Editor’s note: The fragmented real estate industry seems to be consolidating. But is it really? And is it good for the consumer? This four-part series looks at the trend of consolidation, who wins, who loses, and who is driving it. (See Part 1: NRT: The mega consolidator; Part 2: Brand names move into technology space; and Part 4: Brokerages combine while market explodes.)

Geoff Robbins, regional manager for Colonial National Mortgage, sees opportunities in the consolidation of mortgage lenders. A few weeks ago, for instance, a headhunter called to ask him whether he was interested in hiring employees of a mortgage branch that was closing as the result of a recent merger.

“It didn’t work out, but I definitely looked at it as an opportunity,” Robbins said.

Beyond the chance to hire experienced employees without having to look too hard, Robbins and employees at other smaller lenders can easily tick off a list of other upsides they believe lender consolidation brings. They say they can offer a diverse array of products more quickly than the large lenders can, and they’re on a first-name basis with all the employees, including the president, which means they can get approval quickly for new ideas when necessary.

Is consolidation good or bad for the real estate industry? Take a survey.

In short, they believe their smaller size enables makes them better able to maneuver through changes in the marketplace, a necessity that’s more difficult for large lenders to achieve, especially as they become even larger through further consolidation.

“It’s going to open up a lot more business for the small guy,” said Justin Snyder, an account executive with People’s Choice Home Loan.

The mortgage industry has consolidated over the years, particularly after refinance booms have gone bust. Today’s industry looks vastly different from that of even a decade ago. Some large lenders have become even bigger while others have disappeared entirely along with some smaller players.

Many in the industry say theses changes, which are likely to continue as interest rates rise, refinancing drops off and some companies are forced out of business, has been beneficial by bringing more products to the marketplace. Some, however, acknowledge the benefits, but still worry that increased consolidation could dampen competition.

Even with more mergers, the industry is likely to remain very fragmented, which could serve to keep some competition alive.

The top 10 lenders last year accounted for almost 60 percent of the market share, according to National Mortgage News. However, the gap in market share was wide between the top three lender and the other seven top 10 lenders. The top three–Wells Fargo, Washington Mutual and Countrywide Financial–each had more than $400 billion in loan volume and market share of at least 11 percent. The fourth largest, Chase Home Financial, had $284 billion in volume and about 7 percent of the market. The numbers dropped from there. Bank of America, ABN AMRO, GMAC Mortgage, CitiMortgage, National City and Cendant Mortgage (in rank order) captured at the most $130 billion and at the least $83 billion in volume and each accounted for only 2-3 percent of the market, according to National Mortgage News.

More than 7,000 institutions now originate mortgage loans, according to Doug Duncan, chief economist of the Mortgage Bankers Association. Mortgages for the most part are not their primary business, with many closing only 300-400 mortgages per year. Duncan foresees these smaller mortgage lenders continuing to exist even as consolidation picks up.

A recent research note from The Tower Group argued that future banks mergers aren’t likely to have a big impact on further mortgage concentration. The reason for that minimal effect is that when two banks merge, mortgage lending typically is an important business line for only one of two, according Craig Focardi, a senior analyst with The Tower Group.

Additionally, acquiring more mortgage assets typically wasn’t the reason behind the recent mergers Focardi studied. Instead, banks generally have wanted to expand their regional reach or focus on strengthening other business lines, such as checking accounts.

Even so, the fact remains that consolidation has given the top lenders the advantage of volume. They can enjoy economies of scale because of it and also offer lower prices.

“They have the volume,” said Christian Kloster, EVP for United Financial Mortgage Corp. “If they want to be the best price in town, they will be.”

Smaller lenders say they fit into a niche where service counts beyond offering the lowest price. They say they can offer an array of specialty products that larger lenders don’t offer or in which they simply don’t specialize.

Mortgage broker Pava Leyrer, president of Heritage National Mortgage Corp., believes consolidation has given her more access to products she can offer to borrowers. But some programs need to be revamped, she said, and lenders need to be responsive to those concerns.

“I hope it doesn’t consolidate to the point that it’s not competitive,” said Leyrer. “Consumers need it to stay competitive.”

Wayne Thompson, president of Residential Mortgage Services, recalls the late ’70s when he had literally only three loan types to offer borrowers. Now, there are hundreds. He attributes the product line growth partly to lenders’ consolidating and offering more products because of their merged strength.

Smaller lenders can find it challenging to compete for name recognition with larger competitors. Snyder said that means smaller lenders must focus on building personal relationships, especially with brokers. And Robbins sees that personal attention as an advantage smaller lenders can leverage over the bigger ones as they become even larger.

And some smaller lenders, such as United Financial Mortgage, are looking at the current industry mindset toward consolidation as potential for them to grow as well. United Financial is actively considering acquiring even smaller lenders and brokers.

***

Send tips or a Letter to the Editor to samantha@inman.com or call (510) 658-9252, ext. 140.

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