Not only are mortgage bankers facing the prospect of lower loan originations this year, but by May 2013 their minimum capital requirements will rise, increasing the likelihood of a merger and acquisition boom, according to industry advisers.
"They had better be prepared," said Chuck Klein, managing partner of Mortgage Banking Solutions in Woodway, Texas. "The [capital] minimum rises but even if they're at $2.5 million, it may not be enough."
Ideally, nonbank depositories that are selling loans to Fannie Mae, Freddie Mac or receiving guarantees from the Federal Housing Administration should have $3 million to $5 million in capital, Klein said.
"It only takes one big hiccup to rack up losses," he said.
Klein said he and his partners at MBS are busy these days fielding phone calls from worried mortgage firms. "We're in a lot of discussions right now," Klein said, but he declined to name specific firms because of confidentiality agreements.
The government-sponsored enterprises and the FHA are phasing in their capital minimums over three years, giving smaller lenders more time to either raise additional funds or find a mortgage partner. Certain warehouse providers require a minimum capital base of $1 million but that figure, too, will rise by 2013.
Meanwhile, most lenders have reported their first-quarter production numbers (the publicly traded ones at least) with a majority showing a gain compared with the first quarter of 2010 but a steep decline from the fourth quarter, when rates bottomed out in early December.
Over the past 18 months, roughly 70% of loan production has entailed refinancings. With many eligible mortgagors already engaging in a refi, mortgage bankers said they now believe that purchase money transactions will dominate the business in the second half of the year. The wholesale/brokerage share of fundings continues to suffer, accounting for less than 10% of fundings in the first quarter, according to preliminary survey figures compiled by National Mortgage News and the Quarterly Data Report.
Brokers are still mad over new federal compensation rules that went into effect in early April, which limit how they can be compensated and prevent them from discounting their services to consumers. The National Association of Mortgage Brokers is contemplating continuing a court challenge to the rule. Another broker trade group, the National Association of Independent Housing Professionals, is still sorting through its options but is not inclined to use the courts at this time.
