When drought hits the Serengeti, the wild beasts begin to range farther and farther afield in search of new watering holes. The refi drought that has hit the vast and rolling plains of the mortgage industry appears to be having a similar effect – but it’s not clear how many of the thundering herd of loan originators will survive the trek to greener pastures.
A recent report released by the National Mortgage Licensing Systems (NMLS), the organization which oversees the state licensing process for mortgage loan originators, reveals that in 2013 the number of licensed MLOs in Massachusetts rose from 5,324 to 7,320, an increase of 37 percent. MLO numbers were up 28 percent in the U.S. as a whole.
At the same time, the loan volume for which those MLOs were competing has shrunk, primarily due to the drop in refinances. Data compiled by The Warren Group, publisher of Banker & Tradesman, show that the number of mortgage loans issued in Massachusetts dropped 15.4 percent last year, driven by a 21.8 percent decline in refinances; purchase loans rose more than 15 percent during the same period.
That means that at the end of 2012, for every independent MLO there were approximately 66 loans issued in Massachusetts. But by the end of 2013, the ratio had dropped to 40 loans per MLO. Since loan originators who work for banks are not required to obtain licenses through MLS, the actual number of loans for each MLO is much smaller.
“I was talking to an attorney the other day and wondering, ‘How are people hanging in?” said Amy Tierce, regional vice president for Fairway Independent Mortgage in Needham.
The drop off in refi volume has only worsened as the 2014 spring market takes off. Through April, there were 40,123 refinance loans issued in the Bay State, compared with 95,749 at this same point in 2013 – a drop of more than 58 percent.
More Sharks, Smaller Pool
Mortgage industry observers cautioned that some of the increase in MLOs may be driven by recent changes in the licensing system itself. The NMLS state licensing system is a product of reforms made after the 2008 housing crash, aimed at weeding out the bad apples from the ranks of loan originators. The federal SAFE Act, passed in 2009, required tougher licensing standards for MLOs, including criminal background checks, and improved the ability of state regulators to track individual loan officers, so an originator caught making fraudulent or deceptive loans in one state can’t simply hang up their shingle in another.
Last year, the NMLS introduced a new, uniform licensing test for loan originators, which 39 states, including Massachusetts, have adopted. If an MLO passes the uniform licensing test for one state, they are automatically eligible to become licensed in any of the others, making it much easier for loan officers to expand the range of states where they can sell loans.
“There’s no more refinances, and the purchases just aren’t coming back like we had hoped. So I think we’re in a place where the existing people are going into multiple states” in the hope of scrounging up more leads, said Brian Koss, managing partner at Danvers-based The Mortgage Network, which operates in 25 states.
Koss points out that it may take time for MLOs to fall off the rolls of active licenses even if they’re effectively being driven out of the industry.
“Certain people [will keep a license active, thinking] ‘Well, maybe I’ll get one more loan,’ or ‘I’ll still do it until the licensing cost is more than the money I make.’ There are people working full time jobs and keeping their licenses – [our company doesn’t] allow that, but you see it,” Koss said. “Sometimes you can look at someone’s volume and wonder, ‘How are you feeding your family?”
Part of the difficulty for loan officers is that as the market is driven more and more by purchase loans, simply finding a loan to close becomes more difficult, since only a small proportion of homeowners move each year. And while an experienced MLO might have a thick Rolodex of customers happy to return for their next refi, connecting with new buyers means spending considerable time cultivating relationships with Realtors and others who can create leads.
The low-inventory situation and high proportion of cash purchases in Boston’s competitive markets doesn’t help either. In towns like Brookline, Cambridge and Somerville, “There are probably 20 people offering on every property. So if only one gets it, that’s 19 disappointed people,” said Tierce. “Every weekend and Monday and Tuesdays we spend doing pre-approval letters, updating data, doing rush pre-approvals, reviewing tax returns, all for somebody to write an offer letter than doesn’t get accepted. And then you do it again next week. It’s so tough.”
If current market conditions continue, both Koss and Tierce said they expect the number of MLOs to shrink before long.
“Even if you’re good at getting purchases, if there simply aren’t enough purchases … the runts in the litter aren’t going to make it,” said Koss. “There’s still too many originators in the business."
Email: csullivan@thewarrengroup.com
