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Variety keeps finance products moving, survey says.

The mortgage production business has become a very diversified market in 2005, with most originators now routinely offering a varied menu of prime, Alternative A and subprime loans. That's one of the many conclusions found in a new nationwide study of mortgage brokers and their views toward wholesale lenders.

The study points to a significant convergence of the prime, Alt A or low doc and subprime mortgage broker communities. Nearly three-quarters of the brokers surveyed reported they now regularly originate all three types of mortgages--and very few appear to concentrate on just one major type of product.

The survey, conducted in September and resulting in responses from more than 3,200 brokers, was conducted by Campbell Communications, a research firm based in Washington. The study, entitled "How Mortgage Brokers View the Shift to Non-Traditional Products," is the second in a series that tracks mortgage brokers on many wholesale lending issues.

"Three-quarters of all mortgage brokers surveyed make at least one loan per month in all three product categories--prime, Alt A and subprime. That has big implications. It means that Alt A and subprime lenders can no longer focus their sales efforts on a few specialty brokers. For maximum market share, they have to cover nearly the entire broker base," said Thomas Popik, a principal with Geosegment Systems, who designed the survey and authored the final report. The study was sponsored by Inside Mortgage Finance, a leading mortgage industry newsletter.

The survey found that brokers reported an average of 4.1 prime, 3.0 Alt A and 3.3 subprime transactions per month. Meanwhile, broker respondents also reported on average regularly using 2.7 lenders for prime, 2.4 lenders for Alt A and 2.9 lenders for subprime mortgages. The brokers also reported trying 2.7 new lenders each year for prime mortgages, 2.7 for Alt A loans and 3.5 lenders for subprime products.

Popik noted that because the broker base has converged on the three products, wholesale lenders may find it tempting to use one sales force to market different kinds of loans to the same brokers. But, he maintained, this would be a mistake as the survey results clearly show that brokers want a different mix of rates and customer service depending on the loan product they are shopping for.

"In general, the prime market is much more sensitive to rates while the subprime market finds service to be more important," Popik said. "Lenders wanting to take advantage of the broker convergence should carefully examine what brokers want for each type of product--that's specifically what our survey is designed to show--and design their go-to-market strategies accordingly."

While mortgage brokers generally rated different factors as being important for different loan products, there was a surprising amount of similarity among the responses given for trying a new lender. When it came to the most important reason that broker respondents gave for trying out a new wholesaler, a "very competitive interest rate" ranked number one for prime, Alt A and subprime lenders.

The second most important factor cited was "distinctive loan program."
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Title Annotation:FINANCE
Publication:Real Estate Weekly
Date:Nov 30, 2005
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