Last year saw mortgage banking activity hold steady, no volatility up or down. Primary market origination activity froze at $2.9 trillion in 2005, per the Mortgage Bankers Association (MBA)--virtually the same as the year before. Overall, it was the second-best $2.8 trillion. [??] Though mortgage volume held pat, there were many other ups and downs: Housing market statistics were up; margins were down; credit scores and down payments fell; and speculation, risk, loan-to-value (LTV) ratios and the number of loan products were all up. [??] In my view, although in no specific order, the major industry developments of 2005 were: 1) the continued expansion of nonprime markets; 2) further margin pressure due to excess capacity; 3) the travails of Fannie Mae in its ongoing accounting (and now fraud) scandal; 4) record housing starts and home sales; 5) the continued absence of interest-rate volatility; 6) the change in management at four of the nation's six largest mortgage lenders; and 7) continued industry consolidation. [??] Over the 18 years that I have been writing this annual serial article, the data have been obtained through voluntary surrender by the surveyed firms. Short of a handful of sub-prime lenders and a few others, including Ohio Savings Bank (Cleveland), Golden West Financial Corporation (Oakland, California), Mortgage IT Inc. (New York) and GMAC Mortgage Group Inc. (Horsham, Pennsylvania)--several of which do not participate consistently--this survey captures all of the largest prime and alternative-A wholesale lenders.
Firms that are strictly retail, such as CTX Mortgage Co. LLC (Dallas) and Regions Mortgage Inc. (Cordova, Tennessee), aren't included in the survey. As a result, several large lenders that might appear on a roster of top-10 retailers aren't included in the data.
Although this survey in the past has focused exclusively on prime wholesalers, more and more nonprime volume is seeping into the numbers. That is because more and more originations are nonprime.
Alt-A production is defined in different ways by different people. Wholesale Access defines it as reduced-documentation programs. Others define it by credit scores, and still others use both documentation and credit. When defined in its broadest terms--documentation and credit--the combination exceeds 50 percent of origination activity. So by one of our firm's definitions, more than 50 percent of total originations were non-prime in 2005--half of that 50 percent (the nonprime) being conforming (agency), 20 percent subprime and the balance alt-A. In any event, all market observers agreed that the nonprime world has grown dramatically since 2003.
One result of this is that the data contained herein are a hodgepodge of what is being submitted for the survey. For example, Countrywide Financial Corporation (Calabasas, California) includes all of its production--prime, alt-A, subprime and home-equity--in the numbers it provides for this article. However, this is not always the case (although it is ultimately where we hope to get in the years ahead).
Miamisburg, Ohio-based National City Mortgage Co.'s production numbers, on the other hand, do not include the volume of its sister company (First Franklin Financial Corporation, San Jose, California)--which amounted to a not-inconsequential $29 billion in 2005--or the volume of National City Home Equity (Cleveland), another separate subsidiary. Still, an analysis of these data offers a good overview of the wholesale business and industry trends.
For a second straight year, volume data were solicited from several of the large subprime wholesale lenders, such as Argent Mortgage Co. LLC (Irvine, California), New Century Mortgage Corporation (Irvine, California), Impac Mortgage Holdings Inc. (Newport Beach, California) and Option One Mortgage Corporation (Irvine, California). All declined to participate and provide data to be included in this article.
Gone from 2004's roster are Guaranty Residential Lending Inc. (Austin, Texas) and PHH Mortgage Services (Laurel, New Jersey). Also, this year GMAC-RFC (Bloomington, Minnesota) appears as Homecomings Financial Network Inc. (Petaluma, California).
New to this year's list are American Mortgage Network (AmNet) (San Diego), Indymac Bank (Pasadena, California), LoanCity (San Jose, California) and Fifth Third Bancorp (Cincinnati). All but the latter company specialize in the nonprime market.
There was modest merger-and-acquisition (M & A) activity in the mortgage arena in 2005--for the fourth consecutive year. In 2005, Wachovia Securities LLC (Richmond, Virginia) acquired AmNet and American Home Mortgage (Melville, New York) purchased assets from Waterfield Financial Corporation/Union Federal (Fort Wayne, Indiana). American Home's broker division operates as American Brokers Conduit (Melville, New York) and appears in the wholesale channels under that name.
Figure 1 is an alphabetical roster of the surveyed lenders and their wholesale production volumes in 2004 and 2005. Wholesale is defined as indirect production, because it comes in through outsourcing to non-employees of the lender, via mortgage brokers (table funding) or correspondents (closed-loan purchases). Retail--the third and oldest production channel--is defined as originations written exclusively by employees of the lender, mainly loan officers and telemarketers.
Given no change in market size year-over-year and average existing-home price appreciation of 13 percent last year, the number of mortgage transactions declined. This reduction in units is what further heightened competition (demand) for a declining supply of mortgage loans.
Figure 2 ranks firms by 2005 volume and shows the change in their production year-over-year. Total wholesale volume for the 28 firms rose 19 percent last year. The increase was only partially due to the inclusion of several new firms that weren't included last year. In 2004 there were 26 firms surveyed, versus 28 in 2005.
2005 versus 2004
Following tradition, let's look first at the wholesalers that showed the largest year-over-year advances. The seven fastest-growing firms were American Brokers Conduit, up 111 percent; Taylor, Bean & Whitaker Mortgage Corporation (Ocala, Florida), up 70 percent; First Magnus Financial Corporation (Tucson, Arizona), up 67 percent; AmNet and Indy-Mac, both up 66 percent; SunTrust Mortgage (Richmond, Virginia), up 58 percent; and EverBank (Jacksonville, Florida), up 52 percent.
The five firms that grew their volume by 20 percent to 50 percent included Wells Fargo Home Mortgage Inc. (Des Moines, Iowa), up 46 percent; U.S. Bank Home Mortgage (Bloomington, Minnesota), up 45 percent; Countrywide Financial Corporation (Simi Valley, California), up 37 percent; Fifth Third Bancorp, up 36 percent; and Homecomings Financial Network, up 24 percent.
Six firms grew wholesale production by less than 20 percent last year. They included First Horizon Home Loan Corporation (Irving, Texas), up 19 percent; Aurora Loan Services Inc. (Littleton, Colorado), up 13 percent; Washington Mutual (Seattle) and Green Point Mortgage Funding (Novato, California), both up 6 percent; Branch Banking & Trust Co. (BB & T) (Wilson, North Carolina), up 4 percent; and ABN AMRO Mortgage Group Inc. (Ann Arbor, Michigan), up 1 percent.
Because total origination activity was unchanged in 2005, any firm that grew volume last year outperformed the market.
Nine of the firms in the survey saw their wholesale production volumes decline last year. Ranked by size of the drop...