Who's who in wholesale 2003: in this annual feature in mortgage banking, we rank the top...

AFTER CONCLUDING, ALMOST AS AN INDUSTRY, THAT IT JUST can't get much better for the mortgage finance business than it was in 2002, the sky got bluer and the rainbow across the business got brighter last year. Activity established a new record high, eclipsing the prior high-water mark by 39 percent,

according to the Mortgage Bankers Association (MBA), based on total industry origination volume in 2003 compared with 2002. And, on top of that, production profits fattened and the sector scored a touchdown for the economy. What's more consumers got manna from the heavens in the form of lower mortgage rates, reduced monthly mortgage payments, more disposable income and, for home-owners, a higher asset value to offset eroding in stock values. * What a year! Unexpected as it was, forecasters revised upward their predictions every few months. In October 2002, MBA's official forecast was $1.573 trillion of residential originations. Ultimately that forecast, like all others, was proven 250 percent too low. * Volume peaked in June 2003, when the 10-year Treasury dropped to 3.11 percent. Then interest rates bounced higher rather quickly through summer. Refi activity gradually slid from 70 percent to 40 percent of aggregate activity by year-end, reducing the annualized run rate to under $2 trillion in the second half of 2003. That slowing in volume led to staff reductions across the industry, but especially at the biggest firms. Washington Mutual, Seattle, for example, released 2,500 employees in fourth-quarter 2003. Countrywide Financial Corporation, Calabasas, California, let hundreds go, as did Chase Home Finance, Edison, New Jersey, and Wells Fargo Home Mortgage Inc., Des Moines, Iowa.

Residential finance contributed hugely to economic performance in 2003. It captured and generated investment and it got help from government expenditures, but mostly it generated consumer spending that was earned by home builders, Realtors, lenders, mortgage brokers, appraisers, title companies, inspectors and the plethora of others who are part of the housing and mortgage delivery system.

Since the first article in this "Who's Who in Wholesale" series 16 years ago, the landscape has changed dramatically in some respects, little in others. In looking down on wholesale, what is most different is the size of the business, the size of the largest firms and the sheer number of mortgage origination firms competing for the sources of mortgage business. The two other big changes are, first, how well-served mortgage consumers are and, second, how technology has advanced. Dividing total originations by 2003's average loan amount, there were approximately 22.3 million total home loan transactions closed by the industry in all channels. Twenty-two million! That's a lot of business, and the over-whelming number of those loans closed without a problem.

Since the beginning of this series, our focus has been exclusively on the prime mortgage wholesale market. However, beginning about five years ago the largest firms began branching into nonprime lending. That volume of activity has been growing exponentially in recent years, and more heretofore prime lenders have pushed into the sector.

Part of the reason for this trend has been the leadership of Fannie Mae and Freddie Mac, part was the collapse of the old subprime establishment and part was the quest for profits and market share. While the growth in subprime is somewhat beyond the scope of this article, it provides a window for noting that the production figures may vary by a few billion because some firms included their home-equity and nonprime production in our numbers, while others didn't--which is more a factor of what gets captured and where this occurs in a specific firm.

Our surveys (the source of our production numbers) were directed chiefly to the mortgage company in the case of large banking institutions with mortgage subsidiaries. In instances such as Branch Banking & Trust Co. (BB & T), Wilson, North Carolina, where there is no subsidiary, we went directly to the bank. In other instances, such as Countrywide, where there is a central clearinghouse for all the subsidiaries within the company, we went there for origination data.

In all cases we asked for closed volume for the calendar (not fiscal) year by production channel, with bulk as a setaside separate from correspondent--where it has historically been stored. We surveyed 28 firms, and 27 responded with completed questionnaires. Their wholesale volume for 2002 and 2003 is listed alphabetically by firm in Figure 1. The dollar amounts represent the volume of mortgage loans closed and funded.

By way of definition, by wholesale we mean purchased or acquired production. Put another way, it is indirect production in the sense that nonemployees are taking the applications and sourcing the business that the lender will either table fund or purchase as a closed whole loan or a pool for a mortgage security.

Most of the listed wholesalers are owned by large regional and national banks. Two are subsidiaries of foreign banks, five are owned by thrifts and one is a subsidiary of a publicly held insurance company. Two others are publicly held companies, one of a credit company and the other a subsidiary of a diversified financial company. It is a highly competitive group of firms operating in a perfectly competitive market--no dominant players, no entry barriers and little ability to affect price.

