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The End of the Mortgage Broker Era? (PART I)

By
Home Builder with CSR

A good blog would lead you up to the main point but tease you along the way. I have so much to say that I am probably going to have to get straight to the point and then write additional blogs.

Lendingtree.com! That was the beginning of the end for mortgage brokers, as we know them.  That one site, and then subsequent sites of similar character singlehandedly took us around the bend. It turned the mortgage broker from personal advisor to commodity.

People hired brokers to get the best rate and program, but computers can do that now. In fact, computers have been able to do that for a long time. Eloan.com was one of the first sites that I know of that had a pricing engine back when I started my mortgage company in 1997. I believe I may have been the second. Lioninc. also had a nifty pricing engine for brokers. So why did mortgage brokers last longer than their technological obsolensence?

Because the lenders needed them.

The first reason was that mortgage brokers held a very large share of originations in America (somewhere around 85% market share). Lenders did not want to step on anyone's toes and why should they? They always got the business in the end, they just had to share a very minute portion of the wealth.

The second reason is a bit more shady and I should say now, purely a concoction of my own warped mind. I have no evidence (that I'd like to share) to support my argument, but you can be the judge. I believe that lenders kept brokers around to get people into loans, who had no business being in those loans. Brokers shared culpability, if not took it all to themselves. When we hear, these days, about massive mortgage fraud, it was mainly at the origination level. Yes, there is fraud being found elsewhere, but those stated income loans where usually "stated" (lied) by the mortgage broker in some fashion or another What, you didn't realize that he probably wasn't earning $50,000 per month and still living at his mom's house? 

I don't mean to upset any mortgage brokers out there, but I think I am right. Brokers bent rules and cajoled underwriters to get loans for their clients. I do not believe that most brokers took advantage of their clients. If anything, I believe that brokers thought they were taking advantage of the lenders on their clients' behalf

After seeing more of the big picture now, I believe that while the brokers thought they were getting the best of the lenders, it was really the other way around. If you ask me, it was pure genius. Back to my point.

 Lendingtree.com and others like it have turned mortgage brokers into a commodity. Lenders no longer want or will allow brokers to cajole underwriters. In fact the days of the exception or compensating circumstance are gone. These days, from what I hear, guidelines are strict and rarely bendable. I see this business going the way of car insurance agents. What happened to them? Now that pricing engines can get the best rate and program and no one wants the broker to finagle the loan in anymore, what use is there for the mortgage broker? Think Geico.com.

I am going to save that answer for my next blog, but in the meantime, check out fairclosingcosts.com. Here we go again. 

Comments(9)

Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Christian, I understand much of what you say. My family's been in the mortgage industry for over 30 years and have seen many changes.  However, I still think there is a place for an experienced, knowledgeable mortgage broker who seeks to do their best for their clients and understands the many possible mortgages and assists their client in choosing a loan that best fits their needs.

Jun 24, 2008 05:33 PM
Paula Swayne
Dunnigan, Realtors, Sacramento (916) 425-9715 - Sacramento, CA
Realtor-Land Park, East Sac & Curtis Park -Dunniga

Hi Christian!
I think you are painting an awfully broad stroke. Certainly some mortgage brokers are culpable for our present situation.  But there are many more who are still fighting for their clients, who are honest.  As a Realtor, I will discourage with every bone in my body, my client using an on-line lender.  My experience has not been favorable.  Just as with the insurance agents I recommend, I want my referred lenders to be able to meet personally with my clients.  I want a face with the name.  I want my lenders to have a personal interest in keeping my clients happy...because they want the referral. My escrows always go smoother when there is a vested interest in keeping my clients long term.

Jun 24, 2008 05:44 PM
Es r
CSR - Huntington, TX

Christine and Paula,

 

I agree with you both that a good and professional mortgage broker may still have a place in this new era, however I wonder if they will want one. With sites like Lendingtree.com, prices are driven down. That is a good thing, however when prices are driven down, even the true pros have to compete. They may get away with charging a little premium for the personalized service, however if they are too far out of the market, they are out of business. 

 

It is true that the consumer wants to get a good loan and get it on time. Refinance transactions, however are not as time sensitive as they are rate and cost sensitive so they lend themselves more towards the online pricing engine. Only in sale transactions will a mortgage broker prove he/she is worth their salt. My concern would be is there enough sale business to go around and will it generate enough income for the real pros to stay. My guess is that it will not. Some will stay because they truly love what they do but many more have and will continue to exit the business. Unfortunately, I am seeing it everyday. I know the true value of a mortgage broker, I just don't think the market does.

Jun 24, 2008 06:43 PM
Anonymous
Bill Fletcher

Hi Christian,  It is interesting to hear what Escrow companies truly think of lenders.  I was a mortgage broker for 22 years up until my retirement a short while ago.  I agree with you that the Mortgage Broker may indeed be going away but for different reasons.  

First let me confirm that there were indeed brokers who took advantage of "stated income" loans.  But half of my 22 years was spent working as a retail LO for major lenders and the exact same thing happened just as often there too.  LOs were expected to state whatever income made the numbers fly regardless of where you worked.  If you explained to either a wholesale lender rep. or your retail sales manager at WAMU or wherever, that your borrower did not qualify because of income either would tell you the exact same thing.  Why not go stated income?  That is simply the way the whole industry came to view the stated income loan.    

