By Kevin Chiu
Blamed for selling mortgages to anyone who could sign their name during the real estate boom, the majority of mortgage brokers have been forced out of business and now only originate a small percentage of home loans. However, private mortgage bankers are filling the opening in the marketplace.
Leery of increasing bad press, national mortgage lenders, including defunct Countrywide and Washington Mutual turned their backs on the mortgage middlemen, quickly jettisoning them when the housing crisis hit. Mortgage brokers became the fall men for the credit crunch gaining a reputation for loose lending practices and were painted as the greedy brokers that triggered the housing bust.
Now as a result of falling home values, homeowners with good credit, some with less than conventional incomes or higher loan to value ratios are turning to mortgage bankers in increasing numbers for home financing. Hundreds of mortgage brokers are becoming mortgage bankers to fill the void.
Mortgage bankers are expected to gain a larger share of the market over the next two years, according to Scott Norman, vice president of the Texas Mortgage Bankers Association. “They bring a good sense of competition,”said Norman. “There’s always going to be a mom and pop mortgage broker down the street, who can provide you with excellent service with good rates and good fees.”
But changing market conditions and more restrictive lending guidelines that are making it difficult for many homeowners have left an opening for mortgage bankers.
Mortgage brokers wrote record numbers of adjustable rate mortgages during the boom, and risky subprime loans for home buyers with bad credit and little or no verifiable income. Millions of those mortgages have ended up in foreclosure, and are blamed for the nation’s economic downturn.
Mortgage brokers typically match a borrower with a lender, and are paid a commission for each closed transaction. However, mortgage bankers usually lend their own funds or private investors money directly to the borrower assuming a higher level of risk.
Lending their own money or investors funds, who they build up a personal relationship with, makes mortgage bankers usually underwrite loans using more rigid criteria. “We’ll lend to some families that can’t get a conventional mortgage because of changes in their personal finances or employment,” said Dave Hampton, a mortgage banker in Miami, Florida. “Each loan is made on a case by case or loan by loan basis. Underwriting is tougher than during the boom.”
The ranks of mortgage bankers are expected to rise 10% annually by industry professionals over the next three years as private money investors increasingly place funds with mortgage bankers in hopes of a higher return.
Investors typically charge higher points up front in exchange for private lending, and depending upon credit worthiness can represent as much as 5% of the loan amount in higher risk mortgages. “Many of the people we’re helping these days are just getting by,” said Hampton, “and want to keep the roof over their family.”