As so many small-balance finance pros across the country can attest, being an independent mortgage broker these days is nowhere near as lucrative - or fun - as it was during the boom times in the mid-2000s. Key funding sources remain idled, and those still in the marketplace are limiting lending to their more deep-pocketed borrowers.
And even though small-balance rates and terms have started becoming more borrower-friendly in recent months, fee-generating deal-closings - the lifeblood of the mortgage broker discipline - remain far below traditional levels.
It's nearly impossible for even savvy veterans like Portland, Ore.'s Marcia Upton to emerge unscathed from the revenue-eroding credit environment. "Everyone's still in survival mode," says Upton, who during her nearly 20 years in mortgage banking has focused mostly on the small-balance space rather than casting her fate with riskier large loans.
Upton's fears and frustrations reflect what many mortgage brokers around the country are experiencing.
While her closings have picked up somewhat this year, Upton longs for the high-volume days that prompted her to leave a giant small-balance lender and found her own shop. Meanwhile she's focusing more than ever on the more-liquid multifamily sector, offering lots of professional advice, networking with peers, spending more time with family - and trying not to get too dispirited over the ultra-conservative credit environment.
"I turned off the negatives," Upton relates. "I'm no longer sending off blast emails."
The licensed real estate broker was a CRE loan officer at Bank of America and subsequently Washington Mutual Bank before founding her Bankers Mutual mortgage brokerage seven years ago. The firm grew to three offices when the debt was flowing freely not so long ago, but is back to a single location.
Upton isn't exactly optimistic about CRE debt markets - nor the small-balance mortgage brokerage niche. She doubts the secondary market for commercial and multifamily mortgages will ever become as deep, broad and liquid as was the case in the 2004-07 era.
"I just don't see that level of capital flow ever returning."
And with small-balance lenders underwriting deals so conservatively, most investors who can buy are paying cash rather than securing mortgages - and not generating broker commissions.
Nor does it help the independent mortgage banker's cause that many banks today are pushing relationship-driven lending activity rather than pursuing heavy transaction volume. In other words bank officers want borrowing customers to deposit funds and otherwise utilize the lender's services - and consequently sidestep commission-dependent intermediaries.
"The mortgage banking world doesn't want to hear it, but mortgage brokers are being phased out," Upton laments.
Revealingly, however, Upton appears more concerned about borrowers facing upcoming mortgage maturities than about her own fee-generation prospects. While she has aimed to stress fully amortizing mortgages over her career, she's all too aware that small-balance investors who've chosen balloon structures may not be able to fully refi outstanding balances when notes come due.
It's a reflection of today's more stringent lending terms as much as the recession's general corrosive effect on property values. Indeed with the once high-flying conduit lenders still pretty much out of the small-balance market, and with most banks requiring borrowers to keep far more cash in reserve, many of Upton's clients don't have access to nearly as many debt sources as was the case through 2007.
Many banks that Bankers Mutual has done business with over the years are now requiring that borrowers not only maintain cash reserves equating to 10 percent of the proposed principal amount - they're also requiring that reserve level for all of the borrower's outstanding mortgages.
"It's tough for people to meet the new criteria," Upton understates.
Likewise banks are more thoroughly scrutinizing minority members of borrowing LLCs, rather than relying heavily on the creditworthiness of managing members. Many are requiring financial statements for any member with even a 10 percent stake - the cut-off had typically been 25 percent when the marketplace was at peak liquidity.
Upton has logically emphasized the more liquid multifamily category, and continues closing transactions under Fannie Mae's popular small loan program. Manufactured home communities likewise remain a bankable property category for Bankers Mutual.
Well-positioned small retail centers continue to attract interest as well, as do self-storage properties. But given the anemic demand for commercial space amid the still-weak economy, most lenders Upton deals with have little if any interest in financing small office properties.
"Don't even bother asking," she quips.
On a somewhat brighter note, Upton perceives life companies demonstrating greater interest in funding small-balance loans, and even select conduits appear to be gearing up for more activity. And although volume remains "moderate" at best compared to Bankers Mutual's boom years, 2010 has so far proven more lucrative than last year. Upton had actually matched 2009's depressed - and depressing - production by the end of April.
Volume in fact has picked up after Upton decided to stop obsessing over the tough marketplace she can't control, and to start spending more time with her family, church, bicycling and other fulfilling pursuits.