Origination volume of reverse mortgage brokers fell 25.8% during May and marks the first time in 12 months that direct retail volume has surpassed broker business according to data from Reverse Market Insight.
“If nothing else it shows the continuing impact of smaller originators getting washed out by lower industry volumes and new licensing requirements,” said the company in its latest report.
New SAFE Act requirements are putting additional financial strain on brokers due to all of the classes and licensing costs associated with the process. Some states like Arizona and Florida are even requiring mortgage brokers undergo credit and criminal background checks. “Increased compliance costs which include new federal, state, and bonding requirements make it very difficult for brokers to sustain,” said Jason Levy, CEO of Guardian First Funding Group.
During May, 54% of the industry volume came from direct retail lenders and financial institutions. Wells Fargo continued its dominant retail presence at number one, followed by Bank of America and MetLife. However, it’s worth noting that companies like MetLife and Bank of America both cater to brokers as well, with 77% and 53% of their respective total volume coming from wholesale.
If brokers want to make the transition to banker they face increasing net worth requirements that are out of reach for most and allow “the large institutions to gain a considerable amount of new market share,” said Levy. “Retail is the way of the future and the wholesale market will shrink over time as more smaller brokers will not be able to survive,” he said. “The pro consumer movement is driving the boutique style operator out and large institutions will need to have a strong retail presence to be in the Ginnie Mae HMBS business.”
While the drastic drop in broker business is big, retail endorsements also saw a drop of 8.4% during May. But the source of overall business is clearly shifting to the direct retail lenders.
“Retail is where companies create lasting franchise value,” said RMI. “We’re all in favor of a healthy industry with both retail and wholesale channels, but the trends right now are increasingly showing strain in the broker/wholesale side of the industry.”