Figure 2 ranks the firms by 2003 volume. Total wholesale production for the 27 surveyed firms was $1.49 trillion. That amount compares with $1.08 trillion for the surveyed group one year earlier, a 38 percent gain year over year. According to industry estimates of total one-to-four-family originations, 2003 volume totaled $3.9 trillion.

2003's big gainers

Let's start by reviewing the wholesalers showing the largest increases in their 2003 production activity. The firms posting the largest advances were Irwin Mortgage Corporation (Indianapolis), up 130 percent; Chase Home Finance, up 94 percent; CitiMortgage Inc. (St. Louis), up 90 percent; Countrywide Financial Corporation, up 73 percent; Fifth Third Mortgage Co. (Cincinnati), up 69 percent; First Magnus Financial Corporation (Tucson, Arizona), up 51 percent; SunTrust Mortgage (Richmond, Virginia), up 44 percent; First Horizon Home Loan Corporation (Irving, Texas), up 43 percent; Bank of America (Charlotte, North Carolina), up 40 percent; and Union Federal Bank (Fort Wayne, Indiana), up 39 percent. All 10 firms grew at or above the mean growth for the total surveyed group of 38 percent.

Eleven firms grew by at least 20 percent, but less than the group average. They included: National City Mortgage (Miamisburg, Ohio) and Taylor, Bean & Whitaker Mortgage Corporation (Ocala, Florida), both up 37 percent; HSBC Mortgage Corporation (Buffalo, New York), up 35 percent; Homecomings Financial Network Inc. (Petaluma, California), up 31 percent; Washington Mutual and BB & T Mortgage (Wilson, North Carolina), both up 29 percent; Flagstar Bank (Troy, Michigan) and U.S. Bank Home Mortgage (Minneapolis), both up 28 percent; Principal Residential Mortgage (Des Moines, Iowa) up 25 percent; Cendant Mortgage Corporation (Mt. Laurel, New Jersey), up 23 percent; and Union Planters Bank (Memphis, Tennessee), up 22 percent.

The slowest growers last year were, in descending order: Wells Fargo Home Mortgage, Ohio Savings Bank (Cleveland), Guaranty Residential Lending Inc. (Austin, Texas), Green-Point Mortgage Funding Inc. (Novato, California), Wachovia Mortgage Corporation (Charlotte, North Carolina) and ABN AMRO Mortgage Group (Ann Arbor, Michigan).

Remarkably, four of the 10 fastest growers were among the big 10: Countrywide, Chase, CitiMortgage and Bank of America. This demonstrates the continued concentration occurring in wholesale, as well as in mortgage banking more generally.

Gone in 2003 from the prior year's survey was GMAC Bank (Horsham, Pennsylvania), since it failed to complete a questionnaire. Three firms were added this year: First Magnus; Taylor, Bean & Whitaker; and Fifth Third. First Magnus had contacted me last year following publication of "Who's Who in Wholesale 2002" and requested to be included the next time around. Taylor, Bean & Whitaker and Fifth Third popped onto our radar screen in the past year and a half, so we sent them a questionnaire in the hope they would join the survey group. Both did.

Like 2002 but unlike prior years, there was precious little merger and acquisition (M & A) activity in 2003. Next year's "Who's Who in Wholesale" won't include Union Planters, which was acquired by Regions Bank earlier this year. I hope to include their combined production volume next year. Two or three of the other top 27 are rumored to be for sale, so several others may not reappear (in their current form) in 2004's listing.

Twenty-two firms produced $10 billion or more of wholesale volume in 2003, while 15 exceeded $20 billion and nine surpassed $50 billion. To be included in the big five, a firm needed to originate more than $98 billion in wholesale production.

The two largest wholesalers exceeded $250 billion. The king of the hill was Countrywide, which weighed in at $321.7 billion--an amount nearly triple what the entire mortgage finance industry produced in the aggregate in 1976, my first year in the mortgage business. In 2002 Countrywide ranked second in our rankings.

Swapping the top spot last year for second place was Washington Mutual, which produced $251.9 billion of wholesale originations. Retaining the third spot for a second straight year was Wells Fargo, which produced $197.1 billion. In fourth place was Chase Home Finance, which originated $110.1 billion in purchased production. Rounding out the top five was ABN AMRO at $98.6 billion. In 2002 Chase was fifth-largest and ABN AMRO was the fourth-largest wholesaler. So they, too, swapped positions.

Occupying the sixth through 10th positions were CitiMortgage at $66.6 billion, National City at $59.1 billion, Principal at $51.1 billion, Flagstar at $50.2 billion and Bank of America at $39.3 billion. CitiMortgage moved ahead of 2002's sixth-largest firm, National City, while Bank of America skipped ahead of GreenPoint, 2002's 10th-largest wholesaler.

