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The New York Mortgage Broker Conundrum

By
Managing Real Estate Broker with Howard Hanna Rand Realty License # 49FA1074963

I originated mortgage loans from about 2002 until 2006 or so. I considered starting my own mortgage brokerage but decided against it for several reasons, including the growth of my real estate company and the vast changes in the industry after the sub prime crisis. That required more learning than I could spare if I wanted to properly manage my real estate brokerage. I no longer originate mortgages. However, I do know the difference between interest rate and APR.

For most of my time in the industry I worked for brokers, not direct lenders. They seemed to me to have more flexibility in placing loans. My first company said that applicants who made one application with her had dozens of options whereas anyone who applied with a local bank had but one. In 2002, that made sense. It no longer does. Changes in the laws of the land, especially here in New York, have marginalized mortgage brokers and given large direct lenders an advantage in the market place. The reasons why are for another post; the fact is that consumers who use a broker need to know some things. 

First, mortgage brokers are not able to make loans. They place them with 3rd parties. This is  not bad, but it does make a pre approval from a broker a lie. Mortgage brokers can issue prequalification letters. They cannot issue a pre approval letter. They can't loan. As a matter of fact, New York compliance regulations stipulate that mortgage brokers state that they place loans with 3rd parties on their letters. You'd be surprised how many do not. DUMB. 

Second, mortgage brokers have to disclose what they are earning on a loan (otherwise known as yield spread premium). Bankers do not have to disclose this. Fair or not, it is the law. While pricing is not firmed up until you lock your rate, it is important that you as a consumer get a good faith estimate at the time your application is made. Too often, I have dealt with buyers who did not like their closing statement, and when I asked them what their GFE (good faith estimate) said, they told me that they never got one. It was coming. They couldn't get it right away. The dog ate it. In any case like that, they were victims of an unethical practice. 

In New York, many good brokers have gone out of business. Public perception has put more confidence in banks, and brokers have borne the brunt of the economic downturn with the sub prime meltdown and so many stories of fraud in the news. You would think that this would make the existing brokers more mindful of watching their Ps and Qs, but in my experience, the opposite is the case. With one notable exception in my experience, mortgage brokers have not adapted to the new environment, causing suspicion and uphill battles.

I still get bogus preapproval letters with no compliance verbiage on Microsoft Word forms. This makes getting an offer accepted really hard for the borrower, who has no idea that they are at a disadvantage. I still get assertions that a borrower is a "slam dunk" from originators at brokerages, and when I ask what the Desktop Underwriter findings were for the borrower I get a blank stare. Desktop Underwriter, or DU, has been the industry standard for both bankers and brokers in automated underwriting. It isn't foolproof but it is an indication of accuracy and thoroughness. If a borrower hasn't been submitted to DU without a really valid reasons they are a huge question mark. 

Caveat emptor to both buyers and sellers. Find out who is vetting the prospective buyer/borrower, because that can be the difference between a good sale and a long drawn out non-deal that wastes weeks and months. 

Comments (32)

Mark Smith
Cherry Creek Properties, LLC - Erie, CO

Some good points- especially the Desktop Underwriter reference. I have been a mortgage broker/realtor for 15 years. I am letting my mortgage license expire this year.

I gained a wealth of knowledge of over 50 programs and we used over 70 banks at the peak. Sadly enough- most of that knowledge is for not. You pretty much fit "in a box" today OR nobody (banker or broker) will do exceptions because of the fear of buybacks.

The real sad part is I see plenty of "quality" borrowers with great scores and good assets but they don't fit "in the box"- so NO LOAN. It makes you wonder why you spend years building credit, establishing relationships with your bank, and when "times get tough" these same banks shun you.

Jun 23, 2010 01:29 AM
Richard Weisser
Richard Weisser Realty - Newnan, GA
Richard Weisser Retired Real Estate Professional

Phil...

Compliance now consumes most of the mortgage broker's valuable time. But the fact is, some of the "bad apples" forced the hand of lawmakers who want to try and protect consumers any way they can!

