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BM: Banks quietly eliminating wholesale lending

Dead Man Walking - Wholesale Lending is Marching Towards Extinction

Blown Mortgage

Published at October 15, 2007 in Mortgage Musings.

There has been a whisper in the mortgage-lending winds, subtle at first, but growing louder everyday: wholesale lending by mortgage brokers is on its death bed. It hasn’t been proclaimed, in fact the big players are adamantly voicing support for their affiliated brokers, but the actions of large banks belie their big talk. For all of the kudos and reassurances as an important business channel lavished on top of brokers by lending institutions, the rug is slowly and silently being pulled out from under the broker population.

This isn’t a conspiracy theory - the facts are clear for all who choose to look past the PR spin put out by lenders; whose only motivation is to drain the last red cent out of this feeble business model before finally cutting off its oxygen with the heel of their mighty boot.

If you don’t see the change, it is because you are blinded by both the slow, silent moves of the attack and your own hopeful optimism of a return to normalcy. But there will be no return; for the mortgage broker’s days are numbered. The forces are aligning now, the outcome is certain, the only question that remains is the timing of the fatal blow.

But enough with the theatrics you say - tell us where this preposterous idea is coming from. It came from everywhere, at once, and it showed its cards with a careful examination of the mundane.

First, more than one employee, from more than one large lender, has confided in me that it is apparent that their employers are anxious to end wholesale. They cite the layoffs being more frequent and severe in the wholesale staff when compared to those in the retail channel. They point to the unfavorable program guideline and interest rate changes affecting only wholesale channel partners; changes somehow absent in internal retail-facing mortgage originator playbooks.

Second, employees are being moved around. The good ones that is. Good wholesale operations people are being moved inside to support retail origination; good managers are being brought in to run retail teams, good wholesale underwriters are being brought inside. The best of wholesale are being moved to retail, one-by-one, decimating the wholesale ranks and fortifying the the retail channel.

Want hard evidence? Keep reading.

Third, an email from Mike Perry, CEO of IndyMac to his employees highlights the success that IndyMac has had in minimizing the effect of layoffs on the company. On the surface, a seemingly positive email, it instead points to a clear strategic effort to let wholesale lending bleed to death. From his email:

“It is also important to note that, even with our staff reductions, we have still grown our workforce year-to-date from 8,775 to 9,394, as we have built our Retail Lending Group from under 100 people to roughly 2,000 today. In so doing, we have really re-made our workforce and “sharpened the point of our spear,” with a major shift toward revenue-generating personnel,”

This is a blatant move towards bolstering productivity to replace the inevitable elimination of their wholesale revenue channel.

Fourth, Countrywide’s recently released statistical analysis of the previous 13 months’ originations (PDF) show a massive reduction in wholesale volume, while retail channel origination suffers to a significantly lesser extent. A year ago (Sept. 06) Countrywide funded 78,388 loans via its retail lending channel. For the same month Countrywide funed 35,448 loans via wholesale.

In September ‘07 the retail lending group funded 56,520 units compared to the 15,844 loans funded via the wholesale channel. This amounts to a 27% drop off in retail production year-over-year; compared with a stagering 55.3% drop in wholesale production. That is almost a 2:1 drop in production in the wholesale channel v. retail conduit.

It is clear that Countrywide has (like IndyMac) chosen the horse to ride through the storm; and that horse is the retail lending channel.

Finally, Bank of America made clear on page 66 of their 94 page Q2 2007 Investor Factbook that the “Key Business Strategy” for their First Mortgage products is retail. (PDF)

“Bank of America is focused on increasing the volume of mortgages in direct-to-consumer channels, including Banking Center and Retail Sales channels.”

It can’t be any clearer than that. And while this may not be a surprise to those that have watched the scape-goating of mortgage brokers reach a fever-pitch by the mainstream media and lenders looking for an easy villan in the current housing mess; the momentum behind the elimination of the mortgage broker is gaining quickly.

Why the change? The answer is two-fold. First and foremost, investors that buy the securities will pay for the protection that a retail origination provides them in assuring a quality underlying asset in those securities. They will pay less for the risk involved in a loan origination made from a removed party. Studies have shown that wholesale originations perform worse than retail; and while you can argue all day that it is the same bank underwriting the loans, in the end investors will buy what they feel confident in - and that is retail originations. Banks won’t waste time or effort to sell an unsellable product at a loss; and that is exactly what is happening with wholesale originations.

Second, the court of public opinion will demand a fall guy for this mess; and probably more than one. While everyone is pointing out Angelo Mozilo, watch for the mortgage brokers to take the brunt of legislative changes and regulatory action that will shut that channel down.

As a mortgage broker myself, I am convinced that the days of wholesale lending are numbered. That the public and politicians will demand, like they do in any crisis, that heads be served on a platter. Some fall-guy must be identified and publicly hung to restore the faith of the masses; the reasoning will go, and who better than the ill-capitalized, poorly defended mortgage broker?

Lest you start to think that I am a broker-sympathizer, let me reiterate my disdain for the majority of people in my industry. Let me refer you back to the, now more than, 600 articles outlining the absurdity and attrocity that is mortgage brokering and lending. Let me remind you that I have written extensively on the fraud perpetuated by mortgage brokers. Let me clearly state that there are terrible people occupying the mortgage broker role. However, let me also point out that there are equal evils in all levels of the mortgage lending pyramid; and that retail lenders are equally culpable in the massive scam that has been the mortgage industry. But it will be the mortgage brokers that bear this brunt, there is no doubt in my mind. Good or bad alike - they will be the ones sacrificed to the God of Public Opinion.

Surely, not the large banks and lending institutions who developed and sold the ridiculous products; paying mortgage brokers massive kick-backs to push them on to poorly-informed customers. Not them, for they have donated too much money and have hired layers of legal counsel that can stymie any chance at a quick and public trial and execution.

No, it will fall in to the laps of brokers, the small business owners, the 3 man mortgage shops. They will be strung up like the boogeyman (that some surely are) and eliminated from the lending framework. And when that is done the public will rest at ease, and the lenders will get back to making their millions and all will be right with the world…except it won’t.

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136 Responses to “Dead Man Walking - Wholesale Lending is Marching Towards Extinction”
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1 Jeremy
Oct 15th, 2007 at 9:56 am
I wish I could disagree. While these statements are drastic, these are drastic times. We have seen this play out in many states already, where the lending laws have “swung the pendulum” way too far and it is not fiscally possible for many brokers to operate anymore.

It’s a shame.

+7
2 too many years in the business
Oct 15th, 2007 at 10:15 am
You’re exactly right with your conclusions in “dead man walking”. You didn’t go quite far enough though. The real estate agent is next. Once wholesale is gone, which I would think would be about 6 months, the banks will go after approval to handle real estate sales. The argument will be to bring the complete transaction under one group that is regulated and subject to audit and enforcement by the Fed.
The only logical solution to the rampant fraud.
I hope everyone in the business saved a little money…fat chance.

+5
3 Jeremy
Oct 15th, 2007 at 10:18 am
TMYITB - I feel the same way. Many banks have already started this process. I work for a medium size regional bank, and we are looking into it now.
I agree that it could possibly clean things up, but it could make it way worse, too. There are plenty of bank people that are just as greedy as what everyone makes the brokers/realtors out to be!

--3
4 Megan
Oct 15th, 2007 at 11:00 am
I also wish I could disagree but I believe you are right. The little broker shop where I now work is hanging on by the thinnest of threads. Too bad, because they are actually decent guys. I’m betting we’re closed by Christmas.

+3
5 Aaron
Oct 15th, 2007 at 11:14 am
Morgan you couldn’t be any more right. When i was leaving Countrywide retail to go start my own brokerage the RVP,SVP told me that CW will no longer have wholesale in 6 months, and that their rates and programs are going to be slowly removed. Of course I took this as their way of trying to scare me into staying, but now that I sent my first deal over to cwbc and haven’t heard from my AE in 5 days I believe. Good thing I have a Psych degree to fall back on,,,can’t wait to make 40K/yr

--1
6 Christopher W
Oct 15th, 2007 at 11:24 am
Have you ever tried to walk into a bank branch and get someone there to answer a detailed mortgage question?? Good luck. While I do believe the wholesale model is changing I find it very difficult to believe that it will go away completely. There are just to many people out there that don’t fit into the “box” that Bank of America or Wamu are trying to squeeze them into. So please stop with the “brokers are a dying breed” talk and either start providing real numbers to back it up or move on to your next prediction.

+20
7 Sean OB
Oct 15th, 2007 at 11:25 am
Case in point: knowing that the broker business will be uncertain going forward, I secured the fattest equity line I could get. Did I get it through my wholesale channels? No, I called a big bank (who is writing down billions in losses) like any Joe or Jane Public and got prime - 1.25%! They did not ask for any documentation! How will the broker survive against these giants gobbling up market share?

+0
8 Jeff
Oct 15th, 2007 at 11:30 am
I have to agree and disagree with Morgan. Wholesale channels will be drastically reduced but not eliminated. Mortgage brokers have always originated half of the loans annually for years and years. What is going to happen is that brokers will fall back into the roll of helping out those who deserve a mortgage but aren’t quite up to bank standards. I have been in this business long enough to realize that wholesale will never shut down. There are too many wholesale only lenders out there that are having record years because they never did anything crazy. Those are the ones that will be left standing.

+8
9 stop the one sided bs
Oct 15th, 2007 at 11:33 am
I have been screaming since 2004 for my brokers to support the mortgage brokers association and not the mortgage bankers, all fell on deaf ears.

What the story spoke of and the on comming legislation that will pass it is the end of the independent brokers as we know them for the time being. They will reimerge mainly due to the need for subprime like they did in the 90’s, but that will be 4 to 5 years from now.

seeya

+3
10 Guy
Oct 15th, 2007 at 11:33 am
This is really scary/interesting. I got my RE agent license in May ‘07 specifically to pursue becoming a mortgage broker in California and then Hawaii. Now it looks like I need to work for a bank or other direct lender. But having no experience even filling out a 1003, let alone completing a loan, I doubt that is likely. (Hmmm…. maybe I can get a job valuing CDOs for Wall Street showing how “marking to model/myth” really is the same as “marking to market”). My background is in home design/drafting which will be impacted to no small degree also. Good thing my wife has a government job. I hope she remembers me… Thanks Morgan for a terrific job exposing this questionable profession, I just wish I had run across your website BEFORE investing the time and money into joining the ranks! You still got the number for that truck driving school?

+1
11 John Tramonti
Oct 15th, 2007 at 11:38 am
While I have given this much thought in the past, I would have to think that soon enough, the pressure will be on to produce. And, in the end, nobody is able to bring in originations in like the broker channel. All it will take is a few banks to deal with brokers, and under competitive pressure, the others will fall into line. Not that many of these banks wouldn’t like to get rid of wholesale, but in the end, greed will take over. That greed will be the brokers’ savlation. Funny how it works.

+13
12 john michaels
Oct 15th, 2007 at 11:52 am
Right on target … but with a twist. The demise of the mortgage brokerage industry is imminent … brought on by themselves in concert by lack of due diligence by lenders and a total lack of industry regulation. Think about it: a loan originator working for a mortgage broker needs no license, no education in finance, and no experience … in fact … the mortgage broker needs no experience or finance education in most states … while a real estate sales agent needs to be licensed … an appaiser needs to be licensed … a financial advisor needs to be licensed … a taxi cab driver needs to be licensed … all but the taxi driver require continuing eduction. In my opinion licensing and conitnuing education must be required for all loan originators … but it is probably too late to save the mortgage brokerage industry.

+6
13 Tobby
Oct 15th, 2007 at 11:58 am
Half right, in the short run anyway. It was the investor’s feverent demand for packaged loan products (CDOs, CMOs) that got us into this mess. The banks only relultantly competed with this disintermediation. Banks have been trying to put the Morgage Broker out of business for years, but the big investment banks have more political clout. As we have seen, wholesale can be a great business model as you can have thousands of virtual offices (brokers) and shut down overnight if need be. Yes, you need contols and the excesses of the past five years were stupid, but they were market driven. The market will correct the excess and there will be blood on the streets in the short run. However, the investment capital will come back eventually with much tighter restrictions. Expect a return to 2000 levels of wholesale lending by mid 2009. Of course this means that about half of the mortgage brokers will no longer be employed, but most of them have left the industry already.

+7
14 Wholesale AE Looking for A Job Outside The Mortgage Industry
Oct 15th, 2007 at 11:59 am
Absolutely correct. Anyone still in the wholesale sector needs to pull their heads out of the sand. If you truely love the mortgage business. . .go to work for a major bank now before all the jobs are taken.

--1
15 Christopher W
Oct 15th, 2007 at 12:12 pm
Educated brokers and bankers will always be around. What is happening now is all the people who decided to become a broker during the re-fi boom are now being weeded out. I truly believe that there will always be a niche market for brokers that retail mortgage channels will not be able to serve. As I said above go into any bank branch and ask them about a construction loan. Watch their eyes roll bank into their head and the drool start to spill from their lips. Mortgage brokers and bankers will always be around they will just be fewer and far between.

+18
16 Mike Byrne
Oct 15th, 2007 at 12:16 pm
Can’t blame them. It’s all about trying to have good quality securitizations. Why rely on brokers who may or may not send fraudulent deals, may or may not disclose properly, and may or not have the best interest of their clients in mind? Bolster your own retail efforts and maintain CONTROL over the whole loan process. That way they can train people the way they want and have stronger securitizations.

Whether or not these lenders succeed by bolstering their retail efforts remains to be seen.

--2
17 kingcalvin
Oct 15th, 2007 at 12:24 pm
This is all going to depend on the pending regulatory changes. Of course, for now, it seems that the broker side of the business is back on it’s heels, but this is mainly because the large lenders have tightened all or most of their guidelines.

Brokers can and do still operate the way they used to, except for my above point. Once the new regs are put into practice, then we will see.

I’m pretty sure you won’t see brokers “outlawed” by the Feds… however, limitations on who can become a broker and limitations of fees or heightened disclosure policies will severely limit the revenue opportunities for brokers, so will it still be economically feasible?

