Back in the spring of 2007, a banking magazine sent me to Tucson, Ariz., to write a story about a fast-growth mortgage originator named First Magnus Financial Group. Just the year before, First Magnus had done $24.9 billion in funded mortgage loans and made the top 20 list of mortgage originators for that year.
I made my visit and interviewed the key executives, all of whom were pumped up for an even busier year in 2007. They had the world by a string.
When I got back home, I wrote the story and sent it to my editor.
About a month before the story was to be published, the subprime mortgage crisis hit the country and many independent mortgage originators dependent on others for capital sourcing disappeared in the blink of an eye. First Magnus was an early casualty.
Those guys never even saw it coming.
I bring up this story because I recently came across a chart in the online version of The Atlantic, which showed 75 percent of the biggest home lenders in 2006 no longer exist. That got me wondering about survivors, because over the past two years I’ve interviewed a bunch of very successful mortgage originators and wholesalers. I recontacted three of them, all of whom survived the Great Recession, to get their views on the changed landscape for mortgage companies.
First, the charted names and numbers.
Of the top 20 mortgage originators in 2006, the only survivors are those owned by the bigger banks, such as Wells Fargo, Bank of America, JPMorgan Chase, SunTrust Mortgage Inc. and CitiMortgage Inc.
Here’s a few of the fallen: Countrywide, bought by Bank of America in 2008; Washington Mutual, failed and acquired; American Home Mortgage, filed for bankruptcy; IndyMac Bank, failed in 2008; GreenPoint Mortgage Funding, shut down by parent company; WMC Mortgage, shut down by parent company; and First Magnus, filed for bankruptcy in 2007.
One company that was around in 2007 and is still here today is Total Mortgage Services, founded by John Walsh in 1997.
In case you’re wondering how Total Mortgage survived the subprime crisis and Great Recession, it’s because it never did subprime loans, option adjustable-rate mortgages, or any of the other crazy stuff that was being offered to people who really never should have had a mortgage to begin with.
Now, Total Mortgage is expanding, doing business in 27 states.
Walsh laughs, "We took advantage of the talent that was displaced when everybody went out of business. We picked up some really great people along the way."
I then asked Walsh, "How has the lending landscape changed?"
"The biggest thing that I see is that there are not really many entrants into the business," Walsh said. "We are competing against all the same people these days. Back in 2006, it seemed like there was another mortgage company with another rate sheet every day. We are just not seeing that."
Barriers to entry are high, Walsh responded. "Getting a grasp on regulations takes a lot of empowerment and money. The net worth requirements continue to increase on all different levels. It’s difficult to put your toe in the water because you are not going to get approved by anybody."
Total Mortgage is located in Massachusetts, as is Mortgage Master Inc. The latter was formed in 1988, and now counts offices through the Northeast, mid-Atlantic and California.
Paul Anastos holds the title of president.
"If you look back to 2006," Anastos said, "we weren’t even on the radar screen in regard to top mortgage originators. Now, we are among the top 20 to 30 lenders in the country, and that includes banks."
That’s a little bit of a problem, because the mortgage lending market has a bit of a bad barbell look, Anastos said, with the huge banks on one side, everyone else on the other, and not much in the middle.
"There’s a big drop-off from the huge banks to a company our size," Anastos said. "The old middle-tier players probably were retail/wholesale players, and many of them got burned in the subprime blow-up, so there are less mid-tier players as a result."
To get an understanding of how things have changed, Mortgage Master could be a top 20 mortgage company in 2012, as it did $7 billion-plus in originations last year, a company record.
In 2006, First Magnus was the 20th-biggest originator with about $25 billion in originations. Countrywide had been No. 1 seven years ago with an astounding $175 billion in originations. Countrywide was bought by Bank of America, which has been dealing with the billions of dollars in former Countrywide’s bad loans ever since, not to mention its own bad loans, as it had ranked No. 4 in 2006 with $89 billion in loans. It will be interesting to see what Bank of America did in 2012.
One mortgage industry star with a slightly different take is Mark Greco, president of 360 Mortgage in Austin, Texas. But that might be because he’s moved his company from the retail end of the market to wholesale (supplying capital to originators).
Greco started his company in 2007 and decided to shift focus because a big vacuum was created when many big banks shut down wholesale units.
Even today, Greco said, the big banks that are in the business "don’t support third-party origination mortgage brokers."
Here’s what Greco is seeing: "The independent mortgage broker part of the industry is growing again. A lot of people got out of the business or went to work for someone else. They put their corporate entity into a non-active state and just stepped away. Now, it’s (a new year) and they’ve come to realize there is opportunity again."
He added, "A lot of these independents realized they had a decade’s worth of clients they had serviced, and having recovered financially, they are back on their feet and re-establishing their own shops."
What does this all mean for consumers?
As all three survivors of the subprime mortgage crisis suggest, the days when just about anyone who was still breathing could come in and get a loan are over, but if you are a qualified borrower, the independents will go four times that extra mile to woo your business away from the big banks, because they intend to still be around when the next financial storm blows across the country.