52231 Loan Brokers in the US Industry Report

The primary activities of this industry are Brokering residential mortgages Brokering commercial and industrial mortgages Brokering home equity loans Brokering equipment financing arrang

IBISWorld Industry Report 52231

Loan Brokers in the US

competition will slow industry growth

2 About this Industry

12 Industry Life Cycle

14 Products and Markets

20 Market Share Concentration

20 Key Success Factors

20 Cost Structure Benchmarks

31 Industry Financial Ratios

32 Jargon & Glossary

This report was provided to

Seattle Pacific University (2134440152)

by IBISWorld on 03 December 2019 in accordance with their license agreement with IBISWorld

This industry is composed of establishments that arrange loans, especially mortgages, by bringing borrowers and lenders together on

a commission or fee basis

The primary activities of this industry are

Brokering residential mortgages Brokering commercial and industrial mortgages Brokering home equity loans

Brokering equipment financing arrangements Brokering vehicle loans

52212 Savings Banks & Thrifts in the US

Operators in this industry primarily accept and loan out deposits to provide loans for consumers and businesses.

52213 Credit Unions in the US

Operators in this industry are member-owned and provide banking services to these same members.

52219 Industrial Banks in the US

Operators in this industry are financial institutions authorized to make consumer and commercial loans and

to accept federally insured deposits.

52221 Credit Card Issuing in the US

Operators in this industry provide credit through the issuance of credit cards.

52222 Auto Leasing, Loans & Sales Financing in the US

Operators in this industry provide sales financing and generate revenue through interest and fees from borrowers.

Industry Definition

Main Activities

Similar Industries

The major products and services in this industry are

Brokering and dealing products Commercial and industrial mortgages Home equity loans

Loans to governments Residential mortgages – multifamily residences Residential mortgages – one- to four- family residences Vehicle loans

Other

For additional information on this industry

industry reports, which are updated

up to four times a year To see all

Provided to: Seattle Pacific University (2134440152) | 03 December 2019

250

125 150 175 200 225

25

11 13 15 17 19 21 23

Year Revenue Employment

Revenue vs employment growth

Products and services segmentation (2019)

71.4%

Residential mortgages - one- to four-family residences

0.7%

Home equity loans

9.0%

Residential mortgages - multifamily residences

0.2%

Vehicle loans

0.1%

Loans to governments

Industry Globalization Low

Key External Drivers

House price index

30-year conventional

mortgage rate

External competition for

the Loan Brokers industry

Key External Drivers House price index

Residential housing prices heavily influence demand for housing credit

Demand for mortgage brokers increases when home prices rise because

purchasing a home is considered to be a good investment and typically requires consumers to take out additional credit

Furthermore, housing prices generally follow cyclical trends, and demand for loan brokers increases with improving

macroeconomic variables The house price index is expected to increase in

2019, representing a potential opportunity for the industry

30-year conventional mortgage rate

The 30-year conventional mortgage rate

is traditionally the interest rate at which borrowers can receive credit for

purchasing a home When mortgage rates fall, the cost of borrowing declines, thus

Executive Summary The Loan Brokers industry is expected to

expand over the five years to 2019 as access

to credit and consumer incomes continue

to rise Favorable economic conditions and low interest rates have fueled consumer spending over the past five years, with purchases of homes and cars boosting demand for mortgages and auto loans As household spending on big-ticket items increases, demand for loan brokering services is forecast to rise As a result, industry revenue is projected to grow an annualized 11.2% to $13.5 billion over the five years to 2019 However, recent upticks

in interest rates are expected to temper

demand for mortgages and auto loans this year; consequently, IBISWorld projects industry revenue to grow only 0.8% in

2019 alone

Consumer loans activity is primarily dependent on household income levels, corporate profit and housing prices Over the five years to 2019, household incomes have increased due to declining

unemployment and recent tax cuts

Moreover, per capita disposable income and consumer spending levels, both indicative of consumers’ willingness to spend, have been on the rise during the

five-year period The Loan Brokers industry has been a major beneficiary of strong consumer confidence, as

consumer loans represent the largest source of industry revenue Additionally, the industry has become more profitable

as online loan brokering services have gained significant influence Average industry profit margins, measured as earnings before interest and taxes, are expected to account for 17.7% of industry revenue in 2019, up from 15.4% in 2014.The Loan Brokers industry is expected

to continue expanding over the five years

to 2024 Among the most prominent tailwinds affecting the industry is the

2018 passage of the Economic Growth, Regulatory Relief and Consumer Protection Act This legislation serves to amend previously restrictive mortgage lending practices and is expected to further encourage lending activity in the coming years However, the industry is expected to endure several headwinds Over the five years to 2024, interest rates are expected to increase, and as a result, mortgages will become less attractive to consumers Moreover, external

competition from commercial banks is expected to continue, as certain restrictions under the Dodd-Frank Act have been pulled back Nevertheless, IBISWorld projects industry revenue to increase at an annualized rate of 3.0% to

$15.7 billion over the five years to 2024

The industry has been a major beneficiary of

strong consumer confidence

Provided to: Seattle Pacific University (2134440152) | 03 December 2019

Key External Drivers

continued increasing home purchases and demand for loan brokerage services The 30-year

conventional mortgage rate is expected to decrease in 2019

External competition for the Loan Brokers industry

Loan brokers experience competition from other mortgage brokerage institutions, including commercial banks and some government organizations These institutions offer a wider range of services and are

increasingly attempting to bypass the industry during the mortgage

origination process External competition for the Loan Brokers industry is expected to increase in 2019, posing a potential threat to the industry

Housing starts

The number of housing starts serves as a measure of the amount of new residential construction in the United States A larger stock of homes in the United States creates more opportunities for industry operators to provide brokerage services during the mortgage origination process The number of housing starts is expected

to increase in 2019

Per capita disposable income

Per capita disposable income levels largely determine a household’s ability to repay a loan Additionally, income levels influence the decision of a household to enter into mortgages or other consumer loans in the first place Per capita disposable income is expected to increase in 2019

5.5

3.5 4.0 4.5 5.0

Current

Performance

The Loan Brokers industry primarily engages in arranging loans between borrowers and lenders Brokerages serve the needs of both consumers and businesses, with mortgage brokering comprising the majority of industry activity

Historically, the industry has grown in line with the US economy, despite turbulence during the housing crisis of 2008 In more recent years, the Loan Brokers industry has benefited from increased consumer confidence and favorable interest rates

Moreover, increased activity in the housing market has served as clear evidence of rising consumer demand Over the five years to 2019, these trends are expected to bolster industry revenue IBISWorld projects industry revenue to increase an annualized 11.2% to $13.5 billion during the five-year period However, due to rising

interest rates and increasing levels of investor uncertainty, IBISWorld projects the industry’s expansion to slow to meager revenue growth of 0.8% in 2019 alone

60

-20 0 20 40

Consumer confidence Consumer confidence plays a major role in

the success of the Loan Brokers industry, as consumers’ perceptions of their wealth and income levels ultimately drive their decisions to make large purchases requiring

a loan (i.e buying a house or a new car)

Over the past five years, consumer confidence has increased primarily due to strong growth in corporate profit and capital markets IBISWorld estimates the

Consumer Confidence Index and per capita

disposable income to increase an annualized 7.5% and 2.2%, respectively, over the five years to 2019 These trends have been a boon to the Loan Brokers industry, since loans to consumers account for over 80.0%

of industry revenue, with auto loans and mortgages making up the majority of consumer loans Rising consumer spending has driven up demand for loan broker services, as consumers are gradually committing to larger purchases

Economic climate In addition to consumer confidence levels, the

Loan Brokers industry is reliant upon interest rates and the overall economic climate that influences them Over the five years to 2019, the Federal Reserve has gradually raised interest rates in response to falling unemployment and rising inflation Demand for loans is particularly sensitive to interest rates charged by lending institutions, and loan brokers experience decreased demand for their services when the cost of borrowing increases Nonetheless, interest rates have

remained historically low for a prolonged period of time as the Federal Reserve continues to encourage economic growth Moreover, rates have stayed relatively consistent with the 30-year conventional mortgage rate, which is expected to remain attractively low at 4.4% in 2019, up slightly from 4.2% in 2014 Low interest rates, combined with falling unemployment and growing capital markets, have set the stage for

a thriving housing market and thus strong demand for mortgages

Provided to: Seattle Pacific University (2134440152) | 03 December 2019

Housing market Low interest rates and rising consumer

incomes have resulted in a burgeoning housing market Over the five years to

2019, housing starts (or new, privately owned housing units beginning construction) are estimated to increase an annualized 4.9% to 1.3 million units

Growth in the housing market is largely representative of increased demand from

US home buyers, with first-time home buyers expected to represent the second-largest market for the Loan Brokers industry First-time home buyers accounted for 34.0% of all home buyers in

2018 (latest data available) according to the National Association of Realtors First-time home buyers are also more likely to seek

out loan brokerage services than existing homeowners, as most existing homeowners are more familiar with the loan process and likely already have an established

relationship with a lender Overall, a thriving housing market has led to an increase in demand for loan brokerage services as first-time home buyers have increasingly sought out mortgage options

Growth in the housing market is largely

representative of increased demand

Regulation Financial regulation plays a major role in

how the Loan Brokers industry receives compensation for its services Increased regulation has historically tempered industry revenue, as new regulation imposes greater compliance costs and changes in operations that undercut revenue gains In January 2013, just prior to the current period, the Consumer Financial Protection Bureau finalized regulations originated by the Federal Reserve Board and the Dodd-Frank Wall Street Reform and Consumer Protection Act that influenced industry revenue significantly As of January 2014, brokers have no longer been able to receive compensation based on the terms and conditions of a mortgage; mortgage brokers are now only paid by lenders on the basis of the number of loans they

originate and the amount of credit they extend However, the Economic Growth, Regulatory Relief, and Consumer Protection Act passed in 2018 has largely eased the regulatory landscape pertaining

to mortgage lending practices For example, the legislation amends the mortgage disclosure waiting period required in the Truth in Lending Act (TILA), enabling consumers to take advantage of lower interest rates sooner Additionally, the act eases TILA’s ability-to-pay restrictions on depository

institutions and credit unions, effectively reducing the regulatory costs associated with consumer lending practices for small lenders Overall, as regulatory compliance costs decline, consumer access to credit will improve and demand for loan brokerage services will increase

Industry operations The Loan Brokers industry has

experienced faltering participation during the five-year period, with its number of establishments and enterprises growing only slightly This trend can be attributed to a falling

number of nonemployers and the increasing prevalence of online loan brokerage services Despite recent growth in employer operations, nonemployers have been shutting down their operations in droves, increasingly

unable to endure heightened external competition, severe revenue volatility and burdensome compliance costs

However, a modest increase in employer establishments has helped mitigate the effects of nonemployer exits, as larger enterprises are better positioned to handle such challenges Overall, IBISWorld estimates industry establishments to increase at a marginal annualized rate of 1.3% to 12,533 locations over the five years to 2019

Additionally, industry employment and wages have picked up over the past five years Industry employment is expected to increase an annualized 4.0%

to total 49,880 workers Meanwhile, industry wages are expected to increase

an annualized 9.8% over the five years to

2019 These trends are indicative of increased competition, particularly from commercial banks, as industry operators raise wages to further attract and retain broker talent

Industry operations

continued

Provided to: Seattle Pacific University (2134440152) | 03 December 2019

Industry

Outlook

Over the five years to 2024, the Loan Brokers industry is expected to benefit from deregulation and continued growth in the housing market However,

an expected increase in interest rates will slow consumer demand for mortgages and auto loans in the coming years Moreover, continued competition from commercial banks offering

competitive rates will place pressure on industry profit margins As a result of these trends, the Loan Brokers industry

is expected to grow at a slower rate than

in the current five-year period

IBISWorld forecasts industry revenue

to increase at an annualized rate of 3.0% to $15.7 billion over the five years

to 2024

proposed rollbacks on the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act In May

2018, the Economic Growth, Regulatory Relief and Consumer Protection Act became law, marking the first step toward deregulation since the financial crisis Deregulation

of lenders in the United States will enable lenders to extend loans to less creditworthy applicants Proposed deregulation will prove beneficial for the Loan Brokers industry as lenders will be able to offer a greater variety

of loan products that appeal to a wider range of consumers An increase in mortgage products, for example, will lead to an increase in

demand for loan brokers as consumers seek the best loans for their needs Deregulation will also intensify both internal and external competition, as commercial banks will

be further incentivized to increase direct-to-consumer lending activity Nonetheless, the overall effect of financial deregulation is expected to

be beneficial for the Loan Brokers industry over the five years to 2024

Limited recovery Although the housing market is expected

to continue growing over the next five years, increasing interest rates and rising home prices will curb overall growth in industry revenue Over the five years to

2024, the house price index is projected

to increase an annualized 2.3%, while the 30-year conventional mortgage rate is expected to increase an annualized 2.2%

to a rate of 4.9% Rising house prices and interest rates will likely deter some consumers However, overall consumer incomes are also expected to increase over the next five years, albeit at a more modest pace IBISWorld forecasts per

capita disposable income to rise an annualized 1.5% over the five years to

2024 Consumers are expected to benefit from an overall positive economic outlook, with both corporate profit and consumer spending anticipated to increase in line with housing prices and interest rates

Although consumer income levels are expected to grow moving forward, consumer confidence is projected to weaken relative to the previous five-year period Investor uncertainty rose in 2018 and is expected to rise further over the coming years as the interest rate

Although deregulation will intensify competition, it

is expected to benefit the industry overall

Limited recovery

continued environment shifts Rising investor uncertainty is attributable to a multitude

of factors, with the most prevalent being uncertainty regarding interest rates and financial deregulation Since interest rates have been historically low for a prolonged period of time, the effects of rising interest rates are drawing uncertainty about the future prospects of

capital markets In the event that inflation begins to rise quickly, sharp increases in interest rates have the potential to cause a selloff in US stock markets and a decline in consumer confidence Overall, weaker consumer sentiment will slow demand for industry services as certain households become more risk-averse

Industry operations Over the five years to 2024, the Loan

Brokers industry is expected to experience growth in its numbers of employer establishments, enterprises and employees However, nonemployer activity will continue to decline, resulting

in a distorted overview of the industry’s establishment trend, as nonemployers have historically accounted for less than 3.0% of industry revenue A prolonged period of industry growth and the Trump administration’s promise of deregulation have recently resulted in new entrants and the expansion of physical operations among larger industry operators, notably

in 2016 and 2017 This trend is expected

to continue over the next five years IBISWorld forecasts industry establishments to increase at an annualized rate of 1.9% to 13,786 locations over the five years to 2024 Meanwhile, industry employment is expected to increase at an annualized rate of 2.8% to 57,306 individuals during the period

Industry participation is expected to increase

Provided to: Seattle Pacific University (2134440152) | 03 December 2019

Over an extended time frame, industry value added is expected to grow faster than GDP

The number of industry enterprises is expected

to rebound over the 10 years to 2024

Enterprises experience increasing competition from other industries, particularly commercial banks

Life Cycle Stage

Industry Life Cycle The Loan Brokers industry is in the

mature stage of its economic life cycle

Industry value added (IVA), which measures an industry’s contribution to the overall economy, is expected to increase at an annualized rate of 7.0%

over the 10 years to 2024 In contrast, US gross domestic product (GDP) is

projected to grow at an annualized rate of 2.2% during the same period While IVA

is actually growing faster than GDP during the 10-year period, this growth rate is likely overstated due to the industry’s low base in 2014

The Loan Brokers industry is characterized by standardized product offerings and increasing levels of internal and external competition Although the industry has contended with stringent regulation for the majority of the 10-year period, the core services provided to consumers have remained relatively unchanged Moreover, the industry’s

essential role in the financial services sector has resulted in wholehearted market acceptance of industry services and thereby little product innovation or technological change

The industry has been increasingly consolidating as industry operators have contended with stringent regulation that has only recently been eased In particular, increased regulatory scrutiny and external competition has forced nonemployers to exit the industry Nonemployers have played a large role in the industry’s consolidation as nonemployer establishments have declined substantially during the 10-year period However, as regulations have eased, the number of industry establishments has grown at a substantial rate in recent years Overall, IBISWorld estimated industry

establishments to increase at an annualized rate of 1.6% to 13,786 establishments over the 10 years to 2024

This industry

is Mature

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Products and Services

The bulk of revenue for the Loan Brokers industry is created through the

arrangement of loans; industry operators bring borrowers and lenders together and extract a commission or fee for their services Effectively, loan brokers act as liaisons between the two parties, helping

to secure the best products for their clients, while simultaneously streamlining the lending process While loan brokers are used in the origination

of many different products, they generate the majority of their revenue from residential loan transactions

Residential mortgages

In 2019, fees or commissions from residential loan transactions are anticipated to account for 80.4% of industry revenue Prospective home buyers use mortgage brokers for a variety

of reasons, as residential loan brokers

Supply Chain | Products and Services | Demand Determinants

Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

KEY SELLING INDUSTRIES

52211 Commercial Banking in the US

Commercial banks provide mortgage products to consumers and businesses However, commercial banks have increasingly bypassed brokers in the mortgage origination process.

52212 Savings Banks & Thrifts in the US

Savings banks and thrifts provide mortgages and other lending through deposits collected from consumers.

52219 Industrial Banks in the US

Industrial banks provide secured and unsecured loans to financial businesses, non-financial businesses and consumers.

0.7%

Home equity loans

9.0%

Residential mortgages - multifamily residences

0.2%

Vehicle loans

0.1%

Loans to governments7.1%

Brokering and dealing products

6.8%

Commercial and industrial mortgages 4.7%

Other

SOURCE: WWW.IBISWORLD.COM

Demand

Determinants Various macroeconomic variables influence industry demand, including

interest rates, housing prices and consumer and business confidence indices that determine aggregate demand

for credit Taken independently of other factors, interest rates are negatively correlated with industry demand; when interest rates rise, less people are likely to borrow Conversely, when interest rates

Products and Services

continued have access to a variety of interest rates from different lenders Furthermore,

brokers have localized real estate knowledge and professional contacts that are valuable to their clients throughout the duration of the loan process Overall, general economic conditions, particularly the thriving housing market, primarily explain this segment’s exceptional performance The residential loan segment as a share of total revenue has remained fairly consistent over the past five years

Commercial and industrial mortgages and other business loans

Similar to consumers, a wide range of businesses rely on industry operators to obtain the best financing rates for mortgages on new facilities Particularly when business owners enter an unfamiliar geographic environment, brokers can provide localized real estate knowledge and access to an array of loan products

Moreover, industry operators generate fees or commissions by bringing businesses and lenders together for equipment financing transactions Due to improving corporate profit, commercial and industrial mortgages are anticipated

to generate a growing share of revenue for industry operators over the five years to 2024; however, fees from residential loans are anticipated to continue to dominate the industry In 2019, commercial and industrial mortgages are expected to account for 6.8% of industry revenue

