Home : Blogs : Janet Guilbault California Mortgage Banker/Broker : California Mortgage Advisor

Have We Kicked Mortgage Brokers to the Curb Too Soon? Why Mortgage Brokers Will Survive

Today I got an e-mail asking me this: Are mortgage brokers going to survive this economic meltdown?

My answer is YES, and it comes from my experience as an AUTO BROKER.

Over the last 25 years , franchised auto dealerships here in California have done everything in their power to get rid of auto brokers.

Because dealers held all the power (money along with an organized lobby) and auto brokers were small, independent business people, guess who got the most attention from the lawmakers in Sacramento?

Politician thinking: "Money from the big guys? Or protect consumer choices?" Hmmmmm...what should any self respecting politician do?

Since the "real" agenda of the dealers was to put auto brokers at a disadvantage, they had to prove this point to lawmakers: auto brokers are scumbags who do not deserve to sell cars to the public.

So every car deal gone bad was blamed on the fact an auto broker was involved. Every little thing wrong with the car was because it wasn't delivered at the dealership. The media chimed in...because that's what media does.

And then the inevitable: "Broker laws" were enacted. Stupid, idiotic rules that made it harder for people to do business with auto brokers.

After all, the public needed to be "protected" from auto brokers. And you know how "protection" comes with another layer of cost. (think HVCC).

In spite of everything, consumers continued to LIKE buying and leasing cars without setting foot in the dealership.

Or should I re-phrase this? People continued to HATE buying cars from dealers, and saw brokers as a great alternative.

Surprise! Auto brokers continued to thrive, even though laws and regulations rained down from Sacramento.

My position was always this: If there was not a market for auto brokers, there would not BE any auto brokers. Never underestimate the sheer power of pure market demand for a product or a service. Even laws can't kill it.

WHY MORTGAGE BROKERS WILL NOT BECOME EXTINCT

When a dealership would say this to me "We don't do business with brokers", I used to say this: "Too bad, because you don't know any other lady that buys 10 cars a month." Yep, nine times out of ten that single sentence was just too tempting and I got the car I wanted.

MORTGAGE BROKERS have been blamed, battered, bruised, and kicked to the curb by the very banks that used to woo them. The real estate industry has all but written mortgage brokers off. Banks, with all of their taxpayer money, must feel pretty smug about the fact mortgage brokers have been all but driven out of business.

But are we writing off mortgage brokers too soon? What about this?

In spite of everything, people continue to LIKE getting a mortgage without having to step foot in a bank. They complain about the impersonal service of banks, the fact banks are closed on weekends, and don't answer their phones on the weekdays, anyway.
The line between a bank saying "We don't do business with brokers" and "we need brokers to bring us more loans" is very, very fine.

So fine, in fact, that I believe it could be easily broken. Here's why:

Banks could not assemble a workforce that is more skilled than the legions of mortgage brokers left in the business.
Those same mortgage brokers are sitting on databases FAT with great clients who are loyal to the BROKER, not to the BANK who holds their loan.
One little uptick in the real estate market is going to leave most of the big banks hopelessly understaffed when it comes to mortgage people.

Written by Janet Guilbault, Mortgage Banker/Broker based out of the San Francisco Bay Area

Posted by Janet Guilbault California Mortgage Banker/Broker on 07/28/2009 11:20 PM

Comments (51)

Mortgage Broker Survival in the Mortgage / Finance Channel

mortgage broker, banks vs brokers, real estate loan, auto broker, economic meltdown

Post is included in group: The Ninety-ninth Percentile
Post is included in group: Realtors®
Post is included in group: Mortgages
Post is included in group: Mortgage Blogs
Post is included in group: Everything California

51 Comments on Have We Kicked Mortgage Brokers to the Curb Too Soon? Why Mortgage Brokers Will Survive

JUL

Janet, consumers still need to have a choice. And people like to do business with people who care.

Janet, it is about choice and about service. I agree with you...good brokers will NOT be going out of business. And...bad banks may not be remaining in business. That's the beauty of competition in the marketplace.