I have always been a supporter of tougher regulations to enter the business… too many car salesmen and former landscapers…

as far as being dead… As we know it… sure… but not flat lined…

+12
18 Lyle Bizmark
Oct 15th, 2007 at 12:26 pm
The tighter they squeeze us, the more of us will slip through their fingers….

We will always be the safety valve - the more accumulation of origination by the bigs, will stifle competition - and then there will be a great need for a service that caters to those outside the box - the legit brokers will be there.

+4
19 Mike, Esq.
Oct 15th, 2007 at 12:28 pm
While many of your arguments are logical, I think the final result is a little off. To shut off a proven pipeline and let it fully die would be a mistake. As with any business, somebody will see that money is to be made by servicing this industry and cash will follow. I would really regret to see us go back to the days without mortgage brokers. The days when you had to have A+ credit to get your loan at the bank at an inflated interest rate or you were relegated to Associates or Beneficial for a D+ pricing rate. It was the mortgage broker who made the banks compete and lower interest rates. It was the broker who turned the industry on its ears by giving consumers choice and interest rates more comparable to credit worthiness. It was mortgage brokers who put home ownership at record levels. Let’s hope you are wrong as if not, rates will rise and consumers will be hurt. Yes some of them were bad, they committed fraud however that was the minority. The problem was that the BANKS AND LENDERS turned a blind eye to compliance, brought in stupid programs and did not police the investments. You cannot blame the broker for selling a bad product the lender gave them.

+8
20 John Brown
Oct 15th, 2007 at 12:29 pm
The sky is falling, the sky is falling..
Time for you dunderheads to get out of the business.
It will leave more business for me.

+20
21 sld
Oct 15th, 2007 at 12:34 pm
I had worked in the industry prior to mortgage brokers submitting loans to a wholesale unit as a channel of business. Losing them won’t make that much of a difference in obtaining loans, but the industry will slow down to a normal pace. No more churning loans so they could get more commission. While there are some that were honest, the majority of them got into the industry to make fast money and had very bad ethics.

As a veteran in funding and underwriting, it was common that if I didn’t “please” the broker, I got taken to the corner for a whipping, so frankly, I have been hoping for this change for a long time. Those agent/broker individuals complained if we questioned anything, and went crying to their “mommys” the AE’s, and ultimately to the branch managers (who made bonuses on production- duh.. conflict of interest?) to get their own way. I agree, the big lenders had their faults too, and corruption was across the board in almost all areas, but lets face it, the majority was by the individuals with the least amount of supervision or accountability, the brokers…

I, for one, will be glad when the last handfull of dirt is thrown upon the them, and dignity is restored to the mortgage industry.

+3
22 Jimbo
Oct 15th, 2007 at 12:47 pm
Wholesale is a Multi-Billion dollar giant that will not be wiped out in a single swing. Things are Definitely Changing! But this doom and gloom mentality is just panic….There is still money to be made, good money at that, it’s just getting harder and harder to do it, The whole industry is going through a huge downsize, and to think it is just one sector of the industry is foolish, Many States have enforced strictor guidelines, Just to later adjust them when no one in there State can get a mortgage because of the overly ambitious guideline changes.

+6
23 ronstah
Oct 15th, 2007 at 12:49 pm
I have been on both sides. Considering my level of immersion in direct lending I cannot speak easily for the brokeres at this point, but I do still have the ability to broker and see their program guides (read: daily changes) and how they are impacting the wholesale unit. It WILL continue to get harder (and harder) and those who plan to ride this wave will end up eating wet sand. BOA will provide the surfboard to make you think the wave will continue and then, with their godlike power, turn the water off like a trailer park faucet. Can anyone do single wides without land contract (kidding, couldn’t resist) -Pc out

+0
24 SHE SHE MCGEE
Oct 15th, 2007 at 12:52 pm
If you are a seasoned mortgage pro, have you ever taken a call from a mortgage solicitor? Sometimes I like to have fun with these guys, string them along, and see how much they really know. Its amazing how little they really do. The ranks of brokers have swelled because of uneducated, unscrupulous brokers out to make a quick buck. Now that it is hard to make $, the bad apples will be weeded out. There will always be some market left for the brokers, but how much… we will have to wait and see.

+18
25 joel lobb
Oct 15th, 2007 at 1:03 pm
As long as Fannie Mae and Freddie Mac are still around buying up oans, mortgage brokers will have a job. They are the reason that mortgage brokers are so prevalent.

+5
26 Sven
Oct 15th, 2007 at 1:04 pm
I don’t see any distinction been drawn in this commentary between “wholesale” & “correspondent”. Similarly, bulk trades are ignored, too. Many loans are originated by mortgage companies (some of which are banks) & then sold after closing (either on a “flow” basis or in bulk) to other (usually bigger) banks to service. You may be right that big banks will want to wean themselves from working with true “brokers” (many of whom are undercapitalized scum-sucking bottom feeders). That doesn’t mean big banks will have to get all of their business from from their own “street” loan officers, though.

+0
27 Chris
Oct 15th, 2007 at 1:15 pm
First off it seems like we are getting a little carried away. I agree (from being on the inside of the 900 pound gorilla) that there is change on the wholesale side. I also agree that there is a larger amount of fraud that was passed through on the wholesale side than the retail side. However there was also a much larger amount of business put through on the wholesale side than the retail side. I also agree that this is a time of purging. The industry needed it, however not at the cost of losing a lot of good people. There is a saying “the pigs get fed and the hogs get slaughtered”. Well this industry went through a small slaughter but it will come back. The facts still remain that 50% plus of all loans originated in the past came from brokers. The lage banks would not want to nor would be willing to hire that many people to service all the customers necessary. As far as that being the only channel, no way. The wall street companies are starting to roll out product again and there appetite can’t be filled by the banks. I have heard many many times about Mazillo’s hate for the broker community and yet I have a hard time beliving it. The was too much time, money, and effort that went into building that model. If that was true it would be closed now. I am more a believer in the fact that it makes money. Lots of money. So when the histerics stop and we are making money again we can look back on this and hopefully laugh.

+7
28 T Money
Oct 15th, 2007 at 1:23 pm
The writer of this article needs some education…. relook at the Countrywide statistical data…. you need to add in the Coorespondent units in with the Wholesale to get the true picture of performance of retail vs. wholesale… wholesale YTD is still taking 61% + of the pie …

+8
29 Steve
Oct 15th, 2007 at 1:29 pm
Yeah, I have to agree brokers days are numbered. The biggest thing I saw with brokers is that they were able to manipulate the system and despite having underwriting guidelines lenders loose a certain amount of control and are exposed to more risk when brokers are bringing them the loans, as most lenders have found out.

--5
30 Allan
Oct 15th, 2007 at 1:36 pm
“Educated brokers and bankers will always be around. What is happening now is all the people who decided to become a broker during the re-fi boom are now being weeded out.”

THANK YOU.

“This is really scary/interesting. I got my RE agent license in May ‘07 specifically to pursue becoming a mortgage broker in California and then Hawaii. Now it looks like I need to work for a bank or other direct lender. But having no experience even filling out a 1003, let alone completing a loan, I doubt that is likely.”

And herein lies a HUGE part of the problem. Mortgage Bankers and Brokers alike are NOWHERE NEAR educated or qualified as they were when I first enterest the business almost 20-yrs ago. 90/10 rule is a given. 90% of the brokers are part-timers, allowed to originate loans by their “Broker”. Now that’s a JOKE. I’m thankful this correction is in process, now maybe the bullk of the 90% brokers can go back to what they were doing prior to entering the biz. This industtry WILL ALWAYS have a place for the qualified professional banker/broker.

Now how do we rid ourselves of the 95% Realtors and the 33% Realtor/Mortgage Brokers who can’t even spell HUD?

+7
31 The Last Broker Bastion
Oct 15th, 2007 at 1:44 pm
This argument is as old as time. Parts of this I agree, parts I don’t . The banks will never make a go of the retail operation because they don’t know how to run anything but checking and saving accounts. They don’t have the patience to wait to see if something works. Instead they keep hiring and not training properly Susy Sunshine and Johnny Burnout in the hopes they can do something. Go into the same bank every day for a month and at the end of the month check out all the new faces around you that don’t have a clue what is going on. In terms of the banks getting into RE, that one is the funniest thing I have heard of in a long time. Do you really think they can hire and keep the sales talent needed to run a successful real estate operation? Nin in a million years. Actually, big banks are on their way out. The pendulum is swinging against them towards smaller community oriented banks. People are tired of being treated like crap. And yes the scum has / is being weeded out of this business. So quit complaining and go visit some Realtors and sell some mortgages! I know I am.

+1
32 Tina
Oct 15th, 2007 at 1:47 pm
The healthiest outcome will be for there to become higher barriers to entry to become a broker, like educational and licensing requirements…and higher net worth requirements for broker shops. This will squeeze out a lot of the unscrupulous and unprofessional brokers.

I believe lenders will get a lot pickier about who they buy wholesale loans from and will put tighter controls in place. Perhaps risky loan types are no longer offered by major wholesale originators. I suspect some will close Wholesale. But dead altogether? Not likely. It costs much, much less to bring in loans through a Wholesale channel…and wholesale is much MUCH more scalable when it comes to volume. For full-doc agency product, a small improvement in pricing will get all the volume needed to cover servicing portfolio runoff, very quickly.

One of the hardest things to manage in mortgage banking is the operational risk associated with trying to keep the right level of staff on board, when volume can fluctuate like crazy with interest rates. If you have a huge servicing portfolio, are you really going to hire all the staff, as well as infrastructure, to replace runoff? If you do, what happens if rates go UP instead of down and you are stuck with all these people…buildings…desks…copy machines….

Wholesale lending allows lenders to push a lot of this operational risk out to the brokers…I don’t think all of the wholesale buyers are going to be willing to give up that benefit.

+4
33 Yuriy Marin
Oct 15th, 2007 at 1:54 pm
Hi,everyone. I think that brokers are going to be around no matter what. Honestly, after what I’ve seen during working as a broker it might not be a bad idea to kill the brokerage business. Like someone here noticed “ex-car salesmen and lanscapers” are ruining people’s lives with their greedy hands and it has to stop.
Set minimum education requirements for all brokers(beyond HSD). Make it harder to obtain the license. Enforce the background checks - and believe me things will get better!!!

+2
34 Morgan Brown
Oct 15th, 2007 at 2:03 pm
To those that think I’m a chicken little with no proof, consider the 20-fold increase in retail personnel by IndyMac, the 2:1 pull back in wholesale originations by Countrywide and the Bank of America note to investors that they are actively seeking to grow retail. I think those numbers are proof enough of a significant change of course.

I don’t think that all brokers are going to be eliminated, it will just feel that way. There will be hard money brokers and some smaller cottage industry - back to the way it was before the boom.

Second, I purposefully omitted the correspondent channels as there is a distinction being made by press, regulators and large banking institutions between brokers and the bank-modeled loan sellers. These are not the ones scape-goated and not the one who has the bright light focused on them. The correspondent channels will remain with a bit more due diligence, but it is the brokers that will feel the brunt of the knee-jerk reaction from congress, banks, investors, et al.

+4
35 JEFF
Oct 15th, 2007 at 2:03 pm
YOUR ALL RUNNING SCARED. LENDERS NEED BROKERS FOR BUSINESS JUST LIKE INSURANCE CO NEED AGENTS. THIS ARTICLE IS FULL OF DOOM AND GLOOM. THE WORLD IS NOT COMING TO AN END. THIS IS A BIG ADJUSTMENT BECAUSE THE LENDING BUSINESS GOT TO LIENENT AND GAVE LOANS PROGRAMS TO PEOPLE WHO DID NOT DESERVE IT. IT WILL TAKE SOME TIME AND THERE WILL BE CHANGES,BUT OVER THE LONG RUN IT WILL WORK ITSELF OUT. I SEE MANY BROKERS LEAVING THE INDUSTRY LIKE ITS ALL OVER.THIS IS GOOD NEWS , WE NEED TO WEED OUT THE CRAP ANYWAY.

+4
36 NIR DEGANI
Oct 15th, 2007 at 2:04 pm
WE ARE HERE TO STAY ALL THE BANKS THAT WANT TO STOP USING BROKERS WILL BE REMMBERD WE WILL NOT FORGET AND WE WILL SHOW THEM THE DOOR WHEN THINGS WILL GET BETTER
N.D

--9
37 Morgan Brown
Oct 15th, 2007 at 2:05 pm
Whether banks are successful at generating significant revenue from their call-center environments is up in the air. Will the profit be there over the high overhead of each new employee sitting in their buildings on their payroll on their health care plan? I don’t know - I’m just saying that they are going to try. They will be forced by investors on Wall Street to sell loans and they will go that route until it fails (?).

+1
38 Yuriy Marin to Allan
Oct 15th, 2007 at 2:05 pm
Allan! Just hang in there! I got into the business 2 years ago and rates weren’t the greatest already. But I truly believe that if you’re educated and if money is not the only thing that drives you - you will be successful. My philosophy is to help people. Do not do the loan if it will not help the borrower. You will make less money but you will always make it!

+0
39 ronstah
Oct 15th, 2007 at 2:11 pm
TINA-
SPOKEN LIKE A TRUE UNDERWRITER! OH MY GOSH YOU SOUND JUST LIKE MY BY THE BOOK UNDERWRITER IN YOUR NET SPEAK!

--2
40 Jim
Oct 15th, 2007 at 2:14 pm
Your article is very compelling. It seems to want to take on a life of its own. I am not completely sure who is the greatest adversary towards our industry;the so-called publicist or those the publicist points toward. With this being said I would like to inject a few affable headlines:

1. “Shooter vs Tooter” (How does either of these help. One says there’s going to be a shooting, and the other is the shooter?)

2. “Golden Rule” (It has always been that the man who has the ‘gold’ makes the rules. I wonder whose really behind this move.)

3. “Big dogs vs little dogs” (What makes a big dog eat off the little dogs plate? Answer: “Because he’s a bigger dog. There’s no law against greed. This is what big businesses call ‘growth’.

My last statement/question: “Where’s the Love”?