Jun 23, 2010 01:31 AM
Rodney Mason, VP of Mtg Lending
Guaranteed Rate NMLS# 2611 - Atlanta, GA
AL,AR,AZ,CA,CO,FL,GA,IN,MI,MS,NC,SC,TN,TX,VA,WA

We do Pre-Qualifications for a variety of REO companies.  Most buyers, of course, have been Pre-Qualified/Pre-Approved somewhere else.  Many of these buyers probably never even provided one piece of documentation to the other mortgage company to obtain that "letter".  I then have to explain to that <620 FICO and 60%+ DTI buyer with <$1,00 in the bank why they don't really qualify.  Many of these came from mortgage brokers.

Jun 23, 2010 03:03 AM
MJ Anton
Ormond Beach, FL

Excellent post...everything in life is cyclical.  Years ago most homes were purcahsed with loans from the local bank...online lenders & unlicensed, improperly trained mortgage reps ruined the industry. 

Jun 23, 2010 03:08 AM
Gregory Bain
Mezzina Real Estate & Insurance - Little Egg Harbor, NJ
For Homes on the Jersey Shore

Phillip, I so appreciate this post in the aftermath of my pending sale. I was made aware of the DU several years back but I have never demanded an answer to that question. The mortgage company and representative working for the buyer in the sale of my listing is reputable and offers even more than your blog post indicates. Sometimes they write their own loans and hold the mortgage until another investor will buy it.

While everything I said about the buyer is true and I wish the other "non-responsive" agent had picked up a fax regarding the deal sooner, the mortgage company appears ready to make it happen. I have been told that this "mortgage broker" will make the loan provided the buyer give a current pay stub showing earnings and hours worked along with increasing her down payment. The attorney has scheduled a closing date and time agreeable to the seller's attorney.

I am waiting until it happens to update my post to my blog.

thanks for sharing

Jun 23, 2010 04:08 AM
John McGuire
Mortgage Banking Consultant and Investor - Overland Park, KS

It has been interesting to watch the industry change the last few years.  No question that depository lenders have an edge right now including the YSP disclosure issue and no mortgage loan originator licensing under the S.A.F.E. Act (registration only and even that is delayed).

Jun 23, 2010 05:39 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

JP - After spending the last 10 minutes responding to your post, I realized that my comment was becoming quite long.  So suffice it to say that you have inspired a post of my own.  For that, I thank you.

Jun 23, 2010 05:39 AM
J. Philip Faranda
Howard Hanna Rand Realty - Yorktown Heights, NY
Associate Broker / Office Manager

Phil- many of the brokers I know who haven't gone under are in the same process of converting to a banker here also. 

Lewis- You get it. 

Jennifer- reblog away. Next time I am in your neck of the woods we should have lunch. 

Mark- DU is essential. I don't blame you for letting it go. 

Richard- in my neck of the woods too many brokers ignore basic compliance and get insulted when they aren't taken seriously. 

Rodney and MJ- my point exactly. Too many brokers have made their beds and now must lay in them. 

Greg, I hope it closes soon for you. 

Jun 23, 2010 05:44 AM
J. Philip Faranda
Howard Hanna Rand Realty - Yorktown Heights, NY
Associate Broker / Office Manager

John, the industry has changed enormously. I don't recognize it enough to originate anymore. 

Donne- glad I inspired you. I'd be interested to know how you see things in California. 

Jun 23, 2010 06:34 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

JP - VERY differently than you do in NY.

Jun 23, 2010 06:39 AM
J. Philip Faranda
Howard Hanna Rand Realty - Yorktown Heights, NY
Associate Broker / Office Manager

I look forward to reading it. 

Jun 23, 2010 09:06 AM
Mitchell J Hall
Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

It's really a shame because there are still some good mortgage brokers but your post is accurate. When I started in real estate in 2001 Manhattan Mortgage, NY Mortgage, IP Skyscraper, they were doing most of the loans in Manhattan. Only Manhattan Mortgage is still around today but most of their brokers have gone to banks.

Chase and Citi were the big banks back then and I tried avoiding them. About 5 years ago I started working with a great mortgage banker at Wells Fargo. They could get loan comittments in 24 hours. Wells and Bank of America came to town and took over. Today I need contactas at many banks, lenders and brokers because you never know who will do a loan in a certain building or if the buyer has an unusual situation.

I just closed a sale with a buyer who needed an asset only loan. A broker at Manhattan mortgage did the loan with Apple Bank in Scarsdale. It was a very smooth transaction. The whole process took 3 weeks. I'm doing a deal now with Sterling (so far so good)

Jun 23, 2010 09:35 AM
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

J Phillip, 

Excellent information.  It is important to know who you are dealing with and even more importantly what you are TRULY getting.  So often because consumers don't do purchases very often, they don't get these somewhat subtle differences to understand what is truly going on. 

It's not easy keeping up in one field, can see why you don't do two anymore:-)

All the best, Michelle

Jun 23, 2010 04:22 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I see the trouble that mortgage brokers are having but don't see things being much better with the big banks who don't have experienced or responsive loan officers. 

Jun 23, 2010 05:55 PM
Bruce Brockmeier
Internet Marketing Consultant to REALTORS® - Yorba Linda, CA
Coached By Crouch

With one notable exception in my experience, mortgage brokers have not adapted to the new environment, causing suspicion and uphill battles.

Good evening Phil,

Does this open a window of opportunity for a professional mortgage broker in your market?

Jun 23, 2010 06:16 PM
J. Philip Faranda
Howard Hanna Rand Realty - Yorktown Heights, NY
Associate Broker / Office Manager

Bruce- I have no idea why a good, professional mortgage professional would want to work for a broker in this environment when they could work for a direct lender. 

Christine- Agreed. Big banks aren't much better but people have more confidence in them being able to close. 

Michelle, you have to play your position in  times like these. 

Mitchell- didn't the owner of Manhattan mortgage give in and start direct lending? 

Jun 23, 2010 11:30 PM
Nevin Williams
Fairway Independent Mortgage Corporation - Cary, NC
Senior Mortgage Advisor

J Phillip - I'm 3 things- broker, correspondent lender and a bank!  Banking and correspondent are the easiest and most profitable way to originate loans.  Brokering can be hit or miss depending if the broker actually takes the time to know the guidelines and that specific lenders credit overlays.

Hmmm....  I canlt tell you how many times I have heard from my referral agents that they dread the large institutional bank loan officers: things like "They never return my call"  or "They can't give me a straight answer as to what is haooening to my file" and "They never answer their phone".  Funny how one person has a long track record of horrible experiences with brokers and across town a different agent has great experiences with a broker and horrible experiences with local lenders and banks.

My conclusion : They all are horrible.  it's the loan offier that matters.  If your preferred loan officer happens to have licenmsing so they can broker as back up (just incase the bank rejects the loan) and get an approval with a smaller bank with aggressive financing and loose U/W guidelines then you have reduced a layer of risk of your transaction not closing.

If the person answering the phone is knowledgeable and taking care of business then regardles of broker / banker - you are good to go.

Jun 24, 2010 03:42 AM
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

If someone wants to buy one of my listings and does not have a GOOD letter from a local, reputable company, I will advise my client to not accept the offer.  If they want to get a letter from someone we trust, that is fine.  Otherwise we will keep looking for a qualified buyer.

Jun 24, 2010 04:11 AM
Gene Neal
Atlantic Home Capital "The Mortgage Richer" - Hauppauge, NY

I may have one bank that deals exclusively in jumbo loans, one that specializes in very clean A paper loans that offers very low rates, one that specializes in FHA loans with past credit issues, etc. A good broker such as I can leverage these relationships often times to obtain more favorable terms for a loan. This is because I have many more options to place a loan versus a single product line.

 

There are ups and downs to both and anyone that tells you otherwise is giving you a sales pitch. Ultimately it is important to use the resources at your disposal as a consumer to ensure you are getting a fair deal. The main thing is that I understand the frustration of trying to receive updated status. You can wait for hours or even days for answers that can affect your state of mind.

 

I am new to Active Rain but not new to honest service and most important accountability. I provide weekly status of all files received and I am available 24 hours a day. I am your teammate in providing your client with the best possible loan. If you are truly looking for a Mortgage Analyst that is concerned with your clients well being congratulations you’ve found him. Gene Neal aka The Mortgage SPY….

Jun 24, 2010 06:27 AM
Anonymous
Minnesota Short Sale Help

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Jul 04, 2011 07:42 PM
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