Janet - What a great post! As long as there are banks out there treating people like crap, there will be mortgage professionals like us serving this market with a level of service that the banks not only can't compete with but simply won't. They just don't care that much.

I hope you're right because the thought of a few big banks controlling everything makes me want to move to Mogadishu. no doubt there's a demand for the service-oriented business model of the mortgage broker, but it's worth mentioning that many smaller banks and correspondents have the same business model. Perhaps we will all be more or less forced into the correspondent business model at some point because of increased regulations and/or market changes. That will just force out any brokers that are not funded well enough to obtain a warehouse line (which is several I'm sure) Despite what the big banks want to happen, there are plenty of smaller banks who have the ability to sell directly to Fannie/Freddie/Ginnie and won't be quick to get rid of the TPO business model as long as they can keep it profitable. I know of a couple that are in the final stages of doing that right now, and according to them, they won't be leaving wholesale anytime soon. Good thing because their service is way better than the big banks.

Janet - that was so well said I cannot add anything to it!

JUL

I'm curious, what restrictions did California impose on auto brokers? that's an interesting comparison and i'm curious just how similar the regulations were compared to our industry.

Janet, between HUD and the state of Illinois' assault on mortgage brokers (especially in Cook County) I am amazed there are any left. But I agree with you that many will survive. Brokers thrive on getting the deal done. A deal that languishes because nobody cares, or the bank is understaffed and, thus, nobody stays on top of it, does nobody any good.

I believe in mortgage brokers because a surprising number have remained in business to this point. They must believe in themselves and their place in the market, and my hat is off to them. I know I am not lying to myself, because I continue to market to brokers with confidence that they will be here tomorrow.

Sadly, the confluence of events has driven many good people from the business. To the ones I knew and enjoyed working with so much, I will miss you painfully.

Well said..I hope you are right..The banks are terrible customer service organizations. All of them, there a some good people who work there but as a whole banks don't service customers well. Our company has made changes to adapt to the new environmet and gone to be our own lender...I think if things went back to having banks service us and our clients and proivde good rates and programs we would be back to being a broker.... good luck and nice blog..

Janet, you bring up really good points. 90% of my clients prefer to work with brokers since they are more personable. I find that brokers seem to work harder for the business so they are available to their clients more so than banks.

Brian: I am under the wing of a great correspondent lender, but it is painful to watch what has happened to the broker side of the business.

I brokered out a round of refi's to Bank W...they had a killer rate at the time, and some of my mortgage clients ASKED to do business with Bank W.

The service I got from that bank was so horrible, the people working for the bank were SO incompetent, the waiting time for every little thing was SO long, that I wondered why they even kept their broker business alive.

I also wondered why in the WORLD anyone would prefer to go straight to that bank themselves and be tortured by their short comings.

PS And in the end, the rates were no bargain due to numerous lock extensions needed to cover all the time consuming mistakes the bank made along the way.

It's disgusting.

Patrick: And more will leave the business this year because the screws continue to tighten.

It says something to me when I get a new clients because they have tried to do business directly with the bank, and finally just give up in frustration.

The broker model works for the consumer and that is not going to change.

John: the list of "broker laws" was long, so let me give you one example. Auto brokers used to be able to register new cars directly with the Dept. of Motor Vehicles.

Broker laws made this illegal, and new car registrations had to be done ONLY by the dealership.

Janet - Another great post, as usual. One would have to be blind not to see the true intent of these "predatory lending laws" that do absolutely nothing to protect the consumer.

The combination of silly requirements and exorbitant fees are doing a lot to drive good mortgage brokers who may not have the deepest pockets out of business.

Seems to me that comparing mortgage brokers to auto brokers doesn't promote the interests of mortgage brokers. Auto brokers may exist, but they are definately a "fringe" entity.

If auto brokers are the model for mortgage brokers, then it would follow that mortgage brokers will be relegated to a fringe entity.

To continue as a viable entity in the mortgage finance industry, mortgage brokers must continue to show value to the consumer when compared to other mortgage entities.