+0
41 too many years in the business
Oct 15th, 2007 at 2:30 pm
Sounds like the retarded Broker Outpost crowd has joined the discussion.
Quit drinking the Kool-aid and think for a minute. You mtg. agents have created the absolute perfect storm for the money center banks to take over this business. The public thinks you’re a bunch of lying crooks. The horror stories of old ladies being thrown out of their houses add fuel to the fire. You’ve all heard the bad press that Countrywide is getting. Have you heard of any old ladies being kicked out of their houses by BofA, maybe Wells? I haven’t and that tells me that the banks will make the non-bank originators the bad guys. The public and FED will demand a change. You’ve really made it way too easy for them. The banks have been looking for an excuse to get rid of you for years. Do you really think that the banks won’t be able to fill your shoes in a nano-second?
I love the comments about “mtg. brokers always have and always will originate 60 to 70% of the loans. Wake up! You’re probably the same people screaming that an ATM would never replace a face to face banking transaction.
You brought it on yourselves, get real

+7
42 mike
Oct 15th, 2007 at 2:31 pm
Countrywide has to do what they can to keep their ship from sinking. I doubt they can afford to close their retail opertaions. What would it cost to buyout their leases and layoff their well paid workers? They need to cut fundings because quite frankly they have a liquidity problem.

Bank of America has never been competitive in wholesale originations. They could disappear tomorrow and no one would miss them.

Brokers didnt invent the crazy products that we sold. Brokers didn’t approve or fund them. Brokers didnt sell them to wall street for big profits as the true middlemen of our industry. mortgage brokers didnt work with credit rating agencies to get better ratings on bad loans so that the money would keep flowing into the industry.

We have our faults but I lets face it brokers didnt create this mess and the truth has come out.

More regulations may be necessary. A higher set of qualify criteria for mortgage brokers is probably a good thing. We will emerge from this as a more professional industry and thats good for all of us.

I will gladly complete with the banks and their expensive cost structure and limited product mix any day.

+0
43 Paul Hiller
Oct 15th, 2007 at 2:32 pm
I’m a mortgage broker in Palm Desert and I think you are mostly right. If we don’t have Countrywide or WAMU we are seriously hamstrung. While the industry itself has not been very good at exhibiting it in the last few years, a consumer, at least in theory, should be able to get a better deal, or at least a better fit from a broker who does not need to shoehorn a borrower into one lenders program. I really don’t want to work for a bank again, so I hope there is at least a boutique, specialty market left.

+0
44 mike
Oct 15th, 2007 at 2:37 pm
Hey “too many years in the business”

Have you noticed that every bank office still has tellers?

Regulators are not going to go crazy. The last thing they can do is weaken the housing market further by reducing the mortgage options that are out there. The real estate community would go bizerk if they thought they financing options were left to the banks.

Do you remember what happened in the 80s? A little thing called the Savings and Loan crisis. The difference is in that mess the tax payers had to bail them out.

I think you need just a few more years…

+0
45 John Tramonti
Oct 15th, 2007 at 2:53 pm
I’m not sure how long many of you responding have been in the business, but this is not the first time the issue of eradicating mortgage brokers has been floated. In fact, about 10 years ago the same thoughts were common, when brokers were originating less than 50% of the business. Here we are, ten years later, talking about it again, and brokers are originating a much higher percentage than ever. Emotion aside, there is a reason for that. They are a reliable, and low-cost method of bringing in volume. The banks will just have to be more discriminating in deciding who they deal with going forward.
On another note, Morgan, just where do you think those correspondent lenders get much of their volume? It is the brokers, and that is one more reason that brokers will, ultimately, survive. Do you think that you have to be a bank to operate a wholesale business and take those loans to Wall Streeet? Think again. If there is a buck to be made, trust me, the whores on Wall Street will exploit it. And brokers provide just that - a way for them to make a buck. Enough with you chicken littles!

+2
46 too many years in the business
Oct 15th, 2007 at 2:56 pm
Savings and Loan bailout!
What do you think a .50 cut in the FF rate is, with inflation going through the roof?
How about the Conduit deal that was put in place today. In case you don’t know about the conduit, it’s a new market that was created out of thin air to sell/trade totally worthless mtg. backed securities.
Maybe the legislation to eliminate 1099 tax liability for debt forgiveness.
Maybe the talk of allowing a BK judge to modify an existing mtg. loan.
They just haven’t told you yet that you’ll be paying for it.

www.brokeroutpost.com go back to where you belong.

+2
47 Carp Jr
Oct 15th, 2007 at 3:13 pm
National Loan Officer Registry for everyone. Higher net-worth requirments for the brokers will significantly help. The broker community will never be eliminated. Bottom line
is the money at the bottom. These companies need these sales
sources. The big banks have modeled themselves on cost to aquire new customer statistics. The cost of acquiring a new customer through the wholesale channel is much less than retail. Also, correspondent lending will be the first cut - not the brokers. Atleast the large banks are able to make their own underwriting decisions when buying directly from the broker - but the correspondent channel just adds another middle man and another opportunity for fraud and misrepresentation. The large buying lenders thought that correspondent lending would add a level of accountability and collectability to the equation. This proved wrong as these fly by night over leveraged companies are going belly up after one margin call and one loan buyback.

Are programs going to be cut? Yes! Are many brokers going under? Yes! The world is not over and frankly I will be happy when these refi bunnies go back to working at the auto parts store.

The guy who has no experience filling out a 1003 who wants to become a realtor in California and Hawaii should get a life. Typical realtor - unbelievable.

I agree with the author that the big banks would like to find a way to eliminate the broker, but the bottom line is that as these companies continue with poor performing loans and securities, financing pressures, buybacks, new regulation, etc - the only thing that will keep the doors open is continuely selling product. It will become more difficult for brokers to get loans approved and funded but these channels are irreplacable.

+2
48 Scotty
Oct 15th, 2007 at 3:26 pm
One factor left out is the $ to be made in dealing with brokers. If the big banks want to move out of wholesale, then the Wall Street guys will move in. They are sharks and will never pass on making money. However, this shake up is needed to weed out the riff-raff; a true professional broker will survive, and small business will survive.

+1
49 Rob Dawg
Oct 15th, 2007 at 3:40 pm
THere will always be a need for travel agents and full service gas stations. After all it was only the recent entrants to those fields and the less professional practicioners that suffered. For the true professional gas jockey and travel agent there will always be demand. The cruise ship industry. airlines and big name oil oil comapnies can never deliver the quality and service that the independents can provide.

There are two phrases to consider: “Disintermediation” and “whistling past the graveyard.” Good luck.

+0
50 john michaels
Oct 15th, 2007 at 3:42 pm
The final stake in the heart of the mortgage brokerage industry will be the unwavering bad press flowing from every media outlet about the mortgage brokerage industry … how many consumers are running to mortgage brokers to obtain financing for residential loans today … very, very few … and that will be the trend for a long, long time. Mortgage brokers who have or will carve niches with hard money, construction loans, commericial lending or FHA loans will do very well; however, the other 90% of mortgage brokers who think that they will be able to survive selling A paper are in for a rude awakening … you are no longer needed.

+1
51 Boo Who
Oct 15th, 2007 at 3:53 pm
Interesting discussion.

Just wanted to comment on a couple things.

1. In response to the article, it mentions a few things that I tend to disagree with. “A year ago (Sept. 06) Countrywide funded 78,388 loans via its retail lending channel. For the same month Countrywide funed 35,448 loans via wholesale.”

Countrywide will not go out of business on it’s wholesale conforming side. There is too much money to be made, as well as the lessened risk. The wholesale channel on the subprime side was never really that competitive. In comparison to an average CHL subprime rep funding -2 million a month-, you had competitors funding 12 million per month. The rates were not that competitive, and CHL didn’t hold that much marketshare on the wholesale side.

2. “Bank of America is focused on increasing the volume of mortgages in direct-to-consumer channels, including Banking Center and Retail Sales channels.”

Direct-to-consumer is more profitable. Not to mention within a bank setting it opens the door for more savings accounts, cds, stock/bond portfolio, auto loans and the cash cow [credit cards]. Keep in mind that on the wholesale side lenders are not having to pay salary and benefits. This is more appealing as a secondary source of income. Also, once lenders start to get a better handle on there backoffice, and support needs they will be back.

Lastly, IMO the industry is in turmoil from a number of contributing factors. It’s not the lenders that put us in the situation, because Broker’s wanted more. It a combination of broker’s falsifying documentation on almost 70% of subprime files, and coupled with predatory lending, coupled with borrower’s just spending outside there limits.

+0
52 Jillayne Schlicke
Oct 15th, 2007 at 4:00 pm
The amount of denial I’m reading is really sad.

Morgan is right.

The survivors will be the big banks and the hard money lenders, along with some medium to large size brokerage firms with correspondent lines of credit.

That is, until we fast forward 8 or 9 years from now when we’re doing this dance all over again. Let’s hope the industry raises the barriers to entry between now and then.

1) Must be able to spell HUD…

+3
53 darbyroy
Oct 15th, 2007 at 4:05 pm
having spent 30 yrs in this business - i can speak from both sides (broker and bank retail), the people who manage the big banks now do not have a clue as to what it takes to run a mortgage division. i currently work for one of the large banks, not any of senior management are ‘mortgage guys’- never have been, never will be.
the bottom line will always prevail - it costs less to originate a loan on the wholesale channel, period. what you will see are tighter underwriting and broker disclosure of all of their fees along with bank contact to verify borrower is aware of ‘all fees’ and terms ie; prepays,etc

+0
54 Wholesale AE Veteran
Oct 15th, 2007 at 4:16 pm
That theory has been around forever. It was around back in 1998 the last time the secondary market took a dump. The same old doom and gloom outlook. What is happening now is much more drastic than what I went through then, but very similar as well. Many Wholesale AE’s went to work for Banks in their retail operations because it was the only way to make a decent living during those times. Only to jump right back into Wholesael approximately 2 yrs later when all these Wholesale Lenders started popping out. Then the market starting picking up again around 2002 and booming around 2004. What happened next was basically complete greed. The Wall Street Execs and the higher ups in lending institutions decided the millions they were making were not enough and needed to pump up more volume. So came about that wonderful stated income product, which eventually became a 100% LTV Stated Wage Earner product? Did I hear that right you may say? Yes you did. someone really thought that letting a Salaried individual over state their income on the 1003 from what he/she was really making in order to qualify for the loan and on top of that we decided to give him 100% financing. Then to put the cherry on the top let’s go ahead and make that loan interest only?

Now Wall Street knew these were bad loans; the lenders knew these were bad loans; the mortgage brokers knew these were bad loans. However, no one cared because they were too busy counting the millions in revenue it was bringing them. So now, all these loans started defaulting to no ones surprise. So the big wigs decided to shut everything down; they already made their millions!!!! So it wasn’t going to hurt them. They even go as far to start firing some of the people in charge of trading these securities to make it look like they are fixing the problem. That didn’t hurt either. Those individuals made over a million in bonuses for the last 3 yrs of the boom. The only people that got hurt over all of this were the Wholesale AE’s and operational staff and the mortgage brokers that were just selling what they told us to sell!!! Unfortunately not many of us made the millions that some of these others did that would allow us to wait this out for a couple of years until a return to normalcy!

Now the other part of this is a much needed correction in home values as well as the people associated with the industry. So this is a cleaning house so to speak. However, wholesale will never go away. Just like it is needed in other industries. GM doesn’t sell their cars directly to consumers for a reason. Everyone needs a wholesale sales chain in the process.

Therefore, I cannot agree with your dooms day theory. Maybe when you have been in the business a little longer you’ll understand more about the process. So for now, everyone keep your heads up high and keep looking for those opportunities. They will be there. The larger banks and investment firms are actually ramping up their sales forces in their wholesale chain. I know of two main lenders owned by major investment firms and one very large bank that is doing the same as we speak. No doubt, it will be a rough 2008; but look out for 2009 for a return to some normalcy.

Good luck to all.

+3
55 Johnny Chan
Oct 15th, 2007 at 4:30 pm
I agree that the wholesale market will be reduced but it won’t go away completely. Here’s the reason. Banks and these large lending institutions don’t have to spend millions of dollars in marketing to originate loans. They leave this to the broker channel. At the end of the day, they are in the business to make money and broker business will always be needed. Middle man (brokers) are always the deal makers, not just in the mortgage industry.

--1
56 Michael
Oct 15th, 2007 at 4:44 pm
5 years ago when I worked for a major bank as a loan officer 30 of my processing staff was let go while I had a 5 million pipeline. I asked a fellow loan officer what happened and he said why pay salaries and medical to the processing staff when the bank knows straight comission loan officers will process their own loans or not get paid, and you think banks will survive and dominate! Not a chance as long as all of you quit griping, get off your butts, and let your congressperson know whos at fault. If we all link our voices the real culpirt, the greed and avarice of the banks and investors will not go unnoticed.

+2
57 Tom Vanderwell
Oct 15th, 2007 at 5:26 pm
Wow, Morgan, you really touched on a hot button here. Very well written and very well thought out. As someone who debated three years ago about whether to start his own shop, or go work for a big bank, I went for the big bank. I am so glad I did, and I’m swamped with business. Coincidence? I don’t think so.

+2
58 Ronnie
Oct 15th, 2007 at 5:37 pm
I disagree with much of your article…… do you really think the powers that be are going to do away with a business model that has been around for such a long time?? Witha business model that generates such tremendous amounts fo revenue in relation the the expenses?? Wouldn’t you agree with me that the problem lies not with the mortgage broker but with loan officers and processors (the majority of which do not need to be licensed)?? Mike Perry’s comments and the like show that wholesale lenders are looking to grow their retail platform to strengthen their wholesale lending channels (at Indy they need retail to boost FHA business to allow them enough profit to offer it in wholesale)??? B of A and CW are looking to bolster their own retail once again to improve their wholesale platforms.

Jobs have been lost and companies downsized due to a correction in the market. The future holds for more licensing and regulation of mortgage brokers…. not for an abomination of wholesale and the mortgage broker!!!

Examine the entire picture….. wholesale lending for good loans (not bullshit stated 80/20s) is extremely profitbale for the lenders…… it costs much more for a federally chartered lender to close a retail loan than for the same set of employees to close a book of wholesale loans. Revenue rules every business and wholesale generates way too much revenue with a minimal expense cost for major lenders to walk away from it.