Secondly, l interviewed with Lending Tree awhile back.  I had heard the thing about when banks compete blah blah blah.  During the interview the manager began describing a job exactly like any other mortgage brokerage.  I asked him about the "banks competing" part.  He said that some loans are handled "the old way" but Lending Tree got tired of handing loans over to other banks so they decided to set up an in house lending division which functions almost exactly like a, you guessed it, mortgage broker.  The only difference is, as the want ad states, no mortgage experience is required to work at Lending Tree so you don't get the experience and expertise part that you get with a good broker.

Thirdly, what has crippled the entire lending industry in my opinion was the invention of stated income "subprime" loans.  Understand that "stated income" loans have been around since the late 80's and have performed just fine for the most part.  The problem is that so much money was flowing into Wall Street  firms like Bear Stearns who designed these loan programs, that they had to eliminate any rational qualifying criteria in order to have enough borrowers to use it all up.  Loan programs were released that not only requred no income documentation, but allowed zero down payment, and a bad credit history to boot! 

If Wall Steet hands a salesman a loan program with virtually no qualifying criteria, and tells him he will be rewarded  handsomely for selling it to everyone he possible can, whose fault is it when he does just that.

Anyway, as long as Congress, and the general public believes it was all the brokers fault, it will make sense for upper management  to claim they have discontinued wholesale activity and therefore the problem has been fixed.  So I agree with you that the mortgage broker is probably history but for different reasons.

The big problem that remains is that mortgage origination is not a commodity as much as a process so companies who treat origination as a commodity will continue to disappoint their clients. If you don't believe me try a google search for Lending Tree complaints.

I feel bad for the Realtors out there, when I asked the Lending Tree interviewer how they handle pre-approvals for Realtors, he told me they discourage their Loan Officers from wasting time on those. 

Jun 27, 2008 04:16 PM
#4
Nancy Larson
I am a licensed referral agent in NJ - Hutchinson Island, FL

Bill, I couldn't have said it better.

Jun 27, 2008 04:26 PM
Es r
CSR - Huntington, TX

Bill,

 

Wow! Your posts is exactly right and matches my experiences in the industry, as a mortgage broker, not an escrow officer. I was not aware that Lendingtree had set up an in-house operation. That could actually be good in the long run for the mortgage broker as it takes the semblance of neutrality away from Lendingtree. That may prove to be their downfall. Who knows?

I also agree that a good mortgage broker is a valuable asset. I believe that I was one of them. I never was a churn and burn broker and wouldn't tolerate that from my L.O.'s. Never! I guess that I am scared that the general public does not and will not see the value of the mortgage broker. They will view his/her value as only how low a rate and cost they can provide. As you know, there are many loans out there that may appear one way and be another. Only a true pro can navigate those muddy waters for their clients and really be an advocate for them. 

 

Congratulations on your retirement. 

Jun 29, 2008 03:07 PM
Artisan Custom Estates
Artisan Custom Estates - Alpharetta, GA

Interesting perspective - there definitely is fallout across the industry from the current credit crunch.  The best mortgage brokers will always have a place, but many of the "Johnny come lately's" who were practicing with shady deals and out to make a quick buck will certainly have to find another bubble industry to pursue. 

Aug 24, 2008 04:16 AM
Michelle Chamberlain
Above All Financial Services -Pennsylvania Mortgage Broker - Secane, PA
Suburban Philadelphia Mortgage Broker

I was going to comment on this blog previously but was waiting to read the part two.  I also agree with your premise but like Bill disagree reasons.  I think he brings up a lot of good points.

I am not positively sure but I thought that brokers could sign up with Lending Tree as well.

There is a general perception by all that brokers are responsible for everything occurring in the mortgage market today.  Part of the problem.  Sure.  All of the problem?  No way.  Same things that brokers did lenders did too.

I've planned to blog on it but haven't gotten around to it.

Aug 26, 2008 03:32 PM
Es r
CSR - Huntington, TX

ABove All,

 

I, in no way, blame the brokers for near what others do. I was one of them. Brokers needed a product to sell and we got them from lenders and most importantly, we needed borrowers. In the end, I blame borrowers. They borrowed more than they should have. It is like overweight people. Do we blame the chocolate cake maker because he offerred too much cake, or the eater for eating it? There was plenty of credit available and even made attractive by us brokers and lenders, however it was the borrowers who made the choice to borrow it. It is the homeowner's today who either can't repay, or in many cases, don't chose to anymore because their investment went south.

As far as Lendingtree and brokers: Brokers buy their leads from Ledningtree and many other sites like it. They bid on those clients. As a former Lendingtree broker myself, it is often the first broker to call the client that gets the deal. It is almost always the lowest bidder. When a job like mortgage brokering is boiled down to numbers alone, as Lendingtree is doing, then the job is no longer a really viable one. Mortgage brokers that compete soley on rate know what I am talking about. In order to be a successful broker, there must be a value added to their work more than just the lowest rate. For many, that isn't possible.

 

 

Aug 28, 2008 09:06 AM