In the 11th through 15th positions were GreenPoint, SunTrust, Ohio Savings Bank, First Horizon and HSBC. All five were within one position of where they ranked in 2002. Notably, a firm could have originated as much as $34.7 billion and still not have broken into the top 10 in 2003.

In the 16th spot at $18.4 billion was Homecomings Financial Network, the broker unit of GMAC-RFC, Minneapolis. Less than $1 billion behind was U.S. Bank Home Mortgage, ranked 17th. Both firms held identical positions in our rankings one year earlier.

Irwin was 18th-largest, producing $15.9 billion. First Magnus was 19th-largest, originating $11.5 billion; Taylor, Bean & Whitaker was 20th-largest, originating $10.9 billion; and Cendant was 21st-largest, originating $10.8 billion.

Only $500 million behind at $10.3 billion was Union Planters, in 22nd place. Ranked 23rd was Wachovia at $9.6 billion. Completing the roster were BB & T, Guaranty Residential Lending, Union Federal (which all held nearly identical position to those of the previous year) and Fifth Third.

Figure 3 separates wholesale activity by production channel, either table-funded/broker or closed-loan/correspondent. Of a total of about $1.5 trillion of wholesale production for the 27 biggest firms in our tallies, 54 percent was broker business and 46 percent was correspondent business. This is the second straight year that table-funded volume exceeded closed-loan volume. Historically this only occurs during heavy refi years.

Notice that volume is much more diffuse in the broker channel, where all 27 surveyed firms participate. Meanwhile, four firms don't offer correspondent programs and another nine originated less than $5 billion in 2003. In other words, about one-half of the firms do little to no closed-loan business, while 21 of the 27 firms do more than $9 billion of broker business.

Three firms, each doing more than $100 billion last year, dominated the correspondent channel, whereas nine firms table-funded more than $30 billion of production. In addition, three other firms (Chase, CitiMortgage and Principal) produced correspondent volume of more than $35 billion, while nine others produced double-digit amounts of broker originations.

The top 10

The top 10 companies in 2003 are shown in Figure 2. What follows is an overview of 2003's 10 largest wholesalers, along with a few notes and observations.

Countrywide was the largest wholesaler in our ranking for last year by nearly $70 billion. It returned to its first-place status after a two-year hiatus. Prior to 2002, Countrywide had held the top spot for nine straight years.

Table funding accounts for about one-third of its total wholesale production. In 2002, Countrywide greatly expanded its closed-loan volume, and the data indicates it widened that lead last year. Countrywide offers best-effort, mandatory and assignment of trade (AOT) executions. It is the No. 3 servicer, according to Mortgage Servicing News' Dec. 31, 2003, ranking.

Washington Mutual was the second-largest wholesaler in 2003, following two straight years in first place. It is the nation's largest servicer, a position it has now held for three years. About 38 percent of its purchase business comes through table fundings, the remainder from closed loans. Washington Mutual offers best-effort, mandatory and AOT programs.

Wells Fargo was the third-largest wholesale producer in 2003, the same rank it has held for the past three years. About 61 percent of its purchased production comes from correspondents. According to Mortgage Servicing News, Wells Fargo was the nation's second-largest servicer. It, too, offers best-effort, mandatory and AOT programs.

Chase ranked as the fourth-largest wholesaler in 2003. Brokers accounted for 59 percent of its purchased production. Chase was the fourth-largest servicer in 2003, and the third-largest Ginnie Mae issuer, according to National Mortgage News' latest quarterly survey. It offers best-effort and mandatory commitments, along with AOT and co-issues programs.

ABN AMRO was the nation's fifth-largest wholesaler in 2003. Brokers accounted for 86 percent of its wholesale production, ranking it the third-largest table funder. ABN AMRO was the sixth-largest servicer last year, a one-spot advance from its 2002 position.

Ranked sixth-largest wholesale producer was CitiMortgage. It moved up three spots from one year earlier. About two-thirds of its purchase volume comes from correspondents. CitiMortgage offers best-effort, mandatory and AOT programs. Mortgage Servicing News ranked it seventh-largest in servicing and ninth in subprime lending.

National City ranked seventh with volume of $59.1 billion in 2003. Approximately 90 percent of its purchased production comes from brokers. In 2002 National City was ranked sixth-largest wholesaler. It was the ninth-largest servicer last year, according to Mortgage Servicing News, and the fourth-largest subprime lender, per National Mortgage News.

National City offers best-effort and mandatory programs.