+1
59 JV Money
Oct 15th, 2007 at 5:44 pm
As long as the US is still a capitalistic society, the old saying that “anyone who gets in the way of the cash drawer, will see the floor” will never ring more true. Point blank, I appreciate the insight of “the sky is falling”, but highly doubt that wholesale lending divisions will disolve and correspondent/bank affiliated lenders are going to come out of this mortgage crisis smelling like roses. As long as there is still a demand for funding of mortgage loans, the greed of wall street/overseas investors will create a wholesale market for funding mortgage loans we just might have fewer options to place business with.

+0
60 Jack
Oct 15th, 2007 at 5:44 pm
Absolutely nothing will change. It will just appear to change. The banks are too greedy, and the Government is too lazy.. Sleep well, everything will be fine.

+0
61 john michaels
Oct 15th, 2007 at 5:49 pm
Boo Hoo — take away Countrywide’s “Fast & Easy” program as well as the “Pay Option ARM” and their conforming volume falls by 43% wholesale and 27% retail. We all know that they do not have the lowest rates on the street … so … if you are acting in the best interests of your customer then there is no reason to fund with CW on conforming loan products since you are able to find lower rates elsewhere as a broker. (CW’s New York offices are laying off conforming wholesale AEs in anticipation of less business and the impending the Bank of America merger … this is why CW is focusing on neighborhood retail banking centers now.)

As for your subprime analysis — the competitors funding $12M a month — that’s why we are in this illiquidity mess … the out-of-business lenders … New Century … Freemont … Greenpoint … Decision One … Long Beach … and on and on and on.

Your last paragraph stating the contributing factors is right on target!

+2
62 Ann
Oct 15th, 2007 at 6:12 pm
I have to say that I agree with Morgan 100%. In the end it has nothing to do with the good broker vs. the bad broker or wholesale vs retail..it has to do with pleasing Wall Street and the globalization of securities. The market for these mortgages goes beyond the mortgage broker and instead to the buyers of these from the USA to China. If we cannot prove to the world that our securities are what we say they are then our dollar will de-value and it will have a dramatic effect on our whole economy. Banks have no choice but to move to retail banking and prove that when it is rated AAA it truly is. That will not stop loans from going bad but it will make investors return and start the flow..Brokers will exist but they will work directly for the bank…All these banks are hiring the creme of the mortgage industry that have been laid off to aid in this change. If you think that when a customer calls the bank they are going to get some inexperienced idiot your wrong..many good brokers have already been placed within the banks to help the retail side grow..with over 50,000 laid off it isnt hard to hire “good” people. I told someone a year ago that this was going to happen. He told me “impossible” for banks to do it. Well, here we are talking about it right now…There are 3 powerful industries in this country that make the rules: Insurance, Oil and Banks…they are the king of the game..Don’t believe it..Ask Ameriquest, HomeBanc and all the other 166 that are now mortgage history…all because of a simple ” we are not buying it” from Wall Street.

+0
63 Jeff
Oct 15th, 2007 at 6:13 pm
I disagree. There are way too many options available where a broker can send a loan to a large bank that has literally no retail presence in a given market. These banks still want the loans from those areas and brokering will remain a viable way to get those loans. Yes, there’s a large contraction in the broker space (much needed), but this model is not going away.

The banks are currently eliminating broker and correspondent relationships that they see as risky, but keeping the good relationships.

As a mortgage banker I wish you were right, but I just don’t think it will happen.

--1
64 Michael G
Oct 15th, 2007 at 7:06 pm
Funny. I left Countrywide as a retail loan officer in April. Phones were not ringing…business was dead…days would go by before a customer would actually walk in and ask about mortgage loans..or ask for directions to a restaurant.

I decided to get my broker license and open up shop.I just hired my 21st loan officer today…business is hot, cannot stop phone from ringing. Closed 25 loans last month. Here’s the deal people; sometimes, it’s not the greater forces that drive things…it’s the business basics: Professional. Prompt. Courteous…and BELIEVING in yourself.

I have 20 lenders in my wholesale channel, 5 of them correspondent. If you’ve made at least one dollar in the broker world before, and you are now turning your back on our very own industry….well, shame on you. You were never meant to be one of us. Yes, go work for retail…make sure you don’t exceed your 15 minute break and 1/2 hour lunch!!!

+2
65 CATHY
Oct 15th, 2007 at 7:12 pm
you can’t be more right, they are going to make the broker (and I was for many years and they did the gutter work with people the bank won’t even sniff at) the butt boy of this downturn, FOR AWHILE….I think when “A” starts falling and these lazy retail shops close - this was tried in the late 80’s by many banks, screw the old employees, create a bunch of new ones give them pretty little branches….and then figure out the market is gone and there are just no buyers that qualify…………..after you beat up two groups of people, then they will get it, too late. The media will trash any third party deals, the banks will hire the same people who were brokers, pay them 200 a file and they will be the new car saleman. THE MONEY IS OUT OF MORTGAGES, THE GOVT. IS GOING TO BAIL THIS INDUSTRY OUT TO THE TUNE OF 1 TRILLION DOLLARS AND THEIR REQUEST WILL BE 5 BANKS AND ONLY 5 CAN BE AUTHORIZED TO DO MORTGAGES…….THE MEDIA WILL CAUSE THAT BY BLAMING SUBPRIME ONLY FOR WHAT IS GOING DOWN………..LIKE THEY DO EVERY FAKE CRISIS. THE INTEREST RATES WILL ALL BE THE SAME AND THE SERVICE WILL SUCK……BUT ALAS, LIKE HORSE AND BUGGY, OR S AND L’S, THIS IS OVER….

THE CUSTOMER WILL HAVE NO SERVICE WHATSOEVER….THE only complaint about my business (ended in wholesale at Countrywide) was that you could buy a 200,000 car in 20 minutes, you should have been able to get a mortgage in a week. We beat people to death with the hassle and time and that was unfair………this is a devaluation problem, nothing to do with subprime, just first to fall………by the time “A” falls because of devaluation, THE GOVERNMENT FIX OF GETTING RID OF ALL LOANS NOT 700 SCORES WILL RUIN THE CHANCE OF ANY FIX,

EVEN IF YOU DO FIND THE BUYER IN THE HAYSTACK - THEY WON’T BE ABLE TO GET MONEY……this is why this is so scary, the banks say they have enough in reserves, they ain’t even seen the start of this mess yet…..suntrust, washington mutual, centex, dh horton, beezer, lenner, and of course countrywide I think will go down this hole……rates could go to 2%, so what, no buyers……

+0
66 GMONEY
Oct 15th, 2007 at 7:20 pm
Listen bottom line is that there are a lot of people in this industry that made a great living doing what we love to do. Yes there were a lot of scum buckets drawn to this business to make a quick buck. But we all know that they were the first rats to leave what they thought was a sinking ship. I for one believe in my heart of hearts that I have helped hundreds of people to get the best possible loan for their needs. And I sleep very well at night knowing this. LET’S stop the BS and get back to doing what we do best. Before this becomes a self fulfilled prophecy.

+0
67 1003 is not e=mc2
Oct 15th, 2007 at 7:20 pm
For goodness sakes, I am still “stuck” on the fact that someone here actually had the nerve (or stupidity) to admit that they could not fill out a 1003! But, I agree with so many of you above… those are the individuals that need to leave this industry. How on earth was this person able to get a license… then again… a license is not always necessary.

Let the purging begin, and albeit there will be some pain to have, it will bring back some professionalism back to the mortgage industry. Patience… and time will correct this market. If you are smart, a hard worker and believe in helping people (not just helping your own pocket book) then you will do fine. Oh, and it helps to know how to fill out a 1003 and yes… (I have to admit I almost spewed Pepsi from my nostrils on this one… you will have to know how to spell, “HUD.”
Good luck…

+2
68 Ann
Oct 15th, 2007 at 7:43 pm
Jeff that is why things are changing..those banks that do not have a retail side will have to be prepared to service the loans..by reading the newspaper/internet..you can see the list of banks that have gone down that road are paying the price on their balance sheets and sometimes by being closed down..NETBANK is a prime example..

+0
69 john michaels
Oct 15th, 2007 at 7:44 pm
Jeff I think that you will find that most banks will be lending in markets that they know except for the national lenders like Wells, Chase, Citibank, Wachovia and a few others. Your regional banks will no longer be willing to take the risk … especially in markets where home values are depreciating.

Also, it’s not that the model is going away from a broker/bank relationship. It’s that the model will be of no use to the consumer without niche products … after all “A” paper is “A” paper and FHA loan is an FHA loan.

I think that it important to understand also that the lending business is completely transparent today unlike 1998 when the 125% loans disappeared. The consumers may not becoming experts at lending but they are quickly becoming experts at pricing and how to determine a “good deal” vs a “bad deal”… and the news media will keep reminding them. Small mortgage companies will not be able to stay in business with the thin margins that “A” paper loans offer because they will not be able to command the loan volume that will be necessary to stay in business.

+0
70 Wholesale In NJ
Oct 15th, 2007 at 7:56 pm
I have worked in retail, correspondent and broker channels. I am currently in Wholesale as an AE. I can tell you that the broker business is far from dead. The wholesale channel simply grew way too big as more and more people flocked to that side of the business to make some money. It was too easy, like shooting fish in a barrel. Banks and Mortgage companies grew to meet the need. Now that need is going back normal, as opposed to the hyper inflated growth we had in this business over the past couple of years.
The broker community will shrink.It expands and contracts like any other business. The truth is that banks, no matter how big they try to ‘grow retail’ will never eliminate the broker. Good brokers are experienced loan originators. The banks tend to hire cheap, inexperienced loan officers, who generally don’t have the knowledge of the business that an experienced broker provides. Brokers study and see varied programs from many different banks, where a bank loan officer only has what his bank has allowed him to sell. Borrowers get pretty frustrated bouncing form place to place being turned down or counter offered. That is where brokers add value to the borrower, variety and experience, more avenues to meet a borrower’s needs.
There are banks, such as the one I work for, that are expanding their reach into wholesale. Why is that? Because our retail bank branch loan officers aren’t growing the bank’s business. My brokers produce more loans in my pipeline than 10 our our loan officers produce each month. (By the way, it isnt a small bank either).
Many brokers will go away. They need to, because they were getting in the way of the professionals who do the business the right way.
Just because Countrywide and WAMU are cutting staff doesn’t mean they are abandoning the channel. They simply are right sizing that business to where it will be profitable.

+1
71 Sonia
Oct 15th, 2007 at 7:56 pm
This happens all the time whenever there is a down turn in business. The people that wil be “sorted out” are housewives, ex mechanics and the like. The wheat from the chaff, I don’t think wholesale will go away as the big mortgage banks don’t want to have to keep on full time originations staffs on board.

+1
72 popo
Oct 15th, 2007 at 8:15 pm
Good piece, but I have to point out two things:

1) At the end of any bubble there are loud cries for “Regulation”. And regulate we do, although ultimately (if past bubbles are any guide) the regulation is largely meaningless and unwinds back towards the pre-regulation status quo.

Case in point: Remember the anger directed towards investment banks who gave “Buy” ratings to the very same stocks whose IPO’s they were underwriting? Well today, we’ve got subsidiary barely-third-party boutique analysis shops pumping the stocks in lieu of the banks themselves. Gee… big difference.

2) The big banks don’t really want the brokerage business for themselves. They may claim to want the business now because such moves are part of the finger-pointing process. (ie: It was all those horrible brokers fault, we’ll take over from here). But the problem is that in-house mortgage sales come with “in house” liabilities.

Let’s not forget that big banks don’t sit on their mortgage debt. They turn it around as collateralized paper, mortgage backed securities, bonds, etc. In order to do this successfully, the banks *need* to be lied to about the quality of their debt. Because if someone else doesn’t lie to them, then they’re the ones lying themselves. In other words the entire industry of bundling mortgage backed securities is a lie, built on a lie, built on a lie. Everyone knows it, but the system is lubricated by the little guys who make excellent fall guys when the sh*t hits the fan. (As is happening now).

+1
73 RJ
Oct 15th, 2007 at 8:38 pm
This guy is nuts.

It cost too much money for banks to hire loan originators.

Brokers, good or bad bring in the business.

The wholesale lenders / underwriters are responsible for this mess, not the brokers.

The buck stops with them!

They are the ones who approved the loans, not the brokers.

If they let fraudulent loans slip through their hands, they are responsible.

Wholesale lenders need to understand what due diligence means!

They need to hire experts in due diligence, so they don’t
get ripped off again.

A fool and his money are soon parted!

The real fools are the Bankers, not the brokers.

The bad brokers who deceived the stupid lenders need to go to jail and the stupid lenders need to take responsibility for their bad loans.

Don’t ever believe that mortgage brokers are headed for extinction.

I say good bye to the banks that cut off the mortgage brokers. We don’t need them anyway.

Hang in there strong, honest brokers. We shall PREVAIL!

+1
74 Jeff
Oct 15th, 2007 at 8:49 pm
Agreeing with Wholesale in NJ, staff cutting does not mean cutting out a business model. When Wamu discontinued correspondent lending, that was discontinuing a business model (which they and B of A have considered re-entering).

Although many of the brokers out there have relied on high LTVs, stated, etc., there are quite a few that offer far more knowledge thru their originators than what you can find at a bank.

Many wholesale channels still offer very competitive products and pricing to support the brokers.

Ann - netbank was an internet bank, not an HSBC (who has no retail presence in our market, but gets a ton of broker business). You can’t compare netbank to people like HSBC.

John Michaels - Not everyone goes to bankrate.com and looks for a broker that will do their Alt A loan. Many people do business based on relationship and referral.

Wholesale will lean up, but it is not going away.

+1
75 Carl Pruitt
Oct 15th, 2007 at 11:44 pm
The scare stories about people getting thrown out of their houses go back to the beginning of lending. Anybody seen “Its A Wonderful Life”? Economics will bring the brokers back into play. It’s just too efficient a model to help the wholesalers handle contractions and expansions. If there had not been any brokers over the last housing boom, but the banks had offered and promoted the same programs, the same problems, or maybe worse problems of a different kind would have happened in the industry. However, there will be more due diligence done on the files.

For the life of me I cannot understand why every lender has not been executing every single 4506T prior to closing. I know some have been doing it on high LTV deals. That one simple change would have prevented a great deal of the fraud problems the industry has experienced. I would suggest that the problem is too much government involvement in the industry and not too little.