Janet,

You rock, G! ...clients who are loyal to the BROKER, not to the BANK...

I'm glad this was featured, and I wish you tremendous success today.

Mike in Tucson

The mortgage broker I work most with once described his service as being able to access nearly every lender and get better rates for the buyer than the buyer could get going directly to that same lender. Why? One buyer is one buyer, but when a broker regularly brings multiple buyers to a lender, they are more valuable to the lender. Plus, show me the buyer who knows all the lenders that a large broker can work with and has the time to shop them all, and I will show you someone with not enough fun stuff to fill their personal time.

Janet, good mortgage brokers not only offer more personal service, but they also offer more choices. Banks are limited to only the loans at that bank. Good mortgage brokers work with several banks and simply have more available options to their client.

Even if a consumer were simply shopping around for the best rate, they'd have to go to 5-10 lenders to compare or ONE mortgage broker.

IMO: Like all things, there are going to be great mortgage brokers, great banks and great Realtors, right along with the lousy ones. Sadly the hard part is know which to avoid that aren't great. The great ones will survive because the know to represent their clients interest first and the profit is second.

Is it just me, or do we have a situation where banks are getting there way becasue they failed versus a few years ago when they seemed to powerful to give them more? They seem to be writing the rules now, or at least trying to. If I knew failure was the way to get everything i want i would have given that a try to. Not really.

Customers like to have options. The good mortgage brokers will survive this economy and changes.

Mortgage brokers tend to have the info and ability to adjust to clients individual needs or changes, whereas often going to a larger bank often adds lengthy red tape and delays that can cause anxiety and sometimes ruin a deal.

I think you make some really good points here. It is painful to watch how many brokers have closed their doors due to changes made by the banks and new layers of bureaucracy. Hopefully, they can make a comeback over time as people will continue to demand personalized service and want to deal with professionals.

I think we need both the brokers and the bankers, if nothing else to keep each other honest. I personally use a blend of the two. I use a mortgage lender that underwrites the deal but does not service the loan. They still have the ability to place the loan with different investors but I can deal with one processsing center and underwriter for everything. It works for me.

Great post and totally agree. Unfortunately, the broker community walked right into the trap by not doing a good job keeping out the scumbags. All it takes is one bad apple to ruin the bunch. For years, many of us have been saying that the broker community needed to get rid of the wild west/close the deal at any costs mentality and raise the barriers of entry because when the doo doo hits the fan, you know who is going to get blamed. Yet, when the money was rolling in, we did nothing so we have no one else to blame but ourselves.

It is going to be very difficult to survive as a pure broker. The wholesale channel is moving towards correspondent lending as a compromise.

Nevertheless, there is not more cost efficient way for banks to get mortgages than through the wholesale channel. Greed will prevail and the banks will be begging for broker business again. I just hope brokers don't have a short memory and remember which banks threw us under the bus...

Lenn: This was not meant to make a direct comparison of mortgage brokers to auto brokers. It is meant to illustrate how the big guy (banks) can put the screws to the little guy (mortgage brokers) because they have more money and clout to persuade lawmakers to tilt the scales in their favor.

I agree that auto brokers have never been a mainstream way of buying a car. In fact I often wondered what was such a big deal?

My company would deliver 30 cars a month. The dealership next door would deliver 300 cars? Why did they even care?

But then, please remember that real estate agents and mortgage brokers could become fringe players very easily. How?

If only banks could sell real estate, and they sold it through their own real estate departments. (Like only dealers can sell cars).

Morning Janet, Very interesting read. Your analogy was interesting as I have an old friend who was a broker and he used to rant about dealing with the auto dealerships. Excellent point about the many talented and skillful brokers out there.

Russ, you wrote:

Greed will prevail and the banks will be begging for broker business again. I just hope brokers don't have a short memory and remember which banks threw under the bus

I agree, mostly. I do think that the mortgage brokers have taken more blame than they deserve. Everyone involved was basking in that bubble, and mortgage brokers did not invent those risky loans. Banks did.

