The Hidden Agenda of Banks: Why Mortgage Brokers Will Become Extinct

WILL THE LAST MORTGAGE BROKER ON EARTH PLEASE TURN OUT THE LIGHTS?

Will there soon be a day when the last mortgage broker on earth quietly turns out the lights, sadly looks back, then joins the other victims on the growing list of economic extinction?

Are mortgage brokers being squeezed out of the business as, one by one, the nation's largest lenders move to block them from offering their loans?

You bet they are.

But here's the problem: Anytime you remove competition in the marketplace, anytime consumers lose choices? That's when service goes down and prices go up.

It is why registering a car is a pain in the asset. It is why a hamburger costs $10 inside Disneyland.

THE WAY IT WAS

Only a few years ago, the halls of the mortgage office were crawling with lender reps begging mortgage brokers to give them business. The list of lenders to whom loans could be brokered was 4 pages long.

These days, seeing a loan rep is about as rare as seeing a bald eagle fly over San Francisco. We price loans and check guidelines on the Internet.

Did I mention that I really do miss our reps? The Internet, as swell as it is, just isn't the same as a real person who shows up to offer support.

Most lenders don't answer their phones. Our list of approved lenders is short and sweet....less than one page and shrinking monthly.

Mortgage brokers are fighting for survival. They have flocked to companies (like mine) that not only broker loans, but also have their own direct lending bank.

THE WRITING ON THE WALL

Leaders in our industry think the proverbial writing is on the wall, as one by one, banks stop doing business with brokers.

Many lenders (think subprime) have just disappeared. But many more have dropped off the list because they no longer want to accept loans from mortgage brokers.

Banks argue that dropping brokers reflects more conservative business practices. The most recent example is Chase, who announced last month it would no longer process loans by brokers. 

Chase has publicly stated that the increased number of branches (from mergers and acquisitions and new branches) means they do not need to rely on brokers nearly as much. They have also said that loans originated within their branches have out performed those originated by brokers.

Is that the real reason?

BANKS GETTING RID OF BROKERS: A NASTY PUBLIC RELATIONS MESS

Some less progressive thinkers (who must be living under a rock) still believe mortgage brokers who placed subprime loans are at the root of the entire economic crisis.  Well, we all need a scapegoat, and I guess mortgage brokers are used to this line of thinking.

Could it be that banks want FEWER mortgages (as red ink gushes from all those toxic loans that have gone belly up)? Think about this: Would YOU want more business like that?

"Hmmmmm...," thinks Mr. Banker. (You know, the one who got gobs of taxpayer money to lend MORE, not less money)...

"Wouldn't admitting I want to get rid of brokers, and do fewer mortgages be a DOWNRIGHT NASTY public relations MESS?

Well, YES, it would.

WAYS TO LIMIT LOANS BESIDES GETTING RID OF BROKERS

Oh, sneaky lender, you. I almost forgot you have other ways of getting rid of mortgage business.

You can:

•   slowly raise credit requirements.
•   increase underwriting   requirements.
•   make getting an appraisal more difficult.
•   slow down the approval process.
•   raise rates.
•   fire your reps, and not answer your phones.

Oh wait. You've already done that.

Next stop? Broker, buh-bye.

And you, Mr. Mortgage Applicant? Well, now YOU can sit on hold.

 

Written by Janet Guilbault, Mortgage Lending Specialist Based Out of the San Francisco Bay Area

 

Shameless teaser for next post: When an appraisal comes in low, there are 5 parties involved: buyer, seller, buyer's agent, listing agent, and mortgage broker. Who do you think should grab the steering wheel and drive the deal home? How do you bring all the parties together? Are you up to renegotiating the deal without freaking out?

Knowing how to handle this could save the deal (and your commission).