Will mortgage brokers become extinct?

By
Real Estate Agent with wexzilla.com

earlier this year, while it was still in business, Wachovia Bank announced that they, (Wachovia) is exiting the General Bank wholesale mortgage origination channel.

This was a shocking follow up from the announcement from Bank America closing its wholesale division of lending through mortgage brokers.

Look no further than www.ML-Implode.com; Here you can watch the wreckage in the mortgage lending business tallied for the world to see.

Industry guru, Rob Blake wrote asked ... are Mortgage Brokers are an endangered species?

He pointed out that If you listen to Mortgage (broker) Industry insiders you will hear whispers that the 'all-powerful' "banking lobby will finally get the Government to legislate mortgage brokers out of existence.mortgage brokers becoming endangered species"

In his very well written article, he outlines the history of the banking industry's "pursuit of the killing off their competition, many believe the banks decided upon a "scorched earth" plan to rid themselves of retail mortgage competition once and for all. The Plan was one they pulled from the S&L play book a decade earlier".

Blake argues that if the Banks "Give the mortgage brokers just enough rope to hang themselves just like the Savings and Loans did!"

Before, you write this banter off as conspiracy theory hogwash, listen to what has happened and the now dreaded word of the year for 2007. Sub-Prime :

Sub-prime loans, Alt-A loans, option-arm 's , etc.. where originated through private banks; specifically depositor banks to start. (many other private and smaller institutions entered the frenzy to make a quick buck from borrowers who mostly could not afford the loans. Although this is another topic for another day.)

Borrowers did not need to go to their local banks to get a loan. They could get these sub-prime loans through mortgage brokers who could virtually originate a loan to anyone who could sign their name.

Borrowers wanted to buy, they wanted these aggressive loans and the bank underwriters approved the loans. Hey, give the customer what they want, right? and, ultimately the deposit banks where approving these loans.

So, in the vast majority of cases, it's not the honest mortgage broker's fault. It's the banks who approved the risky loans. Right?.. Wrong!


You know who is now getting too much of the blame.  -- The mortgage broker.

Currently, their is a vast inspection and audit of the entire industry. Primary focus are new and strict lending guidelines and practices aimed primarily at the mortgage broker.

In fact, not only are the banks not being blamed. They are getting bailed out by the Government.

Think Bear Stearns. Think Fannie Mae. Think Freddie Mac. So on, and so forth , and so on.....

Wow, a deposit bank, JP Morgan/Chase was able to sweep in and buy Bear Stearns . Not only at pennies on the dollar, but with guarantees and assurances and actual insurance from the Federal government. Not bad for Chase Bank, right?

The current and pending Federal Legislation (pushed by the banking lobby) that requires heavy regulation and oversight of mortgage brokers. Mortgage brokers will continue to have less and less product availability. Comparatively to banks, they have unfavorable pricing of rates.

It is not unforeseeable that these factors may ultimately put mortgage brokers out of business!.

Ask yourself, ....why would you go anywhere else but a big bank?

"when the dust settles a few years from now, every one will go to a bank to get a mortgage because that is all that is left.

Often, where there is smoke, there is fire.

I hope he is wrong. However, I am concerned he may be right

____________________________________________________________________________

Copyright © James Wexler *Will mortgage brokers become extinct?*

Contact James Wexler (480) 221-8080 for your Phoenix | Scottsdale Real Estate needs

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Re-Blogged 1 time:

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  1. Ricardo Cortez 10/22/2008 03:23 PM
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Rainmaker
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Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Great post. I am sure there will be regulation which is needed but hope they will not become extinct.

Oct 17, 2008 10:27 AM #1
Rainer
207,933
James Wexler
wexzilla.com - Scottsdale, AZ

Gita - more regulation always comes a little too late. Usually, the unintended fallout of rough times. However,

I am concerned that (needed ) regulation may become over-regulation and force too many good people out of a critically important business!

Oct 17, 2008 10:52 AM #2
Rainer
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Mike DelVero
Liberty One Lending - Tempe, AZ

james, I love your blogs, but I have to call you on this one.

Yes, there needs to be higher regulation. However, salesman in all industries are the backbone of the economy.

If you do not have salesman you do not have distribution of product. Period! Mortgage brokers will be around long past the banks who are already on the endangered species list.!!

Oct 17, 2008 10:44 PM #3
Rainer
207,933
James Wexler
wexzilla.com - Scottsdale, AZ

Mike - I am afraid that the possibitly of over-regulation is real and that the 99% of mortgage brokers who provide a honest , necessary and valuable service may get squeezed out by the major lenders no longer having wholesale lending.

Not likely, but a frightening possibility.

Oct 17, 2008 11:46 PM #4
Rainer
125,331
Laurie Logan
Keller Williams Realty, Inc., Broker Associate - Madison, WI
South Central WI Real Estate

Like any other business, mortgage brokerage is going through cycles and changes.  The strong will survive.

Oct 17, 2008 11:53 PM #5
Rainer
207,933
James Wexler
wexzilla.com - Scottsdale, AZ

Laurie - thanks for the comment. I agree with you. The strong will survive.

In fact, if there is a good fallout from the turmoil of the real estate and mortage business is the filtering out of part-timers, and other non-committed professionals

Oct 18, 2008 12:58 AM #6
Rainer
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Nicholas Rausch
Prime Time Lending - Scottsdale, AZ

wexzilla  -At first, I was a little take back by the title of the article. However, Laurie points out something that we need to recognize.

The industry needs cleansing of those who are not career people who survived because in a rising tide, everything floats.

 Now, that times are tough, only the strong survive and that will include those who are most committed to the business.

Oct 18, 2008 01:52 AM #7
Rainer
207,933
James Wexler
wexzilla.com - Scottsdale, AZ

Nick - I agree, the article (and the photo) does turn a few heads.

However, I see banks reducing wholesale lending to such and extent that it may make it impossible for mortgage brokers to offer any competitive products.

Things have changed a lot with the banking industry and the consumer confidence has been lost, so they are not the reliable keepers of money that so many of us trusted for so many years

Oct 18, 2008 02:05 AM #8
Rainmaker
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Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

It brings to mind the travel agent and how they have become almost extinct. Doubtful that it will happen in the mortgage industry though.

Oct 18, 2008 10:37 AM #9
Rainer
207,933
James Wexler
wexzilla.com - Scottsdale, AZ

Bill - great analagy. It is unlikely, that mortgage brokers indeed become exctinct.

However, the landscape is shifiting signficantly. The new rules are going to greatly impeded mortgage brokers in terms of competitive products to offer and competitive fees.

This may shift most borrowers back to (government owned ) banks and what looks to be more socialist type ledning programs.

Oct 18, 2008 10:54 AM #10
Rainmaker
943,417
Joyce Kelley
Charles Stallions Real Estate Services Inc - Gulf Breeze, FL
Buyers Agent 800-309-3414 Pace and Gulf Breeze,Fl.

About the same time that the Internet will replace Realtors. I agree with some of the above they will change with much needed regulation but that is about all.

Oct 31, 2008 06:04 PM #11
Rainer
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James Wexler
wexzilla.com - Scottsdale, AZ

Joyce - good comparison .  and you are  right it is extremely Unlikely.

However, you have to consider that banks can still do business without mortgage brokers. Cannot sell homes without realtors. Maybe things go the way of RedFin, but you still need realtors

Oct 31, 2008 07:00 PM #12
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