I also think the complexities and the layers of regulations have chased away any mortgage broker that was in the business for fast and easy money.

I look around and I don't see that rotten apple you describe. He left months ago.

Bill: I used to say this when I was an auto broker: The worst thing about my job is dealing with dealerships. UGH!

Now, as a mortgage person, I say this: The worst thing about my job is dealing with banks. UGH.

That is why brokers exist. Because clients prefer the personal service and the expert advice...and letting someone else do the "dirty work"

Damon...I think one of the mortgage writers should write a post about correspondent lending, since this is what you have described.

It is replacing the old mortgage broker model.

I can broker, or send loans to my bank. My bank (a correspondent lender) has an underwriter I can talk to, software that allows me to compare the rates and guidelines of every investor, a deal desk to help me structure the loan, all kinds of training and support... and also serves donuts on Friday, bagels on Monday, and free ice cream bars whenever you want one. Hey..they like me! Hey..they want to help me do loans!

My banks that "broker" have no reps, or an invisable rep. They do not answer phones. They have a website that prices loans (maybe) and you are not allowed to talk to the underwriters. Loans move so slow you need 5 lock extensions.

That is why the correspondent model is working so well. Because banks SAY they want broker business, but treat brokers like some kind of unloved step child.

Patrick: I don't think mortgage brokers will ever return to the way it was before. I think those doors will stay closed. But I believe the world is going to recognize that the quality of mortgage broker that has survived is far higher. I believe they will need us and we will need them. Especially the niche players.

I am using my ablity to broker for jumbo loans.

Janet

No disagreement, most of the rotten apples have left the building. Unfortunately, the regulations and legislation are only affecting the professionals who survived. Yes, brokers didn't create or underwrite the loans, but dare I say we knew exactly what we were selling. I had option arms, but never closed a single one because it wasn't right for 99% of borrowers. I had 2/28's but used FHA even if it took a little more work. I said now to obvious stated income fraud and occupancy fraud. Just because the banks created it, does not mean the industry couldn't rise above and act like true professionals.

The banks couldn't compete head to head so they are using legislative and political tactics to their advantage. That much is clear. I am just disappointed that the broker community allowed itself to be negatively branded and didn't take a long term view of the situation. Perception is reality and I don't think the broker community understands that...

Roger: You are correct. Mortgage brokers (or any kind of broker) gives a consumer the ablity to turn the shopping over to someone else. Shopping for a mortgage and comparing is tough for most people.

Susan: I used to say that too...that I had hundreds of lenders I could use. Now that number has dramatically shrunk. I do believe I have a lender that fills most niches, but there are still certain loans I cannot do.

Mike in Ariazon: Yeah, I like that line too. It says it all.

Joe P: Yes, banks have a rather smug and arrogant approach right now, I think most people would agree.

Jackie: Thanks for "getting it". This post was about the true intent...and the possibility that the layers of laws now coming down on the mortgage industry benefit the banks, not the consumer.

Mary, you wrote:

The great ones will survive because the know to represent their clients interest first and the profit is second.

Agree! and also because they are willing to change to a more difficult environment, and are committed to their profession.

Janet: How well stated! I could not agree more.

When an option arm was first explained to me I said this "Wait. Why would anyone do that loan? And how can the average Joe even understand this loan?"

I only did a few, to flipper investors that insisted on it.

2/28...did only one and came to regret it. Very nice client now stuck in that loan. There was no FHA here in California, then.

Your last paragraph rings true. As brokers, we may never be able to fight off the banks. But we could police our own, and have a much stronger organization. Communities like ActiveRain will hopeful help us go in the right direction.

It's true that most people do not have a good taste in their mouth about banks !!!

Michael: Me included...

That should help brokers. It has helped my business.

I think the mortgage brokers will be back. Small lenders, brokers, and banks are the cornerstone of creative lending and customer service. The big banks are in control now and it is a mess.