With all the semi-governmental corporations and semi governmental central banks running the show, they created the illusion of safety for the lenders selling the incorrectly rated securities all the way down to the customers who don’t check the documents because they think the government is protecting them. The government can’t do any of that effectively and never could.

Check out the regulation section of the Cato Foundation’s website among others. Any person with sense who looks at the history of regulation in this country will see that it is ALWAYS just a way for an industry to stamp out the free market competition and it never, in any field, protects the consumer. There has never been an industry, from even before the age of the robber barons on that got out of control the way the mortgage industry is without marching hand in hand with the government. There are very few industries so intricately woven in with the government as the mortgage industry is now. If anyone really wanted to protect consumers, they would be yelling for less government and not more.

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76 Todd Carpenter
Oct 16th, 2007 at 12:33 am
Back in 2000, IndyMac started a division that paid RE Agents to act as the initial Loan Originator, then deliver the loans directly to Indymac for processing and underwriting. Countrywide tried to refinance the clients I delivered to them as far back as 1996. Excuse me if I don’t take the efforts of either of these two companies to cut out brokers as a sign that wholesale is going away.

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77 sld
Oct 16th, 2007 at 5:55 am
What most of you don’t realize, is the internet will be the future “mortgage broker”. Potential borrowers will go to the internet (E Loan and Lending Tree are prime examples) to find a lender that will analyze what they need in a program.

And, to me if the borrower doesn’t understand a basic internet “application” completion, then they shouldn’t be buying a home. It is allot different than just paying rent. If they don’t apply on the internet, many banks have individuals in the branches to take applications.

Most of the mortgage brokers, even speaking the language of their borrowers, ripped them off. They never explained the terms anyway. So don’t tell me brokers are necessary for that “edge”. You can train monkeys in a call center to talk to the borrowers about their terms, and they will probably do a better job, as they do not have any financial conflict of interest.

If brokers for some strange reason continue to be a part of the industry, the regulations and captial requirements will be strict and the lenders will probably evoke a clause making them responsible to repurchase the loan if in the future it was found fraudulant. And believe me, one repurchased loan will kill any small time operator, unless they have outstanding errors and omissions insurance.

So dream on brokers, extinction is near.. The meteor in the form of subprime just hit you…

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78 Underwriter
Oct 16th, 2007 at 7:14 am
I both agree and disagree with the context of the article. I don’t believe that Wholesale will become completely extinct; however, it have an entirely different business model and you can bet that it will be regulated much more closely & heavily than ever before. Facts are facts - and the facts are that the largest amount of fraudulent mortgage transactions are generated by brokers. No, not all brokers are in the business to perpetuate fraud but in 15 plus years of underwriting in the Wholesale business I can tell you from personal experience that the number of truly honest brokers out there who are the advocate for the borrower is alarmingly few.

I left Bank of America in 2006 after way too many years. I can tell you that BofA has been trying to model Wholesale into a Retail model for the past few years. I know first-hand because I was a part of a number of projects to this end. They have already changed the Wholesale staffing model to contract personnel and much is being shifted to India. They are concentrating on putting FTE staff into the Retail channel and into the branches. Some of the threads are correct: the people in the branches do not know the first thing about originating loans, much less know how to spell mortgage. Lowly-paid Branch personnel are required to cross-sell, open accounts, offer investment services - the whole myriad - and they also have a certain quota to meet to originate mortgages.

I believe we will see the larger banks start to move to that end. I’m hanging on until sign is turned off and then I’ll look for something else. Wholesale is it’s own animal but a beast I’d rather deal with than a Retail business model. I don’t want a job description that reads: Originate 15 mortgage loans per day; open no less than 10 new accounts; fill-in for the teller at lunch times; sell X amount of insurance policies per day; bring in at least one Private Banking client per day - and we do not pay overtime so you must do this in an 8-hour day. No thanks.

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79 mike
Oct 16th, 2007 at 7:20 am
Most broker agreements include clauses that require the broker to repurchase the loan if fraud is determined. Many states also already require that brokers carry Errors and Omission Insurance.

The internet will not replace the brokers anytime soon for sure. Thats absurd. We all know that real estate agents panic when they hear that a buyer is using an internet mortgage company. Customers continually complain about the misleading nature of some internet companies. Most borrowers would rather develope a relationship with a loan officer that they can meet in person and discuss their situation.

I am pleased to see so many people speak out against this article. A true professional mortgage broker is priceless.

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80 Chris
Oct 16th, 2007 at 7:23 am
Is this site sponsored my the Mortgage Bankers lobby? I have worked for one of the highly praised mortgage banks that led our regional market share. Thoughout my tenure that platform delivered high levels of service and high interest rates. Now they have filed bankruptcy. That business model doesn’t work anymore.

The talelent has taken what they have learned from the mortgage banks and become mortgage brokers. There definitely needs to be a higher bar set to become and remain a mortgage broker. I will give you that. However, the level of service can be much higher than that of the larger lenders and mortgage banks and the rates to the consumers are inevitably lower. There is less overhead to pay for in a mortgage broker business model. The bad brokers will become extinct. The Mortgage Professional Adisors will thrive…Just wait and see.

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81 Weed 'em out
Oct 16th, 2007 at 7:33 am
It’s incredible that many who post here are “licensed brokers” who advise people on the largest investment of their lives, yet many can barely manage a three or four sentence post without a half dozen misspellings… scary.

Point fingers all you want, but the fact is that the industry went horribly wrong over the last half decade, and now there will be a correction.

Wholesale will not go away - banks have tried that before. It didn’t work then, and it won’t work now. Many brokers will go away - that’s a good thing. Many of them are just turds in the punch bowl. For the true mortgage professional who has been through the various cycles of this industry, this is just another passing wave…

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82 sld
Oct 16th, 2007 at 7:39 am
Hey, E-Loan and allot of lenders do have on line applications systems already in place. It will expand in the next year, mark my words. I do all my banking on line now, and I am a baby boomer.

A true professional mortgage broker? I know of maybe 3 or 4, out of hundreds, truly a rare animal.

Why didn’t they pursue the brokers for fraud? Because the management at lenders would lose the production and their huge bonuses. Only when their compliance/due diligent departments complained did the start having “mock” concern.

Even if the mortgage broker is still around, they will have lost their drivers seat mentality with the lenders.. (due to public outcry and new regulation) and will finally have to bend to the lenders will, not the other way around. That is how we got into this mess, catering to the brokers, competition for loans.

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83 Christopher W
Oct 16th, 2007 at 8:07 am
Sld,

You sound like a subprime borrower who got stuck with a bad adjusting ARM. There are plenty of good knowledgable mortgage brokers out there, and you can’t just train a monkey to sit in a call center and hope that your business survives. Countrywide tried that and look where they are now. Big banks are a good training ground for mortgage professionals as they provide a base salary plus commission during training and then most of the time a recoverable draw plus commission. The problem is that as soon as the trainee realizes that the bank is making all of the money they bolt for the door taking all of that expensive training and knowledge with them. The large banks do not train their people on their diferent products and programs as this knowledge can take years to learn. They train them on how to input data into their LOS system and wait for the software to tell them what they are approved for. If the software says “no”, the bank moves on leaving that customer out in the cold. Then that poor cold customer comes into the warm welcoming arms of the mortgage broker who helps them find the loan that is right for them. I am amazed at the people like yourself who have no problem paying a realtor 6% or tipping a waiter 20% (although you sound like a 10% tipper) but when the mortgage broker who helps someone with the largest purchase of their lifetime makes 1,2, even 3% we are greedy money hungry vultures. I am all for SOME regulation in our industry and continuing education is a must in our field, but you cannot say that we are all bad. This is a relatively new field in the financial services world and there is going to be some bumps here and there, but once all of the used car salesmen fall out of the business I think the public will find that those of us left standing will be true professionals in every sense of the world.

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84 JRC
Oct 16th, 2007 at 8:12 am
I am responding to this from being on the broker side for 14 years and on the wholesale for 2 (when there was a wholesale side). I am now in the securites industry. How many of you delt with Wellsfargo? They quit doing business with brokers because it was on 2% of their overall business but that 2% made 60% of their total deliquency. Now that Wall Street is enforcing repurchase agreements it is very costly to do business with brokers that have a very low net worth. If you have a bond for $250k. That is 1 bad loan. How many $250k loans have you closed. You pack up shop and file BK. The sad part about this is that it is as simple a a bad appraisal (in the lenders opinion or the wall street firms) that closed a year ago. Big lenders are not going to keep taking the kind of losses that they have been taking due to loan repurchases. It takes 100 new loans to replace 1 bad one from a cost standpoint.

Get ready for the dreaded word of fiduciary. This is where we are headed. Brokers are now going to have to have some skin in the game.

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85 Victor Vyssotsky
Oct 16th, 2007 at 8:54 am
As an outsider who remembers financial crises of one sort or another back to the 1930s, it seems to me premature to predict the demise of wholesale mortgage brokers, or of any other part of our financial industry as it exists today, but everyone will have to change some. Nor do I think tighter regulation will be a big part of the solution; it may even become part of the problem, depending on exactly what our various gov’t agencies, and Congress, decide to do.

The cardinal rule of borrowing or lending is: “Borrower, know your lender; lender, know your borrower.” It costs money to do that, so in booms individuals and institutions don’t bother, but sooner or later those who don’t get bit, like now: — both lenders and borrowers. The increasing fraction of financial instruments that is shredded and pulped and reconstituted into ever-fancier derivatives, such as mortgage CDO’s, has made it much harder to know what one is buying or selling. But the logical inference from that is that as we extract ourselves from the current confusion and losses, good old-fashioned “due diligence”, which is expensive, will be exercised again by all financial institutions, for their own protection. This, in turn, will force individual borrowers to interact more seriously with the financial institutions from which they borrow, and thereby find out what they are committing themselves to.

Yes, there will be a lot of pain for the next couple of years, and yes, for a while after that some lenders (and some borrowers) will be even more cautious than necessary, but after that we will see a more normal market, with structure no different in any essential way from what we have now. Until the next bubble, that is, which will happen; I suspect the next one will be in something other than home mortgages.

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86 Kate
Oct 16th, 2007 at 9:03 am
What a strange industry this is where everyone relishes in each others demise. Brokers don’t like Banks, Banks don’t like Brokers, Agents don’t like Mortgage Guys and Mortgage Guys don’t like Agents. I think that this observation alone makes it clear that the business model needs to change. It feels like we are all a big pack of wolfes circling for the kill. Whatever path the mortgage industry takes I find it hard to belive that the mortgage broker will completly go away. It is way too valuable a link in the chain and the segment fills a need of the market. Like many who have posted investor greed will ultimately dictate that the mortgage model stays alive, in a somewhat changed state. Those of us who make a living from the mortgage side of the business need to pay attention and start getting the education and certification that will be needed to survive. We also need to find niche products that are good for the consumer while keeping us alive financially. The game isn’t over, the strategy has just changed.

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87 sld
Oct 16th, 2007 at 9:09 am
Christopher,

I am a mortgage banking professional, with 40 years experience. I have been an underwriter, funder, V.P, Loan service manager (during the 80’s when other idiots roamed the earth), and an escrow officer so I do know what I am talking about. Oh, I have underwritten Prime, Alt-A, subprime. Like you say, it takes years to learn, of which I probably would have a Ph.D by now! Oh, did I mention I also held a Real estate license in California and served three terms as a notary?

My work life was hell with all of the cry baby mortgage brokers who ran to their mommies when I questioned their fraudulant submissions. Many of the managers did not give me support because they wanted their own cut of the action. Rarely did I find a supportive manager. Am I bitter? Yes, all I wanted to do was go to work, do a good job and go home. All they were concerned about was their commissions and bonuses. I worked many hours without overtime for their benefit, not mine.

As for my mortgage loan, I have a standard 30 year fixed, with a heloc second, and did full doc complete with tax returns. The broker (who worked for the builder) tried to put me into a subprime so they could collect more money. I told them they were crazy and could stick the subprime up their……..censored. My fico was high enough to go prime.

Oh, and what do I do now for a living, Due diligence… auditing some of the junk mortgages now on the books.

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88 sld
Oct 16th, 2007 at 9:17 am
Hey to Underwriter:

I worked at BOFA too, as a contract underwriter, in one of their bank centers that reviewed the fall out from the loans submitted by the Personal Bankers thru the automated system.. The numbers they expected us to produce was always on the rise, you could never really please their expectations, they finally started paying overtime. WE had to call the customers, as the submissions were full of misinformation from the PB’s and missing gobs of properties and inflated incomes.. Some of them (PB’s) were honest… some… well… not.. They did profit from the applications via incentives..

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89 Christopher W
Oct 16th, 2007 at 9:25 am
SLD,

That is the point I was trying to make. A PB making eight bucks an hour will never be able to replace a broker that actually takes the time to learn his craft. They simply don’t care enough to make a difference. Especially when the bank is paying them more in incentives to find and open checking accounts than they are to take care of the mortgage customers. When I was at BofA the PBs would try and push off as much of the mortgage business as they could on us because of the hassle involved. BTW I apologize for the personal attacks. I was feeling feisty this morning.

--1
90 BetterVillage
Oct 16th, 2007 at 10:07 am
Hmm. Must wonder what those net branch characters will be up to. Not a broker, and not really a direct lender employee (or are they legally employed by the correspondent, but just operating under their own auspices?). Are these the folks that will take up the slack if any?

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91 Cathy
Oct 16th, 2007 at 10:25 am
John Michael…I’m not sure where you live but we are a HEAVILY regulated industry and everyone who lends in Wisconsin has to have a license (except if you work in a bank, how special) and are required to complete 16 credits of continuing education per year, every year. What is true is there are schisters in every industry operating in every country on the globe. They unfortunately get the PR. I have worked in this industry (20+ yrs) in almost every capacity….uw, ops manager, processing, training, the list goes on…..I am an indep. contractor working a broker helping them structure, pre-uw and process, close, fund their loans according to what I gleaned from many years of hands on education….and I make alot more money than I would in a 9-5 job. I think wholesale will continue to be available to people in the future. This whole mess has done one good thing…it has gotten rid of brokers who can’t survive in this climate. A climate where knowledge, ethics and personal relationships are a must. They got in to make a fast buck and exited when it all stopped…which is great for the remaining brokers who did it right from the get go….I am encouraged by this. We are not all BAD brokers out here and we are trying to do what is best for the customer by putting them in a product that makes sense for them….