Principal was the eighth-largest wholesaler in 2003, producing about $51 billion. About three-fourths of that production comes from the correspondent channel. It was the sixth-largest closed-loan purchaser in 2003. Principal increased its broker volume by 34 percent last year. Principal is the only one of the top 10 lenders that no longer operates in the retail channel. Last year the company was the 11th-largest servicer nationwide. Principal executes AOTs, coissues and concurrent transfers, along with best-effort and mandatories.

Flagstar ranked ninth in the roster of large wholesalers. Its purchased production volume is two-thirds table-funded and one-third closed-loan. The company moved down one notch from the 2002 roster of largest wholesalers. It is the eighth-largest table funder, the seventh-largest correspondent lender and, according to Mortgage Servicing News, the 22nd-largest servicer.

Bank of America was ranked the 10th-largest wholesaler. All of its production came from mortgage brokers. It is the only top-10 firm without a correspondent channel, a market it exited three years ago. Bank of America is the nation's fifth-largest servicer.

Top table funders

Figure 4 ranks 2003's top 10 table funders. Countrywide led the pack at just shy of $99 billion, approximately $32 billion or 48 percent above its prior-year mark, when it ranked fourth-largest. It had held the top spot in the two previous years.

Ranked second was Washington Mutual, with $95.2 billion of broker production, 11 percent over the previous year. ABN AMRO's InterFirst unit was third-biggest in table funding with nearly $85 billion. Wells Fargo was fourth at $77.5 billion of broker originations. Chase ranked fifth, at just south of $66 billion, approximately 81 percent ahead of the prior year's production volume. It moved up one notch from 2002.

Ranked sixth in broker originations was National City at $53.3 billion. It ranked fifth in 2002. Bank of America was seventh-largest with $39.3 billion, up 40 percent from a year earlier. Ranked eighth-largest in table-funded business for 2003 was Flagstar, up one position or about $9 billion in volume. GreenPoint ranked ninth, one spot below the prior year but up approximately $4 billion in production. Holding down 10th place for the second straight year was CitiMortgage, with slightly less than $24 billion, a 71 percent gain over 2002. There were no new entrants to the list of top 10 broker-wholesalers in 2003.

In the aggregate, table-funded business for our big 10 totaled $601.8 billion, a 24 percent increase over 2002.

Top correspondent lenders

Figure 5 shows the 10 largest closed-loan buyers for 2003. Again in the top spot is Countrywide, with $222.8 billion, up 89 percent from the previous year. Nearly $66 billion behind was Washington Mutual, with $156.7 billion in volume, up almost $50 billion from 2002 but once more in the second position.

Ranked third with $119.7 billion of correspondent business was Wells Fargo. It increased closed-loan purchase activity by nearly $24 billion over the prior year, yet failed to move up in the ranking.

Chase was the fourth-largest buyer of closed loans, based on the 2003 survey. It purchased $44.5 billion, more than twice its year-earlier mark when it ranked sixth. CitiMortgage, with $42.8 billion of correspondent production, ranked fifth, up one spot from 2002. It saw activity in the channel more than double from the prior year.

Down two spaces from its 2002 showing is Principal, at $37.7 billion, making it the sixth-largest closed-loan producer last year. Despite the slippage, its volume rose 20 percent. Ranked seventh is Flagstar at $18.2 billion. It grew volume by 23 percent and moved up one position from the previous year.

ABN AMRO posted the eighth-largest closed-loan volume for 2003 at $13.8 billion, up one spot from the year earlier. SunTrust ranked ninth at $12.9 billion. This was its first entrance into the top 10 correspondent lenders. Rounding out the ranks of the big 10 was U.S. Bank with $7.6 billion. It, too, made its debut in the top 10 in this channel.

Out of the ranking in 2003 were Ohio Savings Bank and GMAC, since the latter failed to provide its numbers for 2003. Total volume for the top 10 correspondent lenders was $676.7 billion in 2003, nearly $230 billion above the year-earlier mark measured by our survey.

Top retailers

Figure 6 shows a roster of the big 10 retail originators among the lenders surveyed. The largest retail lender in 2003 and for at least the past decade was Wells Fargo. Its retail volume was $249 billion, nearly $100 billion more than the next ranked firm and up nearly 73 percent year-over-year. At $154.4 billion, Washington Mutual was ranked No. 2 in direct originations. It was also in second place one year earlier.

Third largest was Countrywide with retail originations of $113.2 billion, up nearly 70 percent from 2002. The No. 4 retailer among those surveyed was Bank of America with $91.8 billion. Its volume rose more than $30 billion, but its position was unchanged from the previous year. Chase, the fifth-ranked retail originator at $90.8 billion, held its spot for a fifth consecutive year, despite reporting a 61 percent gain in volume.

