Tired of blaming mortgage brokers for the lending crisis

Editor,

I am both a mortgage broker and a real estate broker, and I’m really tired of being blamed for the misuse of mortgages for clients that are defaulting. I have always tried to get the borrowers into fixed-rate, fixed-term mortgages.

The real problem is not commissions paid to a mortgage broker in the form of yield-spread premiums – many times a buyer can’t come up with both the downpayment and the mortgage broker’s commission along with the rest of their closing cost. So in order to be paid, the mortgage broker can raise the interest rate a little so he can get paid himself or help offset some of the buyer’s closing costs with a credit from the mortgage broker to the buyer.

If you eliminate the yield-spread premium (that the mortgage broker has always disclosed in writing) and fees that the lenders and bankers receive, you will eliminate many buyers who can no longer afford a home.

I have never understood why lenders and bankers don’t have to disclose their profit on a loan like a mortgage broker is required to do. Why do we just want to blame the mortgage broker and not the lenders and the bankers for all doing the same thing?

The other big issue is that a mortgage broker can do VA loans and Rural Housing Loans, but not FHA loans. Why? The FHA loans are the most profitable. Many mortgage brokers are forced to put people into nonconforming loans because the bank lobbyists have been able to keep them from doing the FHA loans.

Let the mortgage broker be on a level playing field with lenders, make everyone disclose their profits on a loan, and let everyone do FHA loans to better serve the public. If Fannie Mae, Freddie Mac, VA and Rural Housing don’t have net worth requirements and require expensive audited financials, why does FHA need to do so?

Many lenders and bankers broker loans just as mortgage brokers do. Funny thing is, anyone brokering loans is supposed to disclose, just as a mortgage broker is required to do. Most of the good faiths and HUD’s that I have looked at from lenders and bankers are funded by the lender at closing and sold the same day, so they are not required to disclose the monies they receive – not to mention the fact that they tend to charge additional origination points, underwriting fees, processing fees and other miscellaneous charges.

I can’t argue that there are unethical people walking around with mortgage brokers licenses. Can you tell me the same is not to be said for lenders and bankers? The mortgage broker in America has grown to a majority market share because they have overwhelming taken good care of their customer. If you want to create lower closing cost for borrowers, level the playing field and allow the mortgage broker to do FHA loans and receive Service release premiums the same as the lender that sells the loan the same day it closes. That will create more competition and then you will see closing costs come down just as you have seen the mortgage broker do already when they compete with banks.

After all isn’t that why they own the larger market share? Better prices and better service than banks. Most banks try to determine if a borrower deserves a loan and a mortgage broker tries to see if the same borrower can qualify for a loan based on predetermined underwriting requirements. There is a big difference in the way a customer is viewed between the two in most cases.

Many bank originators are told what rates they must charge as a minimum, which is still higher than a mortgage broker may charge in most cases. Most mortgage brokers don’t charge processing and many charge a flat fee instead of points. When a customer looks at the bottom line on the Good Faith, they know what is a good deal and what is a bad deal.
 
In most cases, when people get in trouble they do the American thing and play the blame game. After all, look at Congress – they pushed Fannie Mae and Freddie Mac to loosen underwriting guidelines because too many minority and lower income people were being left out during the housing boom.

When the yield-spread premium is taken away because of the misperceptions of abuse, the person that will be hurt the most is the consumer. You can legislate the mortgage broker out of business, but when the banks and lenders have a monopoly on the mortgage origination process, what do you really expect the outcome to be?

Jim Wood
Golden Key Realty & Mortgage Golden Key
Avon Park
 

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