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92 john michaels
Oct 16th, 2007 at 10:57 am
Good afternoon all here on the East Coast … you may want to take a look a news report on Newsday.com — “Mortgage Company Workers Charged in Scam”. Apparently, hundreds of homes were purchased under false pretenses and guess what the mortgage company is alledgedly to have been a conspirator in the fraud. Police raided their three offices and filled six vans with documents and computers. The FBI is also investigating.

What do you think that they will find? How about material misrepresentation of income on the 1003s, falsified bank statements, VODs and VOEs, credit repair removing accurate derogatory information from the credit report in order to boost FICO scores, misleading property appraisals, straw buyers, and identity theft victims. But what’s the big deal … it’s only creative financing.

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93 Roland Molina
Oct 16th, 2007 at 11:05 am
I know that the lenders are undergoing critical damage control. Some more than others for very obvious reasons. I have worked as a processor for various years and I can honestly say that there are a lot of unethical brokers and unethical lenders that took advantage of the sub prime fiasco. Even the “gold rush” fever pich that took place in the once prosperous subprime market was evident in the prime market. Every body has a stake in the disaster and the obvious lack of accontability across the board (Brokers, supbprime, prime) is laughable to say the least. I know that just as the lenders are doing damage control they are puting a serious spin on the truth. The truth is brokers, lenders all danced the same dance called “The inconvenient truth” but that jingle is up and and now the brokers are left on the side line alone while the lenders dance the jingle “Spin City”.
Personaly I think that when all of this blows over and the fallout has disipated that the brokers nation wide should (Those that are left) should come together in some kind of assosiation or organization that is 100.00 transperent regulated by the government to weed out bad apples and potential disasters like the subprime fiasco. The only problem is that The big national banks BofA, Chase, Wachovia, Wells fargo will have the next move that will structure the future of this industry. I truly hope they choose ethics over greed and spin.

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94 Ann
Oct 16th, 2007 at 11:42 am
And I guess Cathy that is why Florida and WAMU are now requiring brokers to have buyers sign that they not only fully understand the loans that the are receiving but that they now know EXACTLY the DOLLAR amount the broker is making from them…I guess that is because SO MANY brokers put people into loans that were the best for the BUYER… RIGHT!!!

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95 Ann
Oct 16th, 2007 at 11:45 am
Christopher

You must think that the hiring standards of banks are really low..they aren’t especially when the future of trading these securities depends on it..I mean it was BOA that gave the drop in the bucket of 2 BILLION to CW…not the other way around..bank salaries can be very competitive, offer FREE training and continuing ED, great benefits and so on…If the last time you worked for a bank was 10 plus years ago then I think you need to brush up on what banks can offer…

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96 Ann
Oct 16th, 2007 at 11:48 am
Steve

you are right..just like any system, the brokers learned the flaws and spread the word around….no different than when they used “certain” apprasiers to get the numbers needed for the loan…

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97 mike
Oct 16th, 2007 at 12:17 pm
Ann, You are so quick to throw brokers under the truck. With all due respect, you have forgottern that banks such as HSBC and Citi have had to pay hundreds of millions of dollars in cost as a result of predatory lending within just the last few years.

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98 Underwriter
Oct 16th, 2007 at 12:28 pm
Ann -

If you work for BofA and you have a “very” competitive salary, then you have a very aggressive manager who is somehow circumventing the Band pay ranges. I worked for BofA for 10 years (left 12/2006) and I never had a competitive salary. I also was a manager and I know first-hand that Underwriters were never paid to market. And, the incentive plans were/are a joke. They change the incentive plan constantly; one year they actually made it obtainable and Underwriters actually started getting incentive. Guess what? After 3 months the Bank quickly did away with that plan.

Banks are notorious for underpaying and even admit it. The bank I am currently at pays a laughable salary for Underwriters. You are absolutely correct: most offer a lot of training, continuing ED, will pay for college tuition, and offer great benefits. However, in return, you must give up your life, work 14-15 hour days including the weekends, and are constantly under pressure to produce more, more, more. And, you are micro-managed to the inth degree. I’m sorry, but when I have to click on an icon on my desktop to tell the system that I am going to the bathroom, it’s time to move on (no joke - BofA has just such a system).

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99 Keith Richardson
Oct 16th, 2007 at 1:12 pm
I completely agree with your opinion that lenders would love to cut off wholesale and survive on retail. But outsourcing is one of the key wordsof this decade for a reason, it is more eficient. They will try but not be succesful. they can not do what we do as efficeintly and as cheaply as we do it for them

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100 Morgan Brown
Oct 16th, 2007 at 2:00 pm
Keith - While outsourcing is a key, quality is going to trump that key and unless they can find a way to control quality while enjoying the benefits of outsource cost reductions they will squeeze wholesale until it is just a trickle of its former self.

It’s not the banks prerogative either - it’s the investors deciding what they will and won’t buy. All those loans that are bloating balance sheets at these banks, guess what? They are wholesale-originated loans, and investors don’t want them because the quality is dubious.

When they go to improve quality in wholesale they are going to do the following: up net worth requirements, licensing requirements and compliance requirements. It’s going to put all but the most substantial brokers out of business.

I am not saying that wholesale is going to pick up and disappear overnight; what I’m saying is that there is a clear strategy being executed (pardon the pun) to reduce the exposure to bad loans originated by the wholesale channel while replacing as much of that revenue via better quality home loans.

To the brokers who are touting better service, I agree completely. Most brokers are able to smoke call-center jockey’s in programs and benefits to borrower. Guess what? It doesn’t matter. You can claim you make a better mouse-trap but if there isn’t a demand for it (which there isn’t) it ain’t gonna sell.

I hope everyone that has derided my commentary as running for the hills is completely right - it would help all of us small business owners in the industry.

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101 Morgan Brown
Oct 16th, 2007 at 2:12 pm
I’m swimming through these comments. Todd - it’s not about IndyMac and Countrywide. It’s Bank of America, Wells Fargo, Washington Mutual also. Like I said, its a slow move and it’s one that will not wipe out wholesale but will redefine it in such a way that the current river will become a trickle and many brokers will be on the sidelines when that happens.

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102 too many years in the business
Oct 16th, 2007 at 2:27 pm
100 responses to this posting! Your pipelines must already be full. Good brokers or bad, you’re missing the point. You are at the mercy of the people that have the money. They don’t need you anymore. Do you really think they will have trouble servicing the 30% drop in originations this year and the 50% drop on top of that for next year, and the next drop after that until say 2012 when maybe the market stabilizes? Forget about the service. 60% of the millions of forclosed families will have already experienced your service. Are you serious when you say that you’ll have “niche products” that the banks won’t have? Next you’ll tell me that mtg. debt is “good debt”, and leverage only works on the way up. I’d be sprucing up that resume if I was you but instead of saying you’re a mtg. agent, I’d suggest used car salesman (oh sorry “salesperson), for better results.

Don’t believe what you don’t want to hear. Bof A pretty much spelled it out. Do you think they were kidding? Read the OC Register and see that the NAR, the other crooked group, is being sued by the Justice Dept. for commission price fixing.
A few comments ago I said you guys would be toast in 6 months, I think I’ll have to move up the time table.

By the way, I don’t make any money unless you high rollers originate loans. Get back to work and quit wasting time.

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103 sld
Oct 16th, 2007 at 3:22 pm
Christopher… Thanks… just didn’t want you to think I was Blonde…. which I am!!!

As a professional, and veteran of 40 years, I have seen this industry evolve. This is just another extinction, like the dinosaurs…

Something else will come up, which we will be turning around and have this conversation again…

sld

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104 Ann
Oct 16th, 2007 at 3:52 pm
I agree Mike that this experience has cost the industry many a $$$..and that is why the changes that will be made will be drastic..no different than in the 80’s when credit cards were consolidated to being serviced by the banks..today when you get a Macy’s credit card does Macy’s give it to you? Is it serviced by them? No. The banks handle your account,just like they do for countless others…if the banks could handle that huge change over why can’t they handle mortgages..especially if they want to keep the circulation worldwide of liquidity..the trust now around the world demands a “banks” stamp of approval..not some 3rd party broker who wants the commission and swears that the numbers are real..(This does not mean that all brokers are bad..but due the lack of the MBA doing its job instead of enjoying membership fees..many “good” ones will suffer financially and lose their business.)

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105 Tom Vanderwell
Oct 16th, 2007 at 4:51 pm
from www.calculatedrisk.blogspot.com

Quote of the day from the Mortgage Bankers Association’s (MBA) new Chairman Kieran Quinn (no link):

“We’re going back to lending the way it was in the 1950s and 60s. Mortgages will be made mostly by bankers and their employees, and compensation will be based on who’s making good loans and who’s not.”

Securitization is here to stay; Quinn is saying third party origination is mostly going away.

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106 john michaels
Oct 16th, 2007 at 6:01 pm
Morgan is absolutely correct in his analysis about the investors. And it is clear that the investors have no interest in broker orgininated business … this is why the lenders are closing their wholesale businesses … no one is willing to buy the paper … in the U.S. … in Europe … in Japan … in China … in India and so on.

I received a call today that Wells Fargo is closing their conforming wholesale operation on Long Island … why? … because they are afraid that there will be no buyers for the paper. If they shut down here … you probably can expect them to close this channel of business everywhere.

Tonight I was at a meeting with another national lender … a brand name … they are concerned about the same issue. Their plan is to increase their retail presence while minimizing but not eliminating their wholesale business. However, they will be keeping their more aggressive products in-house so they have complete control over the quality of their non-conforming paper.

What strategy remains for brokers … price … hard money … construction financing … commercial loans … reverse mortgages possibly. Some say service … does it really matter if a loan application is processed in four days or two weeks … underwriting will take just as long or longer on the wholesale side as lenders reduce their underwriting staffs because of the reduction in business.

Also with the continued consolidation of banks through M&As … how many choices do the brokers have to go to for “A” paper … a dozen or so. Do you not think that the consumer cannot find these lenders on their own. Or at least a lender that will offer an equal rate to that of the broker … then it is up to who holds the customers trust and confidence.

Specialization is the key for mortgage brokers to survive along with the ability and having the financial resources to market their remaining niche products effectively. Those that have the financial strength to do so will survive. The others will disappear … it’s that simple.

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107 John Locke
Oct 16th, 2007 at 7:12 pm
This is so dumb it is hard to believe anyone might actually think it would be true. Perhaps bloggers should be licensed with a continuing education requirement to guard us against flagrant insults to intelligence such as this wild supposition masquerading as fact.

If I had written such a cretanic piece, I would have burned it: far too embarrassed to have shown it to anyone let alone the world. And if you’re one of the sucker’s thinking broker’s caused all this fraud then it would serve well to remind you that EVERY SINGLE DOCUMENT IN EVERY UNDERWRITING AND CLOSING PACKAGE has the BANK’S name and stamp of approval AND NOT THE BROKER’S! The bank had every chance to stop fraud and to prosecute those perpetraters but they didn’t. Do you know why they didn’t? Simple. They need broker’s to meet their quarterly numbers: ie. greed. And the greed is not generated in some mythical machine at the bank - it is in the demands of all of you stockholders and 401k enthusiasts.

THis movement away from brokers that you correctly identify is merely a face saving operation for those who are already being abandoned by the broker community: ie. the originators themselves. PS. I am a broker and I don’t need the bank’s permission to broker to them. If I have power of attorney for my slients then I am the client in fact and there is nothing they can do about it.

If the ridiculously anti-capitalistic notion of removing brokers from the picture actually occurred can you imagine the magnitude to which financing costs will increase! Rates would increase 1-2% across the board for ALL loan products. True brokers enforce capitalism in an arena that is wrought with misleading banks and impossible real ’shopping.’ Only an underwriter (which a true broker-originator IS) on your side can level the playing field.

I am a broker. I have represented interests to whom you all pay on every paycheck you recieve and despite the fact they had hundreds of billions in deposits and despite th efact that their business was essential to the continuance of their depository institution their bank was still ripping them off. How will you the meager, tiny consumer fair better than a behemoth with billions and a legal army. Only a broker, and a good one, can level that field for you. It has always been and will always be. Agents matter. Period. As long as we matter and can make a substantial difference we will continue to exist. Only socialist or fascist banking would kill us as we exist and then we would merely peddle influence and and political connection instead. And so it will be until the end of time.

CONFLICT OF INTEREST IS THE REAL PROBLEM AND IT TOOK PLACE MOST GREVIOUSLY IN THE RATINGS AGENCIES WHICH IS WHY THE SECONDARY MARKET HAS FALLEN FROM $400 BILLION TO ZERO OVERNIGHT. CRUCIFYING A FEW BROKERS WON’T SATISFY THE GREEDY GIANT THAT IS THE MARKET. IT WILL ONLY MAKE IT LICK ITS LIPS FOR LARGER HEADS TO BITE OFF. WAKE UP STUPID.

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108 Morgan Brown
Oct 16th, 2007 at 8:10 pm
John Locke - Typical broker attitude. The same one that has brokers in the mess they’re in currently. Banks don’t need brokers, just like airlines don’t need travel agents and stock traders don’t brokers.

Don’t you get it? This blogger is a broker. And it’s facts that I’m talking about not tired rhetoric like the stuff you’re spewing.

You can point the finger at bank underwriting - which I already pointed to in my “cretanic” piece as being the final arbiter; which is all fine and dandy. But you choose to ignore the simple fact that broker loans perform orders of magnitude worse than retail-originated loans. Period.

Wall Street investors gorged on loans? So what. They’re full and brokers are going to be the first ones written off the menu for any follow up courses.

Your bluster won’t save you, because as you say you’re only relevant “as long as you matter” and in lending your days of mattering are coming to a pitiful close. Sure you can go broker something else, until that industry develops efficiencies to eliminate you there - and you can hop around from industry to industry claiming to be for the little guy in what ever industry you jump to while charging insane fees and peddling snake oil. Good luck in that.