It is refreshing to read all the comments here. While those of us in the industry understand the value of a good broker and can see how the Banks are throwing us under the bus; what is the perception of the consumer. While "Banks" have lost some of their favor with all the Stimulus bail out, etc., the uneducated consumer may still have this "perception" of trust in their bank. They certainly don't see, nor understand how the banks are trying to eliminate brokers as competition - that very same "competition" that they were courting not too long ago with their offerings of the unsavory loan products that contributed to the problems of the past couple years. Educating the consumer on reality has never been more important.

Janet,

That was right on target. We need the broker channel for consumers so they have more choices. Choices provide for competition and competition is good.

thanks,

Janet,
I think you have some great insight due to your experience as an auto broker. Your comment: "the list of broker laws was long, so let me give you one example. Auto brokers used to be able to register new cars directly with the Dept. of Motor Vehicles. Broker laws made this illegal, and new car registrations had to be done ONLY by the dealership." really hit home.

I posted recently about how HVCC's intent is to remove mortgage brokers from the business and not appraisers. Appraisers are simply the device that the banks are using to 'turn the screws' on the mortgage brokers. Restate your comment above as follows and see how true it is today:

"Mortgage Brokers used to be able to order appraisals directly from the appraiser. HVCC laws made this illegal and now appraisals have to be ordered ONLY by the bank"

Makes me wonder if the banks went looking around in other industries in which the big players were forced to be more competitive by brokers and they 'borrowed' some ideas.

-Andrew

Andrew: What insight! Thank you for pointing that out. The essence of this post was exactly that: brokers are not dying out because consumers PREFER banks. They are being forced out of business.

Could I please get a link to your post? I could not agree with you more. HVCC is meant to place mortgage brokers at a disadvantage! While we are all shaking our heads wondering how HVCC came around (because it hurts borrowers far more than it helps them)...the reason it doesn't make sense is because the real intent of HVCC is a hidden agenda.

Mark: Choices help everyone and competition keeps prices low. I agree that businesses that are not competitive, or do not provide what the market wants, will go out of business anyway.

Leissa: Great points. However the banks are shooting themselves in the foot right now. Consumers may "trust" banks, but they are not going to stand for the lousy service that banks are dishing out right now. So they are turning to brokers. So are real estate agents. How ironic is that?

Gene:

Glad you agree with me. I like your term creative lending. Because these days, that is a huge advantage and the big banks are more into cookie cutter lending.

Janet, you always have wonderful insights!

I hope so, Janet.

We just had two mortage brokers in Ann Arbor merge today.

The reason was so they could compete with the banks.

Interesting. ..

Janet: You are probably right although, ultimately, the banks hold all the cards. If they choose not to be in wholesale lending, a broker won't survive. Obviously bank rates are higher but that's the game right now. I do agree with you in that I think most of the carnage is done. Plus, an interesting phenomenon is going on. Every one is lining up their warehouse lines and moving toward in-house underwriting if they can. It allows for more control and makes sure the banks (investors) will purchase the loan in most cases.

Excellent points, it does seem to be getting more difficult for our mortgage brokers, we are seeing significant delays and lenders that are non-responsive to the broker and our client.

It seems to me it's similar to the builders who didn't want to work with real estate brokers during the boom or are now enticing begging us to bring our buyers.

Mortgage brokers know their business and, as you point out, have a loyal following who know how good they have it with their brokers.

JUL

I'm not so sure comparing car brokers and mortage brokers gives me a warm fuzzy feeling. Bankers are order takers only and are totally inflexible with loan knowledge and their time. They can't shop a loan for a consumer.

JUL

I'm coming in late here but this is TOO good to pass by. Thank you so much for taking the time to spell out the truth. Americans want to do business with a person and they worship loyalty. Yes, they do! Kate Ford

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?

Janet Guilbault California Mortgage Banker/Broker

Walnut Creek, CA

More about me…

Address: 3201 Danville Blvd, Suite 195, Alamo, CA, 94507

Office Phone: (925) 552-3867

Cell Phone: (925) 212-6347

Email Me

Links

Archives

Find CA real estate agents and Walnut Creek real estate on ActiveRain.

Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.