The definition of originator has been a moving target over the last decade. Official statistics have been fuzzy about who gets credit for the origination in wholesale transactions-as a result, those numbers have been plagued by double-counting. Now, a new, comprehensive study of the mortgage industry's "lenders" shows one thing for certain: The mega-originators are controlling an ever-larger piece of the action.
OVER THE PAST TWO YEARS, WHOLESALE ACCESS HAS HAD THE MORTGAGE PRODUCTION INDUSTRY UNDER A MICROSCOPE. The focus has been squarely on originators' demographics-who, where, how many and so on. We began by examining mortgage brokers and followed up with a study of all nonbroker originators. Wholesale Access creatively dubbed these originators "Lenders." Together, the two separate studies measured, inventoried and cataloged virtually everyone who originates residential one-to-four-family mortgage loans.
The purpose of this article is to share some of what was found in these essentially back-to-back investigations. To our knowledge, they are the most exhaustive studies of primary market originators ever undertaken. The results shed new light on the size and structure of the primary market of the past two years-1998 and 1999. And although the separate studies each explored an array of topics-technology use of the Internet, products, use of vendors (including wholesalers, mortgage insurance companies and software), broker and lender financial structures, pricing and other areas-this article looks singularly at originator demographics, specifically the numbers, types, production volumes, distribution channels, ownership and location.
To put us all at the same starting gate, a few definitions are in order. From there the article leads us into an analysis of the players, the distribution of activity, the study's methodology and some conclusions.
In the 1999 study, Mortgage Brokers 1998, a mortgage brokerage was defined as an independent firm that originated loans for sale, servicing released. To be a broker, a firm could not service loans (beyond possibly a first payment) or fund more than 49 percent of its originations with a warehouse line of credit. The 49 percent was an arbitrary line, of course, but a line had to be drawn somewhere. (As it turned out, it would not have changed the results significantly had we instead set the cutoff point at 25 percent.) More important to us as researchers was maintaining a consistent definition so that everyone involved in using the findings knew it.
Shortly after completing and distributing Mortgage Brokers 1998 to our sponsors, Jim Jandrisevits, executive vice president of Fleet Mortgage Group, Columbia, South Carolina, suggested that we ask the study's other sponsors if they had an interest in a comparable review of all nonbroker originators. With their blessing and funds, we embarked on a second project.
It also began with a definition: A lender is a firm that originates loans in its own name and funds them with either a warehouse line or from deposits. By definition, lenders close loans in their name with their funds-no table funding. They may or may not sell loans and/or servicing. Lenders may handle loan administration, but this is not required. Lenders fund, whether it is their loan or a second party's origination.
A subset of lenders are the correspondents. These lenders sell their production and/or servicing to others. Correspondents may service loans-and many do-but they need not to meet our definition. These standards were used consistently throughout the two projects.
Who's out there?
Wholesale Access counted 30,000 mortgage brokerages operating in the fourth quarter of 1998. Approximately 20,000 were called to verify their existence along with a firm name and address. About 4,000 were surveyed in detail. We knew that since the origination market continued to expand throughout 1998, a natural undercount would result, since we had no good way to pick up new entrants. Mortgage broker licenses in the more than 40 states that regulate brokers are posted nearly a year in arrears. Wholesale Access estimated the undercount at 6,000.
On the lender side, we counted just fewer than 8,500 firms operating in late 1999 to early 2000. Figure 1 shows the market share of originations among the different types of lenders and their percentage of total firms. Commercial banks made up 50 percent of all lenders. In terms of numbers and types of firms, they were--in descending order--commercial banks, credit unions, thrifts, mortgage companies and others. Commercial banks that originated less than $50 million last year accounted for 41 percent of all lenders.
Figure 2 illustrates ownership by type and percent of dollar volume of production. Commercial banks accounted for 42 percent of total 1999 lender production. It was the largest slice of Wholesale Access's estimated $1.384 trillion market for 1999. Mortgage companies captured 36 percent, followed by thrifts at 14 percent, others at 5 percent and credit unions at 3...