Who's who in wholesale 2004: one company topped the charts for both wholesale/broker and correspondent production in 2004. If you guessed Countrywide Financial Corporation, you are right on the money

Mortgage Banking, June, 2005 by Tom LaMalfa

THOUGH HARDLY A NORMAL YEAR IN TERMS OF HOUSING STARTS, existing- and new-home sales, home-price appreciation and product innovations, 2004's theme song was a return to normalcy for origination volume. Primary market activity fell 34.5 percent in 2004 to $2.9 trillion. Nonetheless, it was the second-largest annual volume ever recorded and $600 billion higher than the third-best, $2.3 trillion in 2002. [??] Housing construction again contributed to gross domestic product (GDP) growth, and home-equity extraction fueled consumption via consumer spending. Along with volume, down went revenues, profits and FICO[R] scores. Expenses were up, as was speculation in real estate and loan-to-value (LTV) ratios. [??] Refi activity dropped in response to no new waves of even lower mortgage rates. Thirty-year fixed-rate mortgages (FRMs) hovered just under 6 percent all year. It was also a year that saw adjustable-rate mortgages (ARMs) proliferate. According to a recent Mortgage Bankers Association (MBA) survey, ARMs and interest-only (IO) loans accounted for 63 percent of originations in the second half of 2004. [??] Our sense of the mortgage banking industry's employment data is that there have been only moderate cutbacks in staff at lenders and mortgage brokerages, among Realtors and home builders, at title companies, appraisal firms and thus. Industry consolidation was ongoing as the number of major wholesalers continued to inch downward. This development will be detailed later in the article.

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In the 17 years that I have been writing this annual serial article, the data has been captured and compiled by channel through a voluntary surrender of the data by the surveyed firms. Believe it or not, once upon a time there were 100 firms to survey. Other than the alternative-A and subprime lenders, and a few others led by Golden West Financial Corporation (World Savings Bank FSB, Oakland, California) and Ohio Savings Bank (Cleveland), this survey pretty much includes all the largest prime wholesale lenders.

Firms that are strictly retail, such as CTX Mortgage Co. LLC (Dallas), Regions Mortgage (Cordova, Tennessee) and Merrill Lynch Mortgage (Jacksonville, Florida), aren't surveyed, so several retail firms that would normally appear on a list of the top-10 retailers aren't included in our database. Speaking of Regions, earlier this year it did an interesting thing when it unexpectedly dumped the two wholesale channels it inherited from its year-earlier acquisition of Union Planters Mortgage (Memphis, Tennessee). No interest in wholesale there.

Merrill Lynch, meanwhile, has entered the correspondent channel, hiring an experienced and well-known sales group, and Charlotte, North Carolina-based Bank of America's new management team appears to have decided to return to the correspondent business, in part to complement the advent of its recent alt-A conduit. Does Wall Street smell opportunity from the troubles at Fannie Mae and Freddie Mac?

Having recently completed a major study of the alt-A sector of the mortgage market, we can say with some certainty that the lines between the prime and alt-A markets are blurry, as are those between alt-A and subprime. There is considerable leakage among and between these sectors. Much of the reason for this is due to Fannie and Freddie, who, for various reasons ranging from increasing market share to meeting affordability goals, have found it necessary to wade further and further into these nonprime sectors to grow revenue and income, and to satisfy the Department of Housing and Urban Development (HUD), the Office of Federal Housing Enterprise Oversight (OFHEO) and congressional demands to do more for low- and moderate-income Americans.

While this Who's Who in Wholesale survey has almost exclusively focused on prime wholesalers historically, more and more nonprime volume is seeping into the numbers. Calabasas, California-based Countrywide Financial Corporation's numbers, for example, are all-inclusive--meaning prime, alt-A, subprime and home-equity volume is all in there. But that's not the case in all situations.

For instance, O'Fallon, Missouri--based CitiMortgage Inc.'s volume doesn't include Baltimore-based CitiFinancial. So in that respect, we have a hodgepodge of products in the data. Nonetheless, you shall see our survey of 26 firms is a good, fair representation of the total market--a microcosm of the broader market.

This year for the first time we solicited volume data from several of the large alt-A and subprime lenders, such as Ameriquest Mortgage Co. (Orange, California), Aurora Loan Services Inc. (Littleton, Colorado), IndyMac Bank (Pasadena, California), New Century Mortgage Corporation (Irvine, California) and Impac Mortgage Holdings Inc. (Newport Beach, California). As the roster indicates, many declined my offer to include them in this article (see Figure 1).

Figure 1 is an alphabetical list of the wholesale lenders and their production volumes in 2003 and 2004. We define wholesale production as all originations obtained through table funding and closed-loan acquisitions. Retail is direct and wholesale is indirect, meaning not originated by an employee of the lender.