Conflict of interest took place at all levels. It starts with the guys on the street who get paid MORE for putting people in to WORSE products. Talk about conflict of interest. Were the ratings agencies culpable? Absolutely. Wall Street, Banks, and brokers - everyone has their foot in it. Your rage about this view point will get you no where and you won’t be able to shout anyone down here.

Your lack of couth and professionalism surely must be part of the added benefit you bring to the clients fortunate to work with you. If you want to engage in civil debate about a very real issue you’re welcome to, otherwise save your diatribes for your buddies.

It has been clear - and more and more people are saying it:

Quote of the day from the Mortgage Bankers Association’s (MBA) new Chairman Kieran Quinn (no link):

“We’re going back to lending the way it was in the 1950s and 60s. Mortgages will be made mostly by bankers and their employees, and compensation will be based on who’s making good loans and who’s not.”

Thanks for your volcanic spew-job, but save the hard-close for one of your “customers.”

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109 P. Jackson
Oct 16th, 2007 at 9:20 pm
Hey Morgan - what, no credit for calling this months ago? I wrote about how wholesale was doomed back in April!

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110 Morgan Brown
Oct 16th, 2007 at 9:51 pm
Nice PJ - So I’m not the only Cretan? (see above comment if you missed this reference)

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111 ALBY
Oct 16th, 2007 at 10:36 pm
Morgan,

Exactly what form will the freeze out manifest itself for mortgage brokers?? Will they legisltate them out of existance?? Will they raise the financial requirements to such an extent that only a few will qualify??? Will banks just stop doing business with them?? Will Fannie/Freddie not accept broker business??

What should brokers be looking for as a sign that the end is near???

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112 Wholesale In NJ
Oct 17th, 2007 at 3:07 am
Morgan,
I work with brokers every day. I am busier than I have ever been in my five years as an AE. Believe it or not, there are banks hiring AE’s in wholesale. The AE’s who are getting those jobs are experienced. The AE’s who are out of work are the order takers. We only hear about those who have been laid off.

I have worked in just about every back office function at finance companies and major money center banks. I have over 20 years experience in this business, and what has finally come to pass was LONG OVERDUE. There were too many burger flippers becoming loans officers making loans. There were too many greedy Wall Street traders and Banks (yes, even the big ones) pushing the credit standards lower and lower, throwing caution to the wind. Wells Fargo was making stated loans to people with a 550 FICO at 95% LTV. What planet did the quality control folks who invented that gem come from, the twilight zone? That’s the broker’s fault that those borrowers didn’t perform? Gimme a break. One of the biggest frauds committed to Wall Street investors happened at Ameriquest, Argent’s RETAIL arm. That whole group was a pack of thieves and con artists in my opinion. That’s why Argent is all but gone.

The banks simply cannot and do not really want to hire a bunch of loan officers to make mortgage loans. I have run a call center myself, and the topic of just about every meeting was what we were paying folks. The one bank I worked for specifically went out and hired inexperienced originators. Most of the leads were coming from Lending Tree. Three other banks and mortgage companies were calling the same borrower. Most of LO’s couldn’t sell Ice Water to a dehydrated lost soul in the desert. Banks will never expend the kind of money it would take to ramp up retail operations to make up even 50% of what professional brokers can produce. At the end of the day, they need the volume, secondary market Gain on Sale and Servicing income to make the profits their stockholders expect. Some will leave the business for what they think are greener pastures.. Good.. More for my bank.

This business will never go back to the ‘way we did it in the 50’s and 60’s.’ Few people will ever have 20% down, like was required back then. That is a completely ridiculous, naive assumption by an analyst who clearly doesn’t understand credit markets. It simply isn’t in the interest of US government to allow the housing market to fall apart, as it would create a panic in the rest of our economy. The Fed learned from the Great Depression to not allow things to get that far out of hand. As long as Fannie and Freddie exist, there will be brokers because the secondary markets create liquidity for housing. The government created them on purpose because banks were unwilling to take the risk themselves. And, by the way, the government will never let either of those GSE’s fail, and based on their performance to date, are in no danger of even being in trouble.

This crisis is not about brokers. It’s about underwriting standards and due diligence. It’s about the guy or gal at the lender, actually using common sense and logic to make the decision to lend money to an individual. It’s about NOT making a stated loan to a borrower with s*&tty credit. It’s about returning to the fundamentals.
Stated loans are for folks with high credit scores, deep credit histories and LTV’s that make sense. It’s about risk management. Anyone surprised by the delinquency on subprime mortgage loans needs only to look at the original subprime lender, FHA. What is the 30 day delinquency on that portfolio, something like 14% or so? Why do you think MIP is so d#mn expensive? Why would subprime really be radically different than FHA? They are essentially the same borrowers. Add a nice stated program to that and you simply multiply risk.
Also, anyone in this business knows that FNMA and FHLMA make stated loans too. Surprised? I’m not. They just do it with the correct prudence. That’s why the rarely end taking a real loss.

Borrowers will gravitate to brokers because they are experts and can meet their needs with 10 different programs from 10 different lenders. The brokers who are left will be the professionals, as it should be. There are and will be fewer of them. I say, perfect.

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113 sld
Oct 17th, 2007 at 5:06 am
Third party origination if it remains will have many new requirements. In addition to financial requirements, education, they will probably lose the “control” they had in manipulating the wholesale lender.

Loans submitted may contain additional liability as they may be “with recourse” clause instead of “without” recourse, and subject to repurchase by the broker.

I also anticipate that it will be less profitable, as the reduction in compensation due to greater risk, and it won’t be as profitable as before. So all these get rich quick schemers will try another industry.

Another issue that has to be addressed is all this confidental information that they are privy to. With identity theft on the loose, the credit protection laws can be violated giving such crucial information to employees in the brokers office. Most smaller offices have no control over the transient employees, nor do they train them on the importance of confidentiality. There was a article on the internet just this week regarding Griffin Mortgage Company that ripped off the borrowers by using their information to obtain other loans for themselves. This is not an isolated incident. This issue will probably be one of the most important as to whether the government wants to keep this “ARM” of the industry open.

Too many opportunties for fraud all the way around, and the consumer is not protected.

Sorry, I feel with all these obstacles, brokers are on their way out.. I anticipate that the only “broker” style originator will be a subsidary of a bank/lender that they have control over, and the “employees” are subject to proper regulations and consequences.

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114 mike
Oct 17th, 2007 at 7:03 am
Guys, I just don’t get it. Its funny there are top tier banks out there expanding their wholesale platform. They claim now is a good time to enter the market
because other banks are being forced to pull out. As a broker I still have more lenders than I can shake a stick at.

This is nothing new. I have heard about banks trying to take back mortgage originations for almost 2 decades. I have yet to see them take back any market share.

I have heard forecast that mortgage originations are going to drop to an 8 year low. OH MY! Guess what people…8 years ago mortgage brokers still originated the vast majority of loans.

Most of my peers in the mortgage broker community that are still around have made dramatic cuts in their operational cost. I have yet to see the big banks do so in their retail originations. I saw saw actually one expand their retail sales force only to turn around and announce 20% workforce reductions.

Do you expect that fannie and freddie are going to say we will only take loans from banks? Just how would that benefit them? Does it make sense to disband their sales force of originations?

Most mortgage brokers left in the market today are ones like myself. We have always strived to create a long term relatioship with our clients and customers. We are very much a referral driven company.

The mortgage broker community has already had to deal with legislation that was designed to put us at a disadvantage. Yet somehow we have always found ways to make lemonade out of lemons.

The credit markets will eventually work through the problem of being able to value the portfolios of loans. Once that happens investors will come back into the markets. I can personally confirm that the loans being written today are of a substancially higher quality than those of recent years. Just where do you think the money is going to flow once the stock market accepts we are heading into a recession? The stock market has gone up because investors pulled out of buying mortgage back securities and had no where else to go. Once risk pricing has stablized the money will come back and things will settle into normalcy again.

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115 JV Money
Oct 17th, 2007 at 7:16 am
In referrence to accountability, apparently the crowd here hasn’t filled out a broker package in the last 90 days. There are performance requirements, periods for YSP recapturement, etc. Your banks are hungry for wholesale business still, but have just changed the rules of engagement to protect their interests more.(good for them) Licensing, continuing ed, etc are being enforced nationwide, and new laws are being passed everyday to create more redundancy and enforce the big boy/big girl clause for consumers.(good more forms to sign at origination and closing)
You can’t point the fingers at the brokers for this mess, point blank we all had the same goal/tools available to getting these marginal clients financed and looking like miracle workers for our agents, obviously the broker world just contains a few more problem solvers that actually got them done.

I as a broker have ethics, and am old school in my approach. I have told people “no” to protect them from themselves. What happened to those people? They went up the street to the “Blender” (builders in house lender) and got “the deal done”. Now 1-2yrs later these clients are coming back to me, telling their stories of programs/numbers changing at closing, nightmare underwriting experiences, and financial mess they are in now due to their mortgage being for more than their home is worth.

If we want to be honest, it is the greed of the RE shops and builders trying to create the one stop shop.(create more income streams off of their traditional business activity) Offering low commission splits, attracting mediocre talent to handle the heart of their business. If you think about it, the pressure of being tied to the sale of a builders/re offices inventory has never existed before. When this pressure became more prominent the status quo changed. Loan fraud, massive incentives, etc have run rampant artificially inflating most local markets. (due to the income traditionally made thru the loan being priced into the price of the home)

There are good people in our business on both the correspondent, banking, and wholesale sides of things. Let’s just hope phone center Bob hasn’t put enough of a dent in all of our credibility to make the banks/funding institutions make such a rash decision as stated above. Have you bankers out there realized the number of mergers/acquisitions? No one is immune to this problem. I have mortgage banker friends that have tied themselves to the largest banks they can find hoping for security. (guess what, just like martial arts there is always a bigger fish in the sea) We as brokers just choose to take our fiancial/job security into our own hands. So like an apple and an orange let’s just agree to disagree. Just look at the bright side at least we haven’t been offshored to a call center in India yet.

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116 mike
Oct 17th, 2007 at 7:25 am
Ann, You missed my point. Large banks had to pay hundreds of millions of dollars to settle cases that accused them (their retail orinators) or predatory lending. How can the banks turn around and say that 3 party originators dupped borrowers? Where do they get the nerve?

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117 Ann
Oct 17th, 2007 at 8:13 am
Mike where are the cases? What settlements? I have yet to see the headlines screaming that Banks are settling or being sued? However, many a mortgage company and brokers have hit the headlines with being sued, raided by the goverment, under investigating by the SEC, arrested or put in jail.

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118 Ann
Oct 17th, 2007 at 8:18 am
Announced today that China and Japan have moved $163 Billion AWAY from US Investments….

So do you still think that the banks are gong to trust brokers when the growing economy of China won’t invest in our country…MADE IN CHINA, MADE IN JAPAN, REMOVED FROM USA

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119 mike
Oct 17th, 2007 at 8:29 am
Ann, It might help if you looked at headlines beyond August. Check out where HSBC settled and Citi settled but didnt admit any wrongdoing. You dont pay hundreds of millions of dollars if you did nothing wrong.

I also remember a company called The Money Store that was owned by First Union which was bought out by Wachovia. I seem to remember them as fitting the image of a predatory lender.

Ask the ACCORN organization about their pursuit of Wells Fargo.

Interesting how Ameriquest (a mortgage banker) paid hundreds of millions of dollars and eventually closed their doors. Yet they were able to sell off their wholesale operation.

Without a doubt the biggest burn and churn mortgagee companies were either mortgage banks or companies owned by big commercial banks.

I dont know how many brokers have been arrested and such. Do you? If so how many? What percentage of the hundreds of thousands of brokers?

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120 Christopher W
Oct 17th, 2007 at 8:34 am
Ann,

You obviously work for a Bank and have had your feelings hurt by some of the previous comments mine included. I don’t think anyone here is trying to bash the large banks; the point that people are trying to make is that banks need brokers just like brokers need banks. Their have been widespread abuses of the system in all areas of real estate and finance. It is just not cost effective for large banks to put all brokers out of business. When I was at BofA and went through my training they told us that the cost of training was right around 28K per person. Out of the 5 people that went to training in my class I was the only one who made it at least a year with the company, and that was just with my branch. In the training class I went to their were 32 loan officers being trained. That is almost 900K in training. Do you know how long it takes the bank to make back that 900K? Especially when they are losing loan officers like flys to broker shops? As it was stated above banks can say all they want about going back to retail based origination…yada yada yada That stuff is all for the stockholders. Banks know who make them their money.

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121 Jeremy
Oct 17th, 2007 at 8:39 am
I agree with many of the comments that the world will still need brokers. I don’t agree with some of the comments that banks have mortgage professionals on staff that don’t know what they are doing. I am a loan officer at a regional bank and we portfolio and service all of our products, and we use no third party underwriting. I had worked in wholesale lending for 10 years, and I came over to banking about 3 months ago. What you will see is that banks are going to staff themselves with the people from the broker world that work with integrity and ethics, know the business and how to generate business, but also now have the ability to grab business that wholesale lenders don’t want (i.e. jumbo rates a full point below wholesale average, rehab loans, construction, bulk investment loans, etc.).
I want to make clear again that I am not forgetting the business that got me to where I am. I continue to support brokers as much as I can. I can take third party origination and pay them on the HUD for deals they can’t take wholesale. I made this change because it is what I had to do to support my family.
But everyone also should be aware that while the large national banks may be lumbering giants, the regional banks are staffing themselves with people that know the business and know how to close loans, and arming them with portfolio products to get loans funded quickly and efficiently. Brokers are needed to keep competition alive, but the banks aren’t going to be the pushovers they once were.

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122 john michaels
Oct 17th, 2007 at 9:04 am
Wholesale NJ — I am amused by your reasoning as to what makes a good stated loan — high credit scores ??? deep credit histories ??? low LTVs ??? First and foremost it is stating the accurate income of the borrower and not some inflated number to make the loan work as the majority of these loans have been misrepresented. And it’s not that your management allow for obvious misrepresentation of income by requiring 6 months PITI reserves be verified or checking “salary.com” and using the highest tier as a guideline for that position, if indeed the borrower actually holds that position. I had the opportunity to meet several lender AEs with your same reasonings … two are in jail now along with their broker clients.