The sixth-biggest retailer was Cendant at $72.9 billion. It held the same spot in the prior year. With retail volume of $48.4 billion was National City, ranked seventh-largest. Though it, too, held its spot from a year earlier, its volume rose approximately $12 billion.

CitiMortgage was the eighthlargest retailer with volume of $30.6 billion. It ranked 10th in 2002. Ranked ninth in 2003 was First Horizon at $28.8 billion. It grew retail volume by nearly $9 billion, but slipped one spot from the prior year. Occupying the 10th spot was ABN AMRO, which produced $25.4 billion of retail business last year, up 27 percent from one year earlier.

Total volume for the big-10 retailers from our survey group was $905.2 billion, nearly $334 billion higher than the year-earlier total. Retail was the fastest-growing channel last year, followed by correspondent and then broker. There were no new entrants among our big-10 retailers, a first.

Channel and product composition

Figure 7 shows total mortgage production separated by channel for the 27 surveyed firms. The largest slice of the pie was retail, accounting for 40 percent. It was followed by tablefunded production at 31 percent, which was followed closely by closed-loan at 28 percent.

It is worth noting that retail activity is somewhat overstated in Figure 7 when compared with a larger sample size of lenders. The reason for this is the unusually large size of the big three retailers and the much broader diffusion in broker--that is, no firms are as channel-dominating in wholesale. In any case, retail's share rose two percentage points in 2003 from our 2002 findings, broker share dropped three percentage points and correspondent held unchanged from one year earlier.

In non refi markets, the historical distribution by channel tends to be approximately one-third each for the three channels.

Readers are cautioned not to conclude that mortgage broker market share was 31 percent in 2003. The reason is leakage of broker production into the correspondent and retail channels. We estimate that 50 percent of correspondent activity is really broker volume and 20 percent of retail is, too. Brokers probably accounted for 60 percent of originations in 2003. Wholesale Access' study Mortgage Brokers 2002 indicated brokers held market share of 65 percent in that earlier period.

[FIGURE 9 OMITTED]

This summer, when Wholesale Access completes its second study of nonbroker originators, we will have a more precise number and greater detail about the lender industry.

Figure 8 identifies the top five bulk-servicing buyers for 2003 and 2002. Chase again took top honors with nearly twice the prior year's volume. Washington Mutual at $29.1 billion and Principal at $12.4 billion were the other large bulk buyers. Washington Mutual almost doubled its bulk activity versus one year earlier, while Principal was essentially unchanged.

Countrywide's bulk volume was up 64 percent, to $6.9 billion in 2003. CitiMortgage and GreenPoint were tied for fifth place at $2.7 billion. Bulk activity for the big five was up about 74 percent over 2002's level.

Figure 9 shows wholesale production volumes from our surveys for the past 16 years. To compile it, we tallied the volume totals for all the wholesalers surveyed for the given year. (Though that methodology is imprecise, it puts us in the ballpark.)

In 2003, wholesale exceeded its prior peak of $1.083 trillion of one year earlier. Last year's purchased production total is double the 2001 total and up 38 percent from the prior year. Although new highs have been achieved for three consecutive years, wholesale's relative share remains basically flat over the last five years. Put differently, wholesale's go-go growth years are behind it, in our view.

Figure 10 offers a breakout of refi and purchase-money business by our surveyed lenders for 2000 through 2003. Each lender we surveyed was asked for the percentage of its annual volume that was refinance.

In 2003, refi volume rose for a fourth straight year, albeit modestly. Meanwhile, purchase-money originations declined as a percentage of the aggregate for the third year in a row. That share slipped to 31 percent in 2003 for our surveyed lenders, as interest rates dropped through the first six months of the year and remained below 6 percent for 30-year fixedrate mortgages (FRMs) through year-end.

Key wholesale trends

In a talk I gave recently, I referred to 2003 as the year of the good, the bad and the ugly. The good was characterized by record activity levels, the outstanding job the industry did for consumers, record (origination) profits and countless jobs created by the industry, as well as the net positive the mortgage and housing sectors provided to an otherwise staid macro economy.

The "bad" aspect, at least in my view, came in the form of the record-sized mortgage debt outstanding ($7 trillion), the further degradation in the mortgage instrument and continued concentration in the lending industry.

