Why not blame the broker?

Good afternoon.

For the past several months we have all witnessed the meltdown of the subprime mortgage industry. Over 100 lenders have fallen and many loan officers and mortgage brokers have exited the business. This meltdown has weakened confidence in real estate and the financial world and has created a "dooms day" feeling for so many people.

Listening to all of the media coverage, it is easy to see that the Mortgage Broker has been pinned with 90% of the blame. Political figures have called us theives. Heck, even the CEO of Bank of America referred to mortgage brokers as "toxic waste" when he knew he'd get the press coverage!

So who is to blame? What happened?

First off, let me say that my insight to this is that of a mortgage professional that has worked for mortgage brokerages since day one. I also was in the business during the height of the subprime market rise and now fall. This allows me to see what most have either missed, or somehow forgotten.

Lets go back to the kick off of the subprime craziness. Now I don't know who went first, but many lenders saw a market place where borrowers that should be a good risk were not being served by Fannie Mae or Freddie Mac. This new market is what we affectionately call the Alt-A market. These loans were good loans made ot good people that paid their bills, but had a difficult time providing all the documentation that the Conforming lenders required.

Alt A loans were a hit! Rightly so.. the borrowers paid their bills and were willing to pay a slightly higher rate for exchange in easier qualifying. So lenders began to see something that eventually muddied up the waters... immediate profit!

The lender would begin to originate these loans and then sell them to Wall Street for quick cash. The loans were so good that Wall Street could not get enough. Soon, lenders began to loosen guidelines even more to increase the ability for more instant profit! Many of these lenders were charging $700-900 in lender application / commitment fees and then selling the loans to Wall Street for 1-2% of the loan as well. Long term accountability went out the window.

So lets fast forward to the subprime loan fiasco.  Lenders began offering and selling subpime loans... loans that on the surface seemed too good to be true. While mortgage brokers are now pinned with pushing these loans, what most people do not know, did not witness, or have forgetten is that the hundreds of lenders in the subprime marlet had account executives that would visit our offices every day! These account reps would literally ask to look in our TURN DOWN files to see if there was anything they could make happen.

Think about that... the lender was looking through the Broker's trash. And every week, they would find 2-3 more deals that could be done! Restructure this way, take this one stated... there were many ways to make a loan happen. For those of us that worked with real estate agents, this was amazing! Now we could help you find a loan for practically anyone wanting to buy! Lenders would even try to undercut each other on loans... everyone wanted these loans, sold us (the mortgage brokers) on how and why to sell these loans and created a new market that really never exisited before.

Now as a mortgage broker, I do not create loan programs. I do not provide funding for loans. I do not underwrite the loans. I simply offer programs that I have available to offer to my customers. One would assume that the lender, since they were the ones that created, funded and underwrote the loans, would have done a better job in forecasting the eventual outcome. Personally, I think some did, but the immediate profits meant they could make millions now and then bail when it went south!

So, with the lenders making the loans, fuding the loans and even underwriting the loans, how is the whole meltdown the mortgage borker's fault? We did not create the frenzy... Wall Street and the lenders did. We trusted that the powers that be did their homework, knew the risks and were able to handle it. We did not decieve anyone... We simply helped people that could never get into a home before take advantage of amazing programs that were avaliable!

Yes, some brokers committed fraud. But realistically, that has always been there. Real estate agencies also committed fraud... but they have not been blamed for the meltdown. The meltdown did not come from fraudulent loans. Rather from bad loans made to people that do not understand finances, budgeting or living within their means. And not one of the lenders during this time stopped to make sure that the borrower was educated on how to change their bad behaviors... they just wanted to quick cash!

Personally, I sold many a subprime loan to first time home buyers. But EVERY one of them also sat through a very specific talk on how to change their habits and improve their credit so we could move them into a conforming lona within 12-18 months! I never wanted to keep them in these loans. I wanted them to improve and move forward. Some listened and did... some did not and have suffered for that.

I think mortgage brokers have been given a bad deal here. The news media has made them an easy target and the National Association of Mortgage Brokers has sat quietly in the corner not saying a damn thing in our defense. I bet NAR would have spoken up by now if it were the REALTORS being blamed! Don't believe everything you read and hear from the news media... after all, they are trying to sell ads, so the stories today aren't always real news. Dont' beleive me? When did Brittany, Paris and the rest of these teenage trainwrecks become NEWS? Its all about selling the time slots or ad space.

So please, before you so easily blame brokers for the subprime mess, realize that we are here to offer a service. We don't sit around trying to discover a new way to screw customers. As a whole, we are all professionals looking to make a positive impact in our market.

Maybe if we canall get past the blame game and work together, we can find a way to help those hurt by this and help prevent this from happening in the future.