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Broker Licenses Tumble

Review of number of licensed brokers in biggest states

April 10, 2008


A sharp decline in the number of licensed mortgage brokers has been fueled by the loss of subprime programs, a decline in broker market share and the collapse of many wholesale lenders. Among states with the biggest declines were Florida, Minnesota and Ohio.

Minnesota saw a 70 percent drop in licensed mortgage broker companies, from a little more than 4,000 to less than 1,200. A new law that took effect last Aug. 1 increased license fees and set net worth requirements for those companies. Individual broker originators are not required to be licensed.

"We estimate that more than half of that [decline] is due to the downturn in the real estate business and the rest is due to the new law," Minnesota Department of Commerce spokesman Bill Walsh told MortgageDaily.com.

Minnesota's new law tripled the fee for an initial two-year license for mortgage and broker companies to $2,125 and set $1,125 for the cost of a two-year license renewal.

In addition, those companies must now be corporations or other business entities and be either a HUD- or Fannie Mae-approved lender, or have a $250,000 tangible net worth, or have a $50,000 surety bond or letter of credit.

Although individuals who are employed as mortgage originators by licensees are not required to be licensed, they now are required to have 15 hours of educational training covering state and federal laws. Further, licensees must perform background checks to assure that individual originators have not been convicted of certain crimes and must maintain perpetual lists of all originators.

This may have driven out some brokers of questionable quality, according to Walsh.

Other states that have been hard hit include Ohio, where mortgage brokerage offices fell by one-third and loan officers fell by 35 percent from Jan. 1, 2007 to April 4, 2008, and Florida, where the number of mortgage brokers fell 36 percent in the past year.

Tom LaMalfa, managing director of Shaker Heights, Ohio-based Wholesale Access Research & Consulting Inc., told MortgageDaily.com that he estimates that the number of brokerages has fallen from 53,000 in 2006 to fewer than 40,000 today.

"It may be 35,000, and if there's a recession it could drop down to 30,000," said LaMalfa, whose business regularly surveys mortgage banking and mortgage brokerage companies. "But 30,000 is what it was in 2000 and 2001. So we would be back where we were before the bubble."

The number of mortgage brokers who still are active may be even lower than the number with licenses, he said, explaining, "They may retain their licenses but do something else for a few years."

The causes of this decline, according to LaMalfa, include the disappearance of the subprime and alt-A mortgage products that many brokers focused on and the emphasis on retail over wholesale originations by some lenders, with higher prices being charged for wholesale over retail, as well as the overall decline in mortgage originations.

At the same time as the decline in mortgage brokers and brokerages, he said, has come a decline in broker market share.

"It was 58 percent in 2006 and since then has fallen to an estimated 35 to 40 percent," according to LaMalfa. "And it may be slipping even more. It could be 30 or 33 percent."

Other factors, National Association of Mortgage Brokers President George Hanzimanolis told MortgageDaily.com, include tighter guidelines by lenders and more rules and regulations on the state level.

But noting that NAMB membership has declined less than 10 percent, he pointed out that most who left the broker business were not "long-term people."

"Brokers who join NAMB are interested in building a strong, long-term business," he said. "They are serious about their business."

In Pennsylvania the number of licensed brokers fell to 5,152 last month from 5,849 in March 2007. In Illinois, as of March 31, there were approximately 1,900 licensed brokers, compared with 2,245 in January 2007.

But in New York, while the number of mortgage bankers has fallen 17 percent since the first quarter of 2007, the number of brokers has fallen only 2.8 percent, from 2,443 to 2,374, during the same time frame.

California has yet to experience a sharp drop because a license is for four years, an official told MortgageDaily.com. But he pointed to the number of applications for a mortgage broker license filed in fiscal 2006-07, 18,649, of which 13,571 were approved, as compared with 25,585 in fiscal 2005-06, of which 16,733 were approved.

The decline in the number of brokers, he added, also is reflected in the numbers taking the broker examination -- 2,484 in January and February of this year compared with 3,268 in the first two months of 2007.

Marve Stockert, executive director of the Illinois Association of Mortgage Professionals, formerly the Illinois Association of Mortgage Brokers, told MortgageDaily.com that his state's decline was due in part to an inability to meet net worth requirements even though it has not been raised.

"But the biggest thing is because subprime has gone away," he said. "At least 60 percent of those who left, left because subprime has gone away."

In Texas, where more than 24,000 mortgage brokers are currently regulated by the Texas Department of Savings and Mortgage Lending, broker loan production dropped to 163,492 loans for $25.9 billion last year from 251,693 loans for $38.5 billion during 2006. In 2003, production was 340,996 loans for $49.1 billion.

The drop in the number of licensed brokers has coincided with the collapse many wholesale lenders -- which supply mortgage brokers with loan programs. According to the Mortgage Graveyard, nearly 200 companies have abandoned originations or shut down since last year. A significant share of those companies were wholesalers.

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at [email protected]
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