A degraded mortgage instrument was evident in a wider spread between the 10-year Treasury and conforming mortgage rates, lower mortgage servicing right (MSR) values (and therefore sizable write-downs of servicing assets) and unattractive returns to investors from mortgages--the latter likely resulting in fewer investors prospectively. The Achilles' heel of the uniform Fannie Mae/Freddie Mac mortgage note (the free prepayment option) couldn't have been more apparent and glaring--to the detriment of consumers, investors (including and especially Fannie and Freddie) and servicers alike.

[FIGURE 10 OMITTED]

Evidence of concentration seeps through 2003's number, as it gradually has for more than a decade. Since 1994, when the number of major wholesalers surveyed totaled around 100, their ranks have thinned by 73 percent. There are fewer but larger firms, especially at the top, where the market structure is now that of an oligopoly--a few controlling firms.

If we tally all the volume of the 27 firms we surveyed for 2003 in all channels, the sum is $2.53 trillion. Using the consensus estimate of $3.9 trillion for 2003's total origination volume, the surveyed firms accounted for 65 percent of the total. (Per National Mortgage News, the top 100 accounted for 87 percent, or $3.4 trillion, of the total.) This suggests that the other 51.400 originators (44,000 mortgage brokerages and 7,500 nonbroker [lender] originators) shared the remaining 13 percent of the market.

Isolated further, the top three accounted for $1.29 trillion of the $3.9 trillion, or 33 percent. Examined by channel among only our listed group, in the broker channel the top 10 accounted for 77 percent, the top five for 54 percent and the top two for 25 percent. For the correspondent channel, the top 10 accounted for 94 percent, the top five for 81 percent, the top three for 69 percent and the largest for 31 percent. In the retail channel, the top 10 accounted for 88 percent, the top five for 68 percent, the top two for 39 percent and the largest for 24 percent. From any historical perspective, that's concentration.

The "ugly" was represented by the accounting problems and ongoing investigations at Freddie Mac and Fannie Mae, especially the former, and the whole rulemaking process surrounding the proposed reforms to the Real Estate Settlement Procedures Act (RESPA).

The year was marked by some highly unusual low points for Fannie Mae and Freddie Mac, including: 1) pointed criticism from Federal Reserve Chairman Alan Greenspan; 2) similar commentary from N. Gregory Mankiw, chairman of the Council of Economic Advisers in the Bush administration; 3) the firings of three top Freddie Mac executives for accounting manipulation that ultimately led to a $5 billion, three-year restatement of earnings; 4) a Federal Reserve study that concluded, "The GSEs' implicit subsidy does not appear to have substantially increased homeownership or home-building;" and 5) the mid-July 2003 announcement that the Office of Federal Housing Enterprise Oversight (OFHEO) was launching a special investigation of the duopolists' accounting practices.

Parting thoughts

Given the growth in origination activity last year, it is not surprising that wholesalers also experienced a record year of activity. Wholesale mortgage banking is now a mature industry with a well-set table and the appropriate number of chairs and place settings. Of the 30 firms included in the three top-10 lists, only one new firm rotated into one of the top 30 spots. That's the fewest ever.

The production accomplishments achieved in 2003 are a monument to the sterling management needed to orchestrate the work required to generate an application, then process, underwrite, close, ship, fund and quality-control a loan. Technology, of course, deserves a pat on the back. For example, imaging software is eliminating much of the paper.

In 2004 Wholesale Access expects the wholesale (and mortgage) industry to begin its journey back to normalcy, volume-wise. Fewer originations will mean fewer staff. Based on earlier periods, reduced activity has increased the role and importance of cost management. We expect, for instance, that the number of mortgage brokerages will likely return to the equilibrium level of 25,000 versus the 44,000 we estimated based on our 2002 examination of that sector. A smaller origination pie also implies more salespeople, less over time, smaller compensation packages (from bottom to top), thinner margins and maybe more automation.

Reduced refinance activity along with a confluence of other factors have given banks a renewed interest in branch banking, thanks to the potential for customer relationship management (CRM) and cross-selling of various financial products. Branches are all the rage again, and so more bank resources are going toward buying and building them. This means more retail competition for wholesale in the next several years.

A final thought I'd like to share concerns the heightened risk of an asset deflation in housing due to what I view as excessive consumer debt. The $64,000 question is, does a housing price bubble exist and, if so, will it pop? Wholesale Access suspects the answers are "yes" to both queries. This is one of those issues where we hope to be wrong. And certainly there are many other experts lining up on the other side of that prediction.

We look forward to reviewing the landscape a year from now to see how the wholesale business fared in 2004. Borrowing from an old adage, there's never a dull moment in mortgage banking.

Figure 1  Wholesale Volume for 2002 and 2003, Ranked Alphabetically
($ in billions)

Company                                      2002     2003

ABN AMRO Mortgage Group                       99.5     98.6
Branch Banking & Trust Mortgage (BB & T)       5.0      6.5
Bank of America                               28.1     39.3
Cendant Mortgage Corp                          8.8     10.8
Chase Home Finance                            56.8    110.1
CitiMortgage Inc.                             35.1     66.6
Countrywide Financial Corp.                  185.8    321.7
Fifth Third Mortgage Co.                       1.3      2.2
First Horizon Home Loan Corp.                 15.5     22.2
First Magnus Financial Corp.                   7.6     11.5
Flagstar Bank                                 39.1     50.2
GreenPoint Mortgage Funding Inc.              31.2     34.7
Guaranty Residential Lending Inc.              5.4      6.2
HSBC Mortgage Corp. (USA)                     16.3     22.1
Homecomings Financial Network Inc.            14.0     18.4
Irwin Mortgage Corp.                           6.9     15.9
National City Mortgage                        43.1     59.1
Ohio Savings Bank                             20.8     24.5
Principal Residential Mortgage                40.9     51.1
SunTrust Mortgage                             17.8     25.6
Taylor, Bean & Whitaker Mortgage Corp.         8.0     10.9
U.S. Bank Home Mortgage                       13.7     17.5
Union Federal Bank                             3.5      4.9
Union Planters Bank                            8.4     10.3
Wachovia Mortgage Corp.                        8.6      9.6
Washington Mutual                            195.1    251.9
Wells Fargo Home Mortgage                    166.5    197.1
TOTAL VOLUME                               1,083.0  1,499.6

SOURCE: WHOLESALE ACCESS

Figure 2  Wholesale Volume for 2002 and 2003, Ranked by 2003 Wholesale
Volume ($ in billions)

Rank  Company                               2002     2003    % Change

 1    Countrywide Financial Corp.           185.8    321.7   73%
 2    Washington Mutual                     195.1    251.9   29%
 3    Wells Fargo Home Mortgage             166.5    197.1   18%
 4    Chase Home Finance                     56.8    110.1   94%
 5    ABN AMRO Mortgage Corp.                99.5     98.6    1%
 6    CitiMortgage Inc.                      35.1     66.6   90%
 7    National City Mortgage                 43.1     59.1   37%
 8    Principal Residential Mortgage         40.9     51.1   25%
 9    Flagstar Bank                          39.1     50.2   28%
10    Bank of America                        28.1     39.3   40%
11    GreenPoint Mortgage Funding Inc.       31.2     34.7   11%
12    SunTrust Mortgage                      17.8     25.6   44%
13    Ohio Savings Bank                      20.8     24.5   18%
14    First Horizon Home Loan Corp           15.5     22.2   43%
15    HSBC Mortgage Corp. (USA)              16.3     22.1   35%
16    Homecomings Financial Network          14.0     18.4   31%
17    U.S. Bank Home Mortgage                13.7     17.5   28%
18    Irwin Mortgage Corp.                    6.9     15.9  130%
19    First Magnus Financial Corp.            7.6     11.5   51%
20    Taylor, Bean & Whitaker Mtg. Corp.      8.0     10.9   37%
21    Cendant Mortgage Corp.                  8.8     10.8   23%
22    Union Planters Bank                     8.4     10.3   22%
23    Wachovia Mortgage Corp.                 8.6      9.6   11%
24    BB & T Mortgage                         5.0      6.5   29%
25    Guaranty Residential Lending Inc.       5.4      6.2   15%
26    Union Federal Bank                      3.5      4.9   39%
27    Fifth Third Mortgage Co.                1.3      2.2   69%
      TOTAL VOLUME                        1,083.0  1,499.6   38%

SOURCE: WHOLESALE ACCESS

Figure 3 Wholesale Volume for 2003, Separated by Production Channel
($ in billions)

Rank  Company                              T-Funded  Correspondent

 1    Countrywide Financial Corp.            98.9        222.8
 2    Washington Mutual                      95.2        156.7
 3    Wells Fargo Home Mortgage              77.5        119.7
 4    Chase Home Finance                     65.6         44.5
 5    ABN AMRO Mortgage Group                84.8         13.8
 6    CitiMortgage Inc.                      23.8         42.8
 7    National City Mortgage                 53.3          5.8
 8    Principal Residential Mortgage         13.4         37.7
 9    Flagstar Bank                          32.0         18.2
10    Bank of America                        39.3         NA
11    GreenPoint Mortgage Funding Inc.       31.4          3.3
12    SunTrust Mortgage                      12.7         12.9
13    Ohio Savings Bank                      18.8          5.7
14    First Horizon Home Loan Corp.          17.8          4.4
15    HSBC Mortgage Corp. (USA)              17.9          4.1
16    Homecomings Financial Network          18.4         NA
17    U.S. Bank Home Mortgage                 9.8          7.6
18    Irwin Mortgage Corp                     9.6          6.3
19    First Magnus Financial Corp.           11.5         NA
20    Taylor, Bean & Whitaker                10.6          0.3
      Mortgage Corp
21    Cendant Mortgage Corp.                  4.5          6.3
22    Union Planters Bank                     9.9          0.4
23    Wachovia Mortgage Corp.                 6.4          3.2
24    BB & T Mortgage                         3.8          2.8
25    Guaranty Residential Lending. Inc.      6.0          0.2
26    Union Federal Bank                      3.6          1.3
27    Fifth Third Mortgage Co.                2.2         NA
      TOTAL VOLUME                          778.8        720.8

SOURCE: WHOLESALE ACCESS

Figure 4 Top Ten 2003 Table-Funded Volume ($ in billions)

Rank  Company                           TF-Broker

 1    Countrywide Financial Corp.          98.9
 2    Washington Mutual                    95.2
 3    ABN AMRO Mortgage Group              84.8
 4    Wells Fargo Home Mortgage            77.5
 5    Chase Home Finance                   65.6
 6    National City Mortgage               53.3
 7    Bank of America                      39.3
 8    Flagstar Bank                        32.0
 9    GreenPoint Mortgage Funding Inc.     31.4
10    CitiMortgage Inc.                    23.8
      TOTAL VOLUME                        601.8

SOURCE: WHOLESALE ACCESS

Figure 5 Top Ten 2003 Correspondent Volume ($ in billions)

Rank  Company                         Correspondent

 1    Countrywide Financial Corp.         222.8
 2    Washington Mutual                   156.7
 3    Wells Fargo Home Mortgage           119.7
 4    Chase Home Finance                   44.5
 5    CitiMortgage Inc.                    42.8
 6    Principal Residential Mortgage       37.7
 7    Flagstar Bank                        18.2
 8    ABN AMRO Mortgage Group              13.8
 9    SunTrust Mortgage                    12.9
10    U.S. Bank Home Mortgage               7.6
      TOTAL VOLUME                        676.7

SOURCE: WHOLESALE ACCESS

Figure 6 Top Ten 2003 Retail Volume for Wholesale Lenders ($ in
billions)

Rank  Company                               Retail

 1    Wells Fargo Home Mortgage             249.0
 2    Washington Mutual                     154.4
 3    Countrywide Financial Corp.           113.2
 4    Bank of America                        91.8
 5    Chase Home Finance                     90.8
 6    Cendant Mortgage Corp.                 72.9
 7    National City Mortgage                 48.4
 8    CitiMortgage Inc.                      30.6
 9    First Horizon Home Loan Corp.          28.8
10    ABN AMRO Mortgage Group                25.4
      TOTAL VOLUME                          905.2

SOURCE: WHOLESALE ACCESS

Figure 7 2003 Production Channel Composition

Table-Funded  31%
Closed-Loan   28%
Retail        40%

SOURCE: WHOLESALE ACCESS

Note: Table made from pie chart.

Figure 8 Top Volume in Bulk Acquisitions, 2002 and 2003 ($ in billions)

Rank  Company                           Bulk Acquisitions

Top Five in 2002
1     Chase Home Finance                 42.6
2     Washington Mutual                  16.3
3     Principal Residential Mortgage     12.2
4     Countrywide Financial Corp.         4.2
5     CitiMortgage Inc.                   1.9
      TOTAL VOLUME                       77.1

Top Five in 2003
1     Chase Home Finance                 83.4
2     Washington Mutual                  29.1
3     Principal Residential Mortgage     12.4
4     Countrywide Financial Corp.         6.9
5     CitiMortgage Inc.                   2.7
5     GreenPoint Mortgage Funding Inc.    2.7
      TOTAL VOLUME                      134.5

SOURCE: WHOLESALE ACCESS

Tom LaMalfa is a managing director with Wholesale Access, Columbia, Maryland, a research, advisory and publishing company specializing in mortgage banking topics. Wholesale Access conducts annual production revenue and expense benchmarkings, does market structure studies and publishes statistical reports about mortgage finance. LaMalfa can be reached at tlamalfa@wholesaleaccess.com. More information about Wholesale Access can be found at www.wholesaleaccess.com.