One correct statement that you make is that the lenders were involved in this as heavily as the brokers for passing the paper through and not stopping the fraud. I’m curious … what exactly do you tell brokers when they call you with borrowers whose real income cannot support the loan — state more income. Perhaps you should relate your positions to the local D.A. — see what they have to say about your creative views about stated programs.

By the way — the reason why you are so busy is because of the amount of so-called lenders who closed, dropped out of the business, or do not want to underwrite the risk of these loans as well as the money drying up.

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123 Christopher W
Oct 17th, 2007 at 9:39 am
Jeremy,

You make some very valid points. However I think the issue that the banks will run into is in the form of compensation. Brokers that leave the business to go work for banks will be around until this storm passes and then will bolt back to the world of brokering because of income. Paying someone a recoverable 2K draw plus 30 basis points with a cap on yield will not keep anyone around. Especially people who were used to making 20, 30, even 50K a month. I saw it happen all the time at BofA while I was there. They would hire a former broker who would stick around and milk the draw for a few months, but as soon as they saw 35K in gross commissions turn into a 8K paycheck they were out the door. People want to be paid what they are worth. Why do you think we have the lousy politicians in Washington? All of the really smart people stay in the private sector getting paid.

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124 Jeremy
Oct 17th, 2007 at 10:41 am
Christopher W - you are exactly right about the pay plan. However, I think the banks (at least the one for whom I work) realize that they have a chance to gain talent and market share like they have never seen before. I personally am paid on volume and not cost, which is the way it was when I was an AE, so I am used to that. Yeah, I am not going to make what I did when I was an AE at Countrywide (watching those stated loans that Wholesale NJ and john michaels discussed roll in front of my face; Lord, Forgive Me!), but it is not too bad. It is equivalent to what a good subprime AE would make back in the old days here in Ohio. Do about $1.5mm, and you will be making a great living. Keep it over $800k, and you are making a good living.
Again, I can’t speak for all of the banks, but the one I work for and the other regional and local banks where I know people have made adjustments to their pay tiers.
I agree that brokers can make more, but I am mainly doing products that aren’t as easy to get via wholesale right now.

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125 Jeremy
Oct 17th, 2007 at 1:10 pm
I just caught what JW Money was saying about the builders, and I agree as much as anyone can! We have a few of the names you have heard in the news right here in Columbus, OH. I won’t say any names, but one rhymes with Dominion Homes. I know many people that have been crushed by overpriced homes and mortgages that they did not understand. Take that first time homebuyer and put her on a 2/1 buydown and sell the intro payment and the unassessed taxes is what they did. 2 years later that buyers payment would almost double!
There are bad people everywhere, but the brokers get all of the blame because brokers are the easiest target!

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126 john michaels
Oct 17th, 2007 at 2:28 pm
JV Money — hopefully your miracle work did not include overstating of income or assets on the 1003 to get loans approved and that was left to others … because … when that application is mailed to the lender there is “mail fraud” — a felony … fax that application to the lender and there is “wire fraud” — a felony. Talk to the lender’s AE by ‘phone about how to structure an application based on creative financing and not fact … bingo … “conspiracy to commit fraud” — a felony. (I’ll give you the prison and cell number of the AE who got caught in that Fed wiretap.)

You are right JV that you cannot point the finger only to the broker for this mess as you call it. The lenders are just as guilty since they did not stop the fraud but encouraged it — from the AE’s to processors to underwriters to branch managers to regionals to VPs to CEOs — all are involved in the “conspiracy to commit fraud” — you guessed it — a felony.

More than 4,300 mortgage defaults in the first half of this year in three counties in Florida alone … up over 311% over last year’s numbers … line up the paddy wagons … the parade is about to begin.

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127 Johnny Chan
Oct 17th, 2007 at 2:51 pm
All you guys are bunch of whinning p*****s. Get out of the business if you can’t handle it. Let the good brokers make all the money!!

Edited by Morgan - Keep it clean, please.

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128 Bob Freedman
Oct 17th, 2007 at 3:40 pm
Hello,

I appreciate your ongoing efforts, and I agree whole-heartedly that mortgage brokers are being scape-goated. There are MANY unethical loan originators and lenders out there, and they are allowed to flourish because the industry is so poorly Regulated; and the idiots do so at the expense of ethical practitioners. Please see the commentary I have provided, which also appears as a blog on my own web site. Also, I would like to speak with you, if that will be possible. Please let me know …. and, thanks again.

Bob Freedman: [phone]
www.bobfreedmanmortgage.com

In recent media coverage of the “Mortgage Meltdown” and “Credit Crunch” there has been lots of speculation about who is to blame. It seems the easiest targets are the middle-man type lenders and loan officers. Two egregious examples: 1) According to Paul Muolo of National Mortgage News Daily, “NACA” Chairman Bruce Marks, in a recent Q & A session following his testifying before Congress, referred to mortgage brokers as “cockroaches”; 2) Attorney and Harvard Professor Elizabeth Warren recently wrote an article which appeared in the Boston Globe, in which, in addition to a generally uninformed analysis of the mortgage industry, she also libeled mortgage brokers by explicitly accusing us of taking bribes. While it is accurate to place blame with some loan officers, mortgage banks, and correspondent lenders, it is a tremendous over-simplification of what is really going on. These aforementioned companies and individuals don’t make, or Control, the BIG MONEY in this industry.

We need to look at the industry as if it is a chain, or a big circle. A circle of Greed. Without all parties playing their role …. serving as a link in the chain… the circle would be broken. If the circle breaks it will be much more difficult for events to transpire that lead to crunches and meltdowns.

What allows for this chain of greed and destruction in the mortgage industry is a lack of proper regulation. The lax regulatory environment features a lack of standardization (i.e., predatory advertising, non-binding GFE’s, lack of disclosure, low-ball verbal rate quotes, bait and switch tactics, etc.), which makes the industry incredibly difficult to monitor. As Alan Greenspan recently admitted in interviews, he did not think it was possible, or, er, …. necessary, to do so. He admitted, and I quote: “I just didn’t get it”.

Well, it WAS necessary, and still is. Wall Street is trying to calculate the value of the mortgage-backed securities, and that is why there is a “credit crunch”. Once the Street can come up with a value, the risk/reward metric will be recalibrated, and business will resume. What nobody seems to be talking about is overhauling the regulatory environment so we don’t repeat the boom, bust, (and likely) bail-out cycle.

As for who is responsible or to blame, again, this runs full-circle. Wall Street had a tremendous appetite for Mortgage-Backed Securities (MBS), which could be sold to hedge funds, pension plans, insurance companies, and the like (by the way, I haven’t heard ONE media pundit blaming these investment managers, who control Billions of dollars in assets, of malfeasance or ineptitude). The credit ratings agencies are in collusion with the investment banks (keep an eye on what’s happening in Congress) and conflicts of interest are rampant. Folks, let’s keep our eye on the ball. THIS is where the big money is being controlled and “misappropriated”.

Then, of course, to feed Wall Street’s demand, Big Banks loosen guidelines, smaller lenders and loan officers chop each other up to get the deals done while the window is open, and consumer/borrowers are sold on the American Dream. Unfortunately, many borrowers, focusing on anticipated doubles and triples in property values, fell victim to predatory lending and apparently, in many cases we are now told, didn’t bother to read or could not understand their loan documentation.

GREED. A to Z, and top to bottom.

Regulation needs to be vastly improved. If a system is poorly standardized, how can it be properly monitored? Consumers cannot assume they can rely on Big Brother. Homeowners will likely catch a break this time, because the problems run so deep, and the Fed wants to avoid a foreclosure Tsunami that would slam the banks. Politicians will tell you it’s to keep people in their homes, if that will get your vote.

Going forward, consumers need to understand the loan process, know how to differentiate an ethical loan professional from the pack, and protect their own interests. They must command Transparency, Full Disclosure, and Accountability in order to secure suitable financing that serves their best interests.

I am doing my part to help.

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129 mike
Oct 17th, 2007 at 4:24 pm
Great commentary Bob. I am all for a well regulated business that prevents this from happening again. I just want the regulations to be fair to all catagories of originators.

There is no reason why brokers should have to state exactly how much money we are making and banks not have to as well. Borrowers don’t compare how much a the lending company is making. They shop terms.

Why should our disclosures be different the banks? I think that if our disclosing requirements were different than the banks then that would just confuse the borrowers.

Personally I would like to see regulations that are consistent from state to state. Gee wouldn’t that simplify things.

Things will never be transparent as long as this industry has many different regulators all regulating differently.

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130 Bob Freedman
Oct 17th, 2007 at 4:55 pm
(Mike, this communication is intended for your consideration, not really for posting)
Thanks Mike. Ironically, Lending Tree’s phony advertisement blinks in my eyes as I type this.

I first became aware of your blog from your link to Peter, “The Mortgage Brat”. Peter and I have e-mailed back and forth a few times and spoke last week at length. We talked about many of the issues that you address in your blogs, and we plan to collaborate on some stuff.

I’d like to speak with you, as well, to see if we can effectively work to stave off the extinction of the ethical mortgage broker (I’m all for the unethical crowd moving on to sell ED pills), and get the word out that though we may make for a convenient scapegoat, that placing the blame in our collective lap misses the point and will have an adverse impact on the industry. I believe the ethical broker community has to unite and make some noise. The Bernankes, Paulsons, Dodds, Hillarys, Bushes, and the rest don’t have the answers and/or the incentive to make necessary changes.

Again, my cell is [phone].

If you like, please provide me your number so I can call you, and indicate a time that is usually convenient to speak. Once again, with appreciation and respect …

- Bob

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131 Dee
Oct 17th, 2007 at 5:10 pm
Fantastic article and some insightful comments. Wish I had time to read them all but here is one aspect of “brokerage” that I hear very little about.

About 11 years ago we got a new business model in Oregon: the “100% shop” where the originators (who had no licensing or experience requirements from the state) were allowed to pay a small broker fee and deliver loans to brokers where supervision was almost non-existent. Be mindful, I am not suggesting that policies and procedures and rules and regulations for these people did not exist, but the fact is that when you never lay eyes on your hundreds of loan officers in multiple states, you don’t have a clue what they are doing. As one who has contract processed in this environment I can tell you stories that would curl your hair, because for 99.5% of these LOs it has ONLY been about how much they could earn on each deal.

I’ve been watching this unfold since the beginning of the year and I agree wholeheartedly with Morgan’s prediction. The great majority of brokers are going to be gone. And if you think the banks won’t go back to the days of call centers and vanilla loans, you haven’t been paying attention.

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132 Wholesale In NJ
Oct 17th, 2007 at 5:49 pm
John M.
There is absolutely nothing wrong with a stated loan. Fannie and Freddie disagree with your assumption that stating an income constitutes fraud. Both have stated programs and both offer it even when the originator doesn’t ask. I see Freddie Mac Accept Plus loans all of the time where they tell the originator NOT TO BOTHER SENDING INCOME DOCUMENTS. There are many cases where a borrower can’t document all of the income that he/she receives. I underwrote for a number of years, and I can state with total confidence that the stated portfolio at two of the banks I worked for performed BETTER than the Full Doc loans we purchased and originated. Fannie and Freddie obviously see that in the performance of their portfolios. Our recent problems with stated have more to do with the low credit quality of those some of our bretheren allowed to state income and close a loan.

Let me take you through a scenario. Husband and wife own a home they purchased with 100% financing two years ago. Credit was good and a full doc loan was closed on an ARM. The ARM is now due to adjust. Husband now has a 660 FICO, but the wife has a 633. Mortgages where NEVER late, 0×30, now at 90% Loan to Value.
Now.. when we look at the deal and run it through DU as a full doc, we get an Expanded Level 1 due to the wife’s score. ( nothing in her credit profile was delinquent or maxed out). At most banks, that means a 1 point increase in the fixed rate. If we run the deal through the Alt Channel stating the income ( basically qualifying on the total household income) We can give them a 30 year fixed at 1/2 a point higher than standard conforming rates. If you’re doing your job as an originator, you would give them the best rate option. That’s the way a stated loan should be done.
Now.. conversely, if you’re making up an income just to get the deal to ‘work’ and base your income number on fantasy and not logical reasoning which can be explained later, then you are definitely committing fraud. Are there shades of grey? Sure. Anyone who has been around the business knows when they are outta the grey and into the wrong. I have turned away PLENTY of loans where I thought the deal made no sense, both purchase and refinance. I hold a mortgage banker’s license in this state, and I have never committed fraud, ever. I do what is in the interest of the guy or gal who has to make the payments to my FDIC insured bank, because I like to be able to look at the guy staring back in the mirror, and I want my bank to make loans that perform.

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133 Jeremy
Oct 17th, 2007 at 6:23 pm
Johnny Chan - do you have a personalized license plate on your truck that says “MAX FEES”? People come to Morgan’s site to share commentary and their opinion about the industry. If you can’t handle that, stay off the site.
I always get a kick out of guys like you that have this arrogance or always are quick to spout out how long they have been in the industry. Just because you have been doing something for a long time doesn’t mean you are doing it right. I have been playing golf for 20 years but I am still a 14 handicap! I obviously ain’t doing something right!
If you think that you are going to be the one broker that makes it through this unscathed, then you are a jackass. Listen to what these people are saying. Most of them are very smart. You need to be concerned right now, and you need top educate yourself on what is going on in this industry and related industries.
But my guess is you will just keep pushing people right up against section 32 limits and figure that you are smarter than everyone else. I’ll make sure I look you up in a few months when I need to by a ‘93 Nissan.

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134 JV Money
Oct 17th, 2007 at 8:49 pm
john michaels
As I discussed..I am old school. By being creative I am guilty of having more product knowledge than the average bear.(kind of a geek actually) Just like most of you hopefully do..on of my top interview questions is “how much did you want to pay for your housing expense”, and we work backwards from there. I hope that the people that committed the fraud that lead to the inevitable foreclosures pay the price, but obviously like most things in life..we will all pay the price for a few bad apples.

Jeremy
I operate out of Northern Colorado and when the market was hopping many nationwide builders came into our market, built 1000’s of track homes and left some of their satisfied clients (national builder home loan, national builder house, national builder coffee mug, even national builder title co) with not only an entry level home that has a life expectancy of 50 yrs at best, but value problems that are unsurmountable.(at purchase appraised by national builder appraisals LLC for 200k now worth 135K) So needless to say we have pