I opened my first mortgage brokerage company in 1991. The industry trend was away from banks and toward brokers. Brokers had several intrinsic advantages:
•1. They could shop the market place for price. While most lenders pricing is very close, mortgage brokers could find that one lender that was buying the market on a given day and take advantage.
•2. They could move the loan to another wholesaler when rates went down. Although not an ethical approach from the standpoint of the wholesalers, it was common practice for mortgage brokers to lock a rate with one investor and deliver the loan to another with a better price when the loan was fully processed. This way they could make additional profit on every loan in a declining rate environment.
•3. They could offer virtually every quirky gimmick loan product around without fear of repercussion from defaults or credit quality problems since their job's done once the loan closes.
•4. They could rack up huge profits by focusing their business around origination of less price sensitive subprime and Alt A loan products.
•5. They could streamline operations by originating nearly 100% "stated income" loan products. Companies like Countrywide (America's Wholesale Lender) thrived on their "Fast and Easy" product line. Other large wholesalers followed suit and many mortgage brokers originated most of their conventional loans on these products.
•6. Their business model was often flexible with low overhead. One loan officer with a computer could be a mortgage broker. When originations were down, they would simply layoff their processors or go to contract processing. They could make a profit in almost any market.
In 2006, mortgage broker market share peaked at over 70%. That meant that the large retail lenders were buying most of their loan originations from third parties rather than from their staff. Obviously, the mortgage broker model was working well for everyone. But what a difference a few years make. When house values were increasing, sometimes by double-digit percentages, yearly, defaults were rare and loan origination quality was not called into question. But with the collapse of the mortgage lending industry everything started to be called into question. www.ml-implode.com lists all the mortgage lenders that have closed their doors since late 2006. One of the biggest lenders on the list was Indymac Bank. Before closing, Indymac discovered through portfolio analysis, that a loan originated by mortgage brokers was 8 times more likely to default than one originated by their own retail-lending group. You read that correctly 800% higher rate of defaults from TPO's (third party originations). To be fair, this number did include a some Correspondent originations, but mostly wholesale.
With the dismal performance of loans originated by brokers, it is no wonder that wholesalers either have gone out of business or put defense mechanisms in place to create advantage for their retail lending departments. Sometimes these defense mechanisms are price related others are underwriting related. Make no mistake, any advantage once enjoyed by brokers is now GONE. The latest report I heard on "mortgage broker "market share is it has dropped to around 20%. This could be going down further in the near future.
The last shoe has yet to fall on the Mortgage Broker world...the HVCC. For those not familiar with the acronym, it stands for the Home Valuation Code of Conduct. To summarize, it says that appraisals must now be ordered by the lender (not the broker). This means that the practice of last minute shifts in investors will be a thing of the past. Gone are the days when brokers can lock with Wells Fargo on day one and deliver the loan to Bank of America on day 20 when the rates have dropped. Wells Fargo in this hypothetical example would own and have exclusive rights to the appraisal. The only way a broker could pull the old switcheroo would be to start the process all over and incur the cost of a new appraisal.
If you are a consumer shopping for a loan; run, don't walk away from any and all mortgage brokers...the deck is now stacked against them. If you are a Realtor advising a buyer on financing choices, do them a favor and send them to a Mortgage Banker or a Bank. It is tempting to support your old mortgage broker friends but they simply cannot perform as well in today's environment as a Banker or a Bank.
Some of my best friends are Mortgage Brokers. I used to be a Mortgage Broker. Some of the best professionals in the industry are Mortgage Brokers. Regardless of this, I would not use them. They are a dying breed and it is already impacting their ability to serve their clients!
If you would like the advice of a professional Mortgage Banker, do not hesitate to call me.
www.academymortgage.com/artmarine
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61 Comments on Death of an Industry
Art does not tell you that Mortgage Bankers are considered Third Party Originators (Correspondents) as they sell their loans to the major banks & Wall Street. Yes Mortgage Bankers that sell their loans, rarely are they big enough to hold the paper or do enough volume to sell directly to Fannie & Freddie economically. As Correspondents, they sell to the aggregators (large banks & Wall Street). So the Indy Mac Third Party Originators include Mortgage Bankers.
Oh yeah on those Indy Mac loans, Mortgage Bankers underwrote those loans themselves and peddled them off hoping Inday Mac would not reunderwrite as part of their quality control--sort of fits Art's taking advantage of the lenders he locked loans but left hanging. Whereas, 100% of loans Mortgage Brokers sold to Indy Mac were underwritten by Indy Mac underwriters the same way their retail loans were. So the quality of underwriting for Mortgage Brokers is as good as the major banks because that is who underwrites Mortgage Broker loans.
So, now that you are educated on who are the participants in Third Party Originations (TPO) and the numbers Art has manipulated of who were the underwriters of the high foreclosure loans; you can take be more careful when you allow yourself to agree with this Self Admitted Self Serving Man.
I'm very uncomfortable with your advice, as so much of it is off base for my market, my business. The mortgage brokers I've worked with throughout my career have the highest integrity and I trust them implicitly - in today's market and tomorrow's, just as I did in the past. The HVCC is not a home buyer's, agent's, and lender's friend BUT most of my business is FHA or VA so it doesn't impact my business significantly. When I do have a conventional loan that's governed by HVCC, I'll do what it takes to keep the transaction together - no matter how challenging - as I always have. And I won't be blaming
It sounds to me like you're bitter for your own reasons and wish to spread some of that around. I, for one, am not biting. I find it completely irresponsible to paint an entire industry with such a negative brush - one that not everyone in it deserves.
Margaret, WELL SAID!
michael Cauley- I like what you had to say, but I am honestly having a little trouble following you. Could you please re-read your comments, and correct some of the grammar...That would help idiot me! :) Please do not take offense. I think you are being passionate and typing too fast! LOL
BUCKY
This response is for Brian Brady's post:
The difference between a mortgage banker and a correspondent lender are subtle and many here would not be able to differentiate them. However, you are technically incorrect, at least in Oregon, as to what defines a Mortgage Banker. Below is an exerpt from ORS 59.84:
(5) "Mortgage banker":
(a) Means any person who for compensation or in the expectation of compensation:
(A) Either directly or indirectly makes, negotiates or offers to make or negotiate a mortgage banking loan or a mortgage loan; and
(B) Services or sells a mortgage banking loan.
(b) Does not include:
(A) A financial institution, as defined in ORS 706.008 (Additional definitions for Bank Act).
(B) A financial holding company or a bank holding company, as defined in ORS 706.008 (Additional definitions for Bank Act), holding an institution described in subparagraph (A) of this paragraph; a savings and loan holding company as defined in section 408 of the National Housing Act, 12 U.S.C. 1730a (1982), holding an association described in subparagraph (A) of this paragraph; the subsidiaries and affiliates of the financial holding company, bank holding company or savings and loan holding company; or subsidiaries and affiliates of institutions described in subparagraph (A) of this paragraph, provided that the appropriate statutory regulatory authority is exercising control over or is regulating or supervising the persons listed in this subparagraph in their mortgage banking activities in accordance with the purposes of ORS 59.840 (Definitions for ORS 59.840 to 59.980) to 59.980 (Short title).
(C) A person who makes a loan secured by an interest in real estate with the person's own moneys, for the person's own investment and who is not engaged in the business of making loans secured by an interest in real estate.
(D) An attorney licensed in this state who negotiates mortgage banking loans or mortgage loans in the ordinary course of business, unless the business of negotiating mortgage banking loans or mortgage loans constitutes substantially all of the attorney's professional activity.
(E) A person who, as seller of real property, receives one or more mortgages or deeds of trust as security for a separate money obligation.
(F) An agency of any state or of the United States.
(G) A person who receives a mortgage or deed of trust on real property as security for an obligation payable on an installment or deferred payment basis and arising out of materials furnished or services rendered in the improvement of that real property or any lien created without the consent of the owner of the real property.
(H) A person who funds a mortgage banking loan or mortgage loan which has been originated and processed by a licensee or by an exempt person and who does not maintain a place of business in this state in connection with funding mortgage banking loans or mortgage loans, does not directly or indirectly solicit borrowers in this state for the purpose of making mortgage banking loans or mortgage loans and does not participate in the negotiation of mortgage banking loans or mortgage loans. For the purpose of this subparagraph, "negotiation of mortgage banking loans or mortgage loans" does not include setting the terms under which a person may buy or fund a mortgage banking loan or a mortgage loan originated by a licensee or exempt person.
(I) A nonprofit federally tax exempt corporation certified by the United States Small Business Administration and organized to promote economic development within this state whose primary activity consists of providing financing for business expansion.
(J) A licensee licensed under ORS chapter 725 or a mortgage broker.
(K) A retirement or pension fund.
(L) An insurer as defined in ORS 731.106 ("Insurer").
(M) A court appointed fiduciary.
(N) Any other person designated by rule or order of the director.
In a perfext world, you would be able to do both. My company is based as a Mortgage Banker with the option to use Broker avenues. BEST OF BOTH WORLDS. This means that once I get a deal - I keep it. There are ways to get it done.
I agree with you Nicholas, and I thing it further illustrates my point, at least anticdotally. My company, Academy Mortgage, allows originators the option to broker a loan whenever we choose. Honestly, my branch has only brokered one loan in 2009. That loan was a jumbo and the pricing to the customer was significantly better by brokering! There are times where product menu limitations disadvantage the Mortgage Banker but those times are very rare.
All this discussion is really nonsense. Nobody has any advantage over anyone else. I do not know Fernando Herboso who i am quoting from his post above ( damn shame as he is very close to me ) but I couldn't agree any more with his statement below......
Who cares about everything else - I am following these golden rules... Thanks Fernando for stating them for everyone...... rules to live by!!!
You can make a choice now. .
lead
follow
or
get out of the way
Why so pessimistic? Successful mortgage brokers provide excellent service, much better than banks many times and they will find a way to survive. This is a service business, not just numbers and finance. You have to be creative, personable, outgoing with a brain for finance.
Since you made this public it should be labeled as an advertisement, as you are obviously plugging your own business and actually telling consumers to run from mortgage brokers. This type of advice is harmful to consumers and other businesses. Furthermore, the shock effect title adds to the consumer confusion that is already out there.
In my opinion, advertisements to this extent, should not be featured. The public needs facts, and sensible opinions not opinions that are extreme, over exaggerated, alarmist and self serving.
Oh, I knew this would create quite a stir, BIG fun! By the way........Do I smell net branch???
Wow, did I ever hit a nerve with some of the Active Rain community with this blog! Now that I have opened Pandora's Box, let me see if I can close it just a little. While I stand by the content of my Blog, I do regret some of the harsher rhetoric. Sometimes when writing, you can overdue the pathos of the argument and this in turn sounds self-serving. I regret that.
I am specifically addressing these comments to Darin, Bob, Aida, Michael, Margaret, and Brian. Many of you have criticized me for being, and I paraphrase, an unethical and manipulative loan originator. I need to make one thing perfectly clear; the despicable business practices I describe in my blog are not universal and I did not choose to employ them when I was a broker. They were and in some cases continue to be standard operating procedure with many Mortgage Brokers and we all know it. Please do not think I am pointing to you individually if you are a Broker, I am simply defining what often happens. If you are the exception rather than the rule, as I was, I applaud you.
A little background on me may help put my opinions and knowledge in perspective. I offer the following history:
1984 - 1990 Worked as a loan originator for both Ahmanson Mortgage/Saving of America and Great Western Savings. For those that do not know, these were the two largest thrifts in America at the time. Both headquartered in California, I worked in the Seattle Market.
1991 - 2000 Owned and operated Northern Pacific Mortgage Company. We reached peak size in 1999 with 15 originators and 3 offices. Admittedly, in the nearly 10 years of running a mortgage brokerage, I never really felt we could provide equivalent service that we offered at the Thrifts.
2000-2001 Worked as an Income Property/Commercial Construction lender for First Mutual Bank of Bellevue, WA (office located in Salem, OR)
2002-Present I have worked as a retail manager for several major lenders including GMAC, First Horizon, National City, American Home Mortgage, Indymac Bank, Prospect Mortgage, and Academy Mortgage.
As is painfully obvious, I have seen every possible type of mortgage origination situation. I made a good living as a mortgage broker but did not like the business model in 2000 so I chose to leave. That model is dramatically worse today. Therefore, to those of you hanging on, I pass on my admiration. That does not mean that I think you are choosing the best service option for your clients, but it does mean that I respect your efforts and recognize that many of you will continue to make it work as long as possible.
Ultimately, the wholesalers drive the future of Mortgage Brokers. If the current pace of wholesale lending closures continues, I believe the mortgage brokerage business will die in the near future. If the market has completed its consolidation and wholesale sources remain, there may be hope for the industry. I believe that wholesale sources will continue to evaporate and Mortgage Brokers will be forced to transform into mortgage bankers that fund off warehouse lines then sell to aggregators. This will not leave any options for the smaller mortgage brokers, like the company I used to own, thus "the death of an industry".
Hi Art, We work with both. I don't think we've seen the death of brokers and do not want to... choices and options are always good.
I suspect that many brokers suffer from the Barney Frank hearings where mortgage brokers took the heat for foreclosures because no one on the Congressional panel understood what a YSP is and assumed that the broker was simply piling fees on the buyer.
So all of a sudden the pressure came down on the states to license brokers. . . . make brokers fiduciaries. None of this particularly matters to experienced agents who work as a team with their buyers and their buyer's loan officers.
It's the loan officer that gets my business. Service to my buyers and communication with me gets my business. Successful closings gets my business.
Art,
I appreciate your attempt to clarify your representations made in your article. Unfortunately, you continue to make aspersions on Mortgage Brokers without any facts. Your recent bouncing from Mortgage Banking job to job since 2002 brings into question just how well Mortgage Banking has been working for your customers. You say you did not like the Mortgage Broker model since 2000, why not? There was little change in the operations of Mortgage Broker and/or Bankers 2000 - 2008.
Yes, Mortgage Brokers are being used as a scapegoat for the housing crisis. Simply because they do not have the lobbyist presence in Washington DC. Reality check: Mortgage Brokers do not create programs nor do they approve mortgage applications. Mortgage Brokers do not have big advertising budgets to pound consumers with bait & switch (get the phone to ring) on radio, tv and/or print media.
If in fact you had a non self-serving interest in the consumer, you would being using your space to warn the consumer of the disadvantage coming there way if the Mortgage Broker community is wiped away by Big Government & Big Business polices. The HVCC has been a bonanza for banks, as they joint venture with Appraisal Management Companies marking up the cost of appraisals to consumers and paying appraisers less by using incompetent appraisers. Fortunately, the National Assocation of Realtors has final woke up. The Mortgage Brokers have been warning everyone about this since March 2008 and were the only professionals to file a lawsuit to stop Fannie & Freddie.
Your explanation has not provided any facts other than your work history. I hope you are learning that making unsubstantiated claims when casting your aspersions does not build credibility.
Thanks for your opinion Michael. We obviously disagree on some points but lets see if we can find some common ground.
I happen to agree with you that the HVCC rules slant tremendously in favor of the large banks. I went to a presentation sponsored by the OAPMW recently about HVCC (required credit hours in Oregon). I left that presentation with a clear understanding of how difficult this was going to make the life of the Mortgage Broker and how it could become a profit center for the Banks. We agree.
We agree that Mortgage Brokers did not create the products or underwriting that lead to the mortgage meltdown...again it was the Banks. Again, we agree.
Your comments about my "recent bouncing from Mortgage Banking job to job since 2002 brings into question just how well Mortgage Banking has been working for your customers" just exemplifies the dramatic change in the industry. Here are how my past employers have fared:
GMAC - I left there because I moved from Salem (a very small market) to Portland. Best move I ever made
First Horizon - bought out
National City - bought out
American Home Mortgage - company went broke
Indymac Bank - company went broke
Prospect Mortgage - Joined with the rest of the Indymact RLG...not a good experience so in the interest of my clients moved to Academy
Academy Mortgage - I have found a good home
Our world has definately changed...thus the reason for my original post
I also must disagree with you. I have been both a Broker and Banker. I have been with 2 different "Bankers" (Brokers who get to hide their YSP on banked loans) go out of business due to their warehouse lines being pulled out from under them. They were not in control of their own money, they just liked to think they were.
As a Broker, I still have the ability to react to the market. HVCC concerns me, but I never was one who would lock with one lender and ship it to another to put more money in my pocket. I am more concerned about a lender declining a loan and me not being able to shop it to a more aggressive lender. That holds true for you as a Banker. If your bank turns it down, are you able to broker it?
I'm not afraid of ysp disclosure. I've been doing it for years. I'm not afraid of transparency. I just want the bankers to be transparent too. Show your clients your real rate sheet. You know, the one you get from your warehouse line where par in significantly lower than what you show your clients.
I also interviewd with several big banks over the years and was appalled at their internal process for handling subprime borrowers. They basically gouged them. Charged the max they legally could and didn't blink an eye ding it. I ran from them as fast as I could as I could never refer my poor credit clients to these banks. Greed ruled, not ethics. These were big banks, not mortgage bankers. These are the very banks pointing the fingers at us today. You even worked for one of them as a branch manager.
We made a conscious decision several months ago to switch from our net branch turned mortgage banker, to another net branch with no banked line for the very reason that we wanted to be able to provide a more personal level of service, and be in control of our destiny, not at the whim of a warehouse line. Mortgage Bankers are more at risk of going out of business then a mortgage broker unless the Banker has multiple warehouse lines available.
Oh, I competed against a Mortgage Banker last December and found out that they closed on a Townhome the week before I called that had HOA litagation in process. When I asked if they could do that again for my client I was told "no, and everyone who was involved with that transaction is out of the office". Same Seller and Realtor, but somehow the Addendum that mentioned the HOA litigation either never made it to the underwriter or was deemed to be an acceptable risk. I wonder what their warehouse line would have said had they known this was done? Funny thing is they had to sit on the paper until March for the HOA litigation to be resolved. THAT is how we got in this mess. People taking risks and making decisions hoping they wouldn't get burned.
While we have a control happy government and a bunch of greedy bankers who are after our portion of the marketplace, I believe that we will survive.
Art, I was going to leave this alone...but now, I cannot help myself again! This is a CUT & PASTE from YOUR very website.
Academy Mortgage Products
Looks to me like you are STILL a Mortgage Broker, and just dont want to admit it!
Dude, you are cutting on the very industry and people that have kept your femily fed for a long time!
Maybe Art, you are just conufsed/ People in the RAIN can help!
Bucky has spoken
Art, I second Bucky's offer to help you from your confusion and I am sure there are many other mortgage brokers here on AR that are also eager to help.
But maybe you are not confused, maybe you are God like in your loan powers. PayOption Arms? Subprime loans? Home Equity Lines of credit? Down Payment Assistance? Not brokered, all funded from your bank?
Bucky, I am sure that Art would not overstate his ability to fund this fabulously diverse, if slightly out of favor, product line. He must be a genius, his mortgage bank is incredible. He offers a range of product that no other banker or even mortgage broker can get or would even want.
Art, you can see that I am going to bat for you here but... I would be soooo disappointed if you are really not a mortgage bank (direct Fannie seller) but instead just a (sob) correspondent broker.
You are obviously a popular, highly sought after loan officer from all the companies you have worked with over the past 8 years. I am sure your customers only felt small discomfort. Alas, I am ashamed to admit that I am not nearly as popular as you, having only been with 4 companies in my 39 year career.
I am here for you Art, feel the love,
Art I'm glad I got you fired up in the office yesterday! Now, look what you have stirred up and I do have to say you are right at least here in Oregon for the most part. I don't think it is right that they were the problem, but I do think if the banks get their way the mortgage brokers will be out of the business and then eventually they will go after Realtors as well! I realize that I only still work with one mortgage broker, All the others have joined the banks within the last 6 months because the government has made their jobs so hard that they just couldn't serve the client any more.
I do have to say though, when I use that broker that I still work with, he has beating the rates on banks almost every time! I thought he was a bank until this morning when I got an e-mail from him with a quick correction and I do appologize to him for making that mistake. (Keep up the good fight)
Most of these types of brokers in Oklahoma are dependent on doing FHA. I do remeber a tiume before the sub-prime anything goes laon industry where the dregs of the brokerage industry dragged down the reputation by quoting ridiculous rates to people, getting them committed then at the last minute changing to the real investor at a higher rate. I was gload to see more regs coming after this and the recent meltdown, but why can't everyone realize that when you have an industry at the time of low hanging fruit that Realtors. loan oficer,, and inspector ranks swell, and when the fallout hits, we lose the parasites? The strong will alsways survive, and the level of competition doesn not need to be completely thinned out of certain categories.
I believe Art has been uncovered. His desire to say things that are self-serving to him while hurting others reinforces a lack of integrity. One Source Mortgage, you have done the right thing for consumers by posting Art's deception with Academy Mortgage right under his stating, "Academy Mortgage-- I have found a good home."
Shame Shame Art. You may want to rethink your profession. As word will be getting out about your deceitful actions.
On that, I hope we can agree.