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Less Players, More Competence Among Lenders

There has been a dramatic decrease in the number of loan officers in this country.  I have seen estimates that show that in 2005 (the peak of mortgage activity) there were 450,000 loan officers, and that by 2009, the number had shrunk to 150,000.  Nearly 70% of individuals feeding their families by originating mortgages have left the industry.  There are numerous reasons for this occurrence:

  1. Less purchase transactions:  Home Sales dropped during the Subprime Meltdown.  Homebuyers were scared to buy (or waiting for lower prices) while prices were falling and sellers were slow to reduce their asking prices.
  2. Less refinance business:  Simultaneously, refinance activity slowed as rates bumped up a bit and declining home values made extracting equity more difficult.
  3. Less loan products:  Gone are the days where lenders gave loans to “anybody”; gone are the loans that didn’t pay attention to a borrowers’ income, assets or credit.  We have tougher underwriting guidelines.  With a smaller product menu to offer, loan officers struggled to satisfy the consumers’ need.
  4. More regulation:  Between new appraisal guidelines and higher standards for approval for warehouse lines, secondary market investors and FHA Authority, mortgage brokers have been practically eliminated as an option for many consumers, and many lenders have exited the business entirely.
  5. Loan Officer Licensing:  One of the more welcome regulatory changes that resulted from the challenges of the past few years is a national registry of loan officers.  LOs are now required to take classes on a Federal and State level to ensure a minimum competency.  The fact is that we are in the middle of this licensing process right now and more than 30% of the people taking the test are FAILING!

Recognize that the market flushed out 70% of the loan officers.  Now, testing and licensing requirements appear to endanger even some of the “survivors”…..and THAT IS GOOD NEWS!  Why?  Because those of us left standing will truly be operating at a much higher level than what used-to-be the typical loan officer.  (As a side note, the barrier of entry for new people will make it extremely difficult for them to enter the industry.)

In the end, what will remain are professionals who truly know their products, who know the regulations, who can truly advise customers of options, and who can assess the short- and long- term ramifications of choices borrowers make.  What will remain are people who work with the real estate agents, the attorneys, the title companies, and all the other ancillary service providers to serve the educational needs of the public.

The net result of this cleansing we are enduring as an industry is that there will be less competitors, but more demands from our customers.  This combination is something to rejoice, because I am confident that, in the future, mortgage loan officers will once again be a respected profession.

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