Will mortgage brokers become extinct?

July 26, 2008

This past week week Wachovia Bank announced that they, (Wachovia) is exiting the General Bank wholesale mortgage origination channel.

This was a shocking follow up from the announcement from Bank America closing its wholesale division of lending through mortgage brokers.

Look no further than www.ML-Implode.com; Here you can watch the wreckage in the mortgage lending business tallied for the world to see.

Industry guru, Rob Blake wrote asked … are Mortgage Brokers are an endangered species?

He pointed out that If you listen to Mortgage (broker) Industry insiders you will hear whispers that the ‘all-powerful’ “banking lobby will finally get the Government to legislate mortgage brokers out of existence.mortgage brokers becoming endangered species”

In his very well written article, he outlines the history of the banking industry’s “pursuit of the killing off their competition, many believe the banks decided upon a “scorched earth” plan to rid themselves of retail mortgage competition once and for all. The Plan was one they pulled from the S&L play book a decade earlier”.

Blake argues that if the Banks “Give the mortgage brokers just enough rope to hang themselves just like the Savings and Loans did!”

Before, you write this banter off as conspiracy theory hogwash, listen to what has happened and the now dreaded word of the year for 2007. Sub-Prime :

Sub-prime loans, Alt-A loans, option-arm ’s , etc.. where originated through private banks; specifically depositor banks to start. (many other private and smaller institutions entered the frenzy to make a quick buck from borrowers who mostly could not afford the loans. Although this is another topic for another day.)

Borrowers did not need to go to their local banks to get a loan. They could get these sub-prime loans through mortgage brokers who could virtually originate a loan to anyone who could sign their name.

Borrowers wanted to buy, they wanted these aggressive loans and the bank underwriters approved the loans. Hey, give the customer what they want, right? and, ultimately the deposit banks where approving these loans.

So, in the vast majority of cases, it’s not the honest mortgage broker’s fault. It’s the banks who approved the risky loans. Right?.. Wrong!
You know who is now getting the blame. and I will give you one guess’ and it is not the large banks.

The blame is resting (for the most part) on the mortgage broker.

Currently, their is a vast inspection and audit of the entire industry. Primary focus are new and strict lending guidelines and practices aimed primarily at the mortgage broker.

In fact, not only are the banks not being blamed. They are getting bailed out by the Government.

Think Bear Stearns. Think Fannie Mae. Think Freddie Mac.

Wow, a deposit bank, JP Morgan/Chase was able to sweep in and buy Bear Stearns . Not only at pennies on the dollar, but with guarantees and assurances and actual insurance from the Federal government. Not bad for Chase Bank, right?

The current and pending Federal Legislation (pushed by the banking lobby) that requires heavy regulation and oversight of mortgage brokers. Mortgage brokers will continue to have less and less product availability. Comparatively to banks, they have unfavorable pricing of rates.

It is not unforeseeable that these factors may ultimately put mortgage brokers out of business!.

Ask yourself, ….why would you go anywhere else but a big bank?

Blake asks, “when the dust settles a few years from now, every one will go to a bank to get a mortgage because that is all that is left.

Often, where there is smoke, there is fire.

I hope he is wrong. However, I am concerned he may be right

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Copyright © 2008 By James Wexler, All Rights Reserved. *Will mortgage brokers become extinct?*

Contact James Wexler (480) 221-8080 for all your Phoenix | Scottsdale area Real Estate needs

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Written by James Wexler · Filed Under Articles, Buyers, Lending / mortgages 

Comments

2 Responses to “Will mortgage brokers become extinct?”

  1. James Ladarski on July 26th, 2008 11:20 am

    Being a mortgage broker myself I take an optimistic view on this subject and think that there will always be a spot for the mortgage broker. The get rich quick loan officers will obviously be left behind and there will be licensing for those that are left (which shoul’ve been done ages ago, but that’s another story altogether). The reason I think that there will always be room for the experienced mortgage broker is the niche loans that big banks won’t do. Also some people out there would rather pay a premium to receive personal one-on-one service as opposed to being just another number at a bank. The business will be there, it’s just not going to fall into your lap anymore.

  2. Chris Harris on July 26th, 2008 12:56 pm

    Mortgage brokers have another option - which is to get themselves on the same side of the financial equation as their clients and the banks. They should be paid a percentage of each payment as I describe in my post: http://www.inventureglobal.com/blog/2008/07/innovation/an-idea-to-fix-mortgage-origination/

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