Homeowners and Mortgage Brokers Lose Out

By Kevin Chiu

Blamed for helping to blow-up the real estate market, the ranks of mortgage brokers have been cut to nearly a third and most hardcore brokers are currently doing little business as homeowners and others seeking mortgages defensively shy away from them in droves.

Home Mortgage

At their peak mortgage brokers provided more than half of all home loans, writing billions of dollars worth of loans annually, collecting a commission check for each closed transaction. The membership of the National Association of Mortgage Brokers now counts just 8,000 members, down from 23,000 in 2005.

Survivors attribute their success to building long term business relationships with customers and real estate agents, but more than anything else refusing to offer creative mortgage products to customers that blew-up in the housing crash.

Adjustable rate Alt-A mortgages they referred to as “junk loans” weren’t offered to mortgage buyers by many of the 8,000 brokers that now make up the National Association of Mortgage Brokers membership. “They were and always will be considered crap,” said a   California   broker still in the business, who spoke on condition of anonymity. “We knew that Countrywide’s products were junk that would get people in trouble when the market went to hell, and I knew that if I wanted a business when the boom went bust that I better not sell that crap because they would get foreclosed.

“What our industry really lost was integrity. These young kids that came into the business to make a lot of money fast did and now they’re gone.”

If standards for new mortgage brokers were lost in the rush to cash another commission check, the standards of the entire industry would suffer. Many of the mortgage brokers that got their mortgages through companies like defunct Countrywide, Washington Mutual and a slew of other direct home lenders have now become members of the Mortgage Bankers Association.

The cash to fund their mortgages is tougher to get for home buyers. The number of direct lenders has shrunken to around 650 from 6,000 in 2006. Most have gone out of business as the supply of money dried up in the years following the real estate crash with millions of foreclosures.

The lack of integrity in business dealings harms reputations and the prospects for future business. A number of mortgage lenders have been killed as a result of mortgages that have gone bad across the nation, but few are actually reported or publicized. Yet police in more than five states, including   California   and   Florida   where some of the most extreme cases of mortgage fraud have been prosecuted and other law enforcement officials confirm cases as acts of revenge.

Today millions of homeowners have been “burned” with mortgages that have risen, sometimes by as much as two-thirds of their payment amount, and face the grim reality of foreclosure. Government initiated programs to help many refinance are bailing out some, but others see no way out other than to walk away from their homes. Millions of these homeowners obtained mortgages through mortgage brokers, who aren’t even around to answer the telephone anymore to answer questions about their loans.

Changes in the system that brokers have worked with for years are being made. The Federal Housing Administration is pressuring lenders to insure higher standards in under-writing, and is forcing some brokers to buy back mortgages.

The Federal Housing Finance Agency was started by the Obama administration to regulate Fannie Mae and Freddie Mac, where millions of the bad loans have been sold. The two giant lenders have received more than $140-billion in bail-outs, the majority of which is never expected to be paid back to the government.

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