Mortgage brokers rise and fall with the housing market bubble

Mortgage brokers have come full circle.

The latest government employment data out Friday tells the story of the industry’s epic rise and fall over the last decade.

Mortgage brokers, who originate loans for a variety of banks and other lenders, road the wave of the housing boom. When the market went bust, the mortgage brokerage industry plummeted.

The number of brokerage employees has now reached the lowest point since 2001, on the eve of the boom.

In January 2001, there were 58,600 people in the industry, according to the Bureau of Labor Statistics. The government defines mortgage and non-mortgage brokers as anyone who arranges loans for others on a commission or fee basis.

With interest rates low and the financial world looking to write ever-more home loans, the number of brokers surged two-and-a-half times to 148,200 by April 2006.

The housing market then began its long decline. And so did the brokerage industry.

The number of brokers in each of the last three months has averaged 58,100.

“During their heyday – ’05, ’06, ’07 – mortgage brokers were very active in the sub-prime market,” said Guy Cecala, publisher of Inside Mortgage Finance. “They were originating those loans and generating a lot of fees.”

In 2005, brokers represented 31 percent of all mortgage originations, Cecala said. Now they represent 11 percent. In many ways, the brokers ruled the market, he said, with bigger bank lenders buying up all the loans. The market has swung back with the banks now having more power.

“A lot of the bad apples that were in the brokerage industry are no longer there,” said John Otto, spokesman for the National Association of Mortgage Brokers (NAMB).

In 2008, Congress passed the Secure and Fair Enforcement of Mortgage Licensing Act, known as the S.A.F.E. Act, to rein in lending practices..

On July 28, federal banking agencies published final rules required under the law. Employees of federally regulated institutions must register with the new Nationwide Mortgage Licensing System and Registry. They will need to provide information and fingerprints.

The mortgage brokerage industry has probably bottomed out, but the roaring days of earlier this decade are probably over. That means the number of mortgage brokers is unlikely to reach the height of 2006 – at least not anytime soon.

“You may not see much of an increase,” Cecala said. “But you probably won’t see a decrease.”