Home equity loans and refinancing

A home equity line of credit (HELOC) is a loan that uses the equity in a borrower’s

home as collateral The interest rate for a HELOC is variable and typically based on the prime rate; this represents a crucial difference from conventional loans Coupled with low interest rates, HELOCs can be used to fund large personal purchases or expenses, including vehicles, vacations, college tuition and home improvements Largely due to more-stringent lending standards and a sharp fall in consumer appetite for debt, home equity loans have declined substantially as a share of revenue during the five-year period Fees from home equity loans are anticipated to account for just 0.7% of industry revenue in 2019 Many industry operators are also

involved in the refinancing process The Federal Reserve kept the federal funds rate (FFR) at the zero lower bound until December 2015, when the Federal Reserve raised interest rates to a range of 0.25% to 0.5% Since the FFR influences mortgage rates, the 30-year conventional mortgage rate has been low and

consistent throughout the five-year period, though increasing slightly since

2015 Yet, the appetite for credit among consumers has increased as consumer incomes have risen

Other

Other industry products include various forms of consumer credit and financial products For example, vehicle loans are anticipated to account for 0.2% of industry revenue Vehicle loans’ share of industry revenue has increased over the five years to 2019 due largely to robust new car sales during the former half of the five-year period

Provided to: Seattle Pacific University (2134440152) | 03 December 2019

rely on the expertise of industry operators

to guide them through the residential loan process The share of home purchases by first-time buyers has increased to an estimated 35.0% in 2019 Consumers who have previously made home purchases are anticipated to account for the remaining 65.0% of residential property purchases in

2019 Some consumers in this segment have chosen to capitalize on low interest rates by trading up to more-expensive property Conversely, a greater share of the population moving to city centers and the aging domestic population have caused other consumers in this segment to trade down to smaller homes that carry

as an example of this possibility

A booming housing market more clearly benefits industry operators Since

an estimated 80.4% of industry revenue

is driven by fees from residential mortgage transactions, increased housing

starts and home prices translated to growing revenue opportunities for brokers When home prices increase, the value of loans originated and the quantity

of home equity loans both rise In addition, increases in household disposable income, either through an improving job market or declining tax rates, serve to increase demand for credit Rising disposable income levels provide a boost to consumer sentiment and tend to increase lending for large consumer durable purchases

Major market segmentation (2019)

International Trade Given the service-based nature of the

Loan Brokers industry, exports and imports are not applicable Additionally, industry operators primarily offer products and services at the local or

regional level However, loan brokers are increasingly subject to both global macroeconomic conditions and external competition from commercial banks that have extensive international activities

Major Markets

continued lower monthly payments Existing homeowners are anticipated to account

for 52.3% of industry revenue in 2019, while first-time home buyers are expected

to represent 28.1%

Businesses

Businesses are estimated to account for 6.8% of industry revenue in 2019 While this market segment often enters into commercial and industrial loans that are far larger in size than home loans, there are significantly fewer commercial customers that rely on industry operators for loan originations However, these businesses do benefit from the help of brokers during the process of determining the best loan option for land or building purchases In addition, businesses turn to loan brokers that have relationships with many equipment financing lenders to minimize interest rate expenses

Other

Although the Loan Brokers industry derives a significant portion of industry revenue from mortgage-lending

services, industry operators also offer assistance with vehicle loans, home equity loans and student loans In particular, loan brokerage services specific to student loans are expected to account for a significantly larger share

of industry revenue due to rising demand for student loans over the five years to 2019 However, demand for loan brokerage services relating to auto loans, home equity loans and student loans are expected to remain

concomitant to mortgage brokering services over the next five years

Overall, non-mortgage consumer loan brokering services are forecast to account for 12.8% of industry revenue

in 2019

Provided to: Seattle Pacific University (2134440152) | 03 December 2019