The real value of a brokerage is how it “owns” the transaction and the relationship with the consumer.
And the key to long-term success as a brokerage is the ability to leverage that relationship into additional revenue using ancillary services.
Today, we’ll be answering why you should be exploring a mortgage brokerage as an ancillary service.
Without further ado, let’s dive in.
Why Now?
Current real estate market conditions have driven seasonally adjusted home sales to historic lows. In addition, the refinance market for mortgages is very slow due to the high mortgage rates. The result: revenue and profits for mortgage brokers and banks are below even the 2008 recession.
That means it is a good time to consider acquiring or working with a mortgage company. But this window of opportunity won’t last forever.
Right now, 93% of homeowners have a mortgage under 6%, 82% have a mortgage under 5%, and 62% have a mortgage under 4%.
When mortgage rates drop below 5% (and they will), it will create a material increase in the demand and supply in residential real estate. Which will in turn cause a dramatic increase in the number of annual real estate transactions. Also, the mortgage refi market will return.
When that increase happens, fewer ancillary businesses are going to need or want to sell. And the ones that still do will become even more expensive.
Mortgage Industry
Now, as you can imagine, as interest rates have dramatically risen from their 2021 historic lows, mortgage originations have dramatically dropped.
In fact, loan originations in 2023 are on pace to be less than half of what they were in 2022. In the first half of 2022, $1.6 trillion in mortgages were originated. That number dropped to only $716.9 billion for the first half of 2023 – a more than 50% decline!
Here’s another fact to illustrate how much mortgage originations have dropped.
In Q3 2020, mortgage originations on one to four family properties in the US were at $1,261 billion. In Q1 2023, they were at $333 billion. That’s a staggering 74% decrease.
However, the mortgage industry isn’t all doom and gloom.
Loan Brokers’ revenue is forecasted to grow at a Compound Annual Growth Rate (CAGR) of 2.5% to $26.8 billion over the next five years (Statista).
So, while rates are high, now is a good time to acquire or work with a mortgage bank or brokerage.
Summary
Alright, let’s wrap this up.
The mortgage industry is at historic lows, making it an ideal time to acquire capital-distressed businesses.
Adding them to your brokerage now allows you to set stable foundations for when the market comes roaring back.
Now there’s only one question.
How do you get into the mortgage business?
We have an article that answers that exact question.