He says the brokers and banks that lost last cycle are due for a comeback
The Federal Reserve gathered today for its two-day September meeting, with the whole mortgage world watching to see what they decide.
Markets are betting that the Fed will announce a 25-basis-point rate hike tomorrow, with CME FedWatch showing a 92.7% chance of an increase as of Tuesday morning. Economists believe that while a hike wouldn’t be surprising, it could come right down to the last vote of the Federal Open Market Committee.
Optimistic rate forecasts for 2026 hoped mortgage rates would continue to ease. However, the opposite has happened, with the 30-year fixed rate at or above 7% this week. This has severely reduced refinance volume, except for those with no other choice.
Not only have refinances been limited, but a new challenge has arrived for brokers. Borrowers coming through the door increasingly do not fit the profile agency lending was built around in the first place, pushing more loans into the non-agency space.
Bill Dallas (pictured top), chairman of Dallas Capital, has spent more than 40 years in the mortgage industry, including building companies through the last non-agency boom in the 1990s and 2000s. He said the mistake he sees most often among clients is treating this cycle as temporary.
"Look, you've been in this mess for a while, and the low-rate cavalry, you kept praying that these guys are going to show up," Dallas told Mortgage Professional America. "I've tried to tell my clients that that's not going to happen. They want to think about it as episodic. What I'm trying to get them to think about is, guys, this is structural."
The wrong market conditions
Dallas said the current market conditions make agency lending a bad match for many customers coming in the door.
"Agency serves you really well in a purchase-driven, owner-occupied, low-rate environment, especially with employed borrowers," he said. "We're in a market with things they don't do well: cash-out, HELOCs, second mortgages. They don't want to talk about non-owner-occupied, and they don't like self-employed."
In all the years Dallas has been in the industry, he’s never seen the perfect storm of conditions that have arrived in the current market.
"Our industry sort of teeters on a small stool that has three legs," he said. "The legs are almost always home price appreciation, interest rates, and jobs. I have never seen in my lifetime the amount of equity that exists in property and the amount of cash that's being redeployed by people to buy real estate. If you add to that a third component, this movement of non-owner-occupied flipping and buying houses, you've got three massive shifts that don't figure into agency very well."
An opportunity for brokers
The current dominance of independent mortgage banks, he said, fits a pattern he has watched repeat for decades.
"Right now, the independent mortgage banks have a 70% share," he said. "My view is every time somebody gets a 70% share, the chair gets pulled, and somebody takes over. That has occurred every decade."
He said the two channels most likely to benefit from that shift are the same ones that struggled most after the last downturn.
"The 70% share that independent mortgage banks have today will be orphaned, and who's it going to be orphaned to? The two people who got slaughtered the last go-round, brokers and banks," he said. "You're seeing broker share go from 5% to 10%. It's now probably 30%."
Rocket and United Wholesale Mortgage stand out to Dallas as proof of where he believes the industry is heading.
"Great leaders, good strategy, and centralized tech are essential to what they do," he said. "I love what Rocket does in that they don't go into distributed retail. Neither one of them does. That is a clue. And yet where are the rest of us? Distributed retail."
Rocket made another deliberate choice, according to Dallas, about who owns the customer relationship once a loan closes.
"They firmly believe the consumer has changed," he said. "They began to retain servicing, and that gets them next to their client. That is all about controlling the customer relationship and not leaving it to an expensive LO."
That same shift in consumer behavior, he said, is starting to hit originators and agents somewhere that affects their bottom line directly.
"The consumer has all the goods right now," he said. "You can just hit an AI button, and it'll spit out properties in seconds. So now how do you fulfill? You certainly can't charge two points and five points and nine points, and realtors can't charge what they used to. All of that is going to get compressed."
Despite the warning signs, Dallas said he does not believe the mortgage market itself is in trouble, only the people still trying to operate it the old way.
"You're still in a $2 trillion market. The market's pretty healthy. You don't have a credit problem," he said. "Structurally, it's changed."
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