing location for the company three years in a row. It has been in the state for the past five years.
Army said he thinks it is time for the number of players in the industry to shrink and believes it is already happening.
“It seemed like everybody who was selling used cars got into selling mortgages. Now some of those people are going back to selling cars,” he said. “There were a lot of people in it for the quick score [during the refinance boom]. We are happy that there are less people out there.”
Making Exceptions
Jim Jones, president of First Wellesley Consulting, said he predicts signs of the industry contracting will soon begin to show as a result of the slowing market conditions. While there are exceptions, he said several companies will downsize and some mortgage brokers are expected to leave the industry.
“Because of the significant downturn, a number of them will get out of the business and seek greener pastures,” said Jones. “The most volatile group will be the mortgage brokers. The number of mortgage brokers in Massachusetts will decline. The number of companies will decline. We will have fewer independent companies this year and next.” Jones also predicts more independent mortgage bankers may consider getting out of the business or seek to be acquired by larger companies. He said some local industry practitioners see their best chance for survival in teaming up with a strong, national player with the resources to weather a slow market such as the one mortgage companies are currently facing. However, Jones said if the market worsens or the current conditions continue for an extended period, even some of the top lenders may choose to exit the market. Some firms will continue to expand, though.
“There is not going to be any black and white. You are going to have exceptions,” said Jones. “You will always have exceptions. There will always be exceptions because there are always going to be entrepreneurs who view the situation differently.”
Amy Tierce, president of the Fairway New England, opened the first Fairway office in
Massachusetts just a few months ago. Under the franchise umbrella, Tierce was able to start her own company in a tough environment for the industry. Tierce said she believes the amount of loan offices nationwide will shrink by about 35 percent. However, that is not stopping her from planning to grow.
“This is where you have a survival of the fittest mentality,” she said. “There is something about starting from scratch in a bad market that is great.”
Tierce said her start-up franchise does not have performance figures from last year with which to compare current business numbers. However, she said every loan her firm produces is one more than they had before. But Tierce in not unaware of or insulated from the shrinking pool of loan applicants. Having served in the industry for a number of years, she said the mortgage business is definitely going through a slowdown.
Ted Korbel, who was hired as a branch and business development contractor for Winchester-based Mortgage Options of America last year, said the company is not pulling back as a result of prevalent talk about of a shrinking marketplace. He said Mortgage Options also is looking to expand.
“We are all about growth,” said Korbel. “As the market shrinks, we expand.”
Mortgage Options’ plan is to open three to four new offices in Massachusetts. Korbel said the company has a strong interest in growing in the Western part of the state.
Each office will have a minimum of four to five loan officers and the company is likely to start up new offices of its own rather than acquire existing firms.
Mortgage Options has 14 branches in Massachusetts and 24 locations nationwide. Although, it plans to grow in Massachusetts it is also looking at other opportunities throughout the country. Korbel said Mortgage Options in seeking licenses to operate in eight new states in addition to the eight where it already has a presence. He said business is better in other parts of the country, and that is expected to temporarily carry other regions if necessary. Korbel said he is not sure he believes the market is really shrinking as much as people say it is.
“In fact it doesn’t have to shrink at all,” he said. People are buying into the [notion that the] market is slow. If you think and believe the sky is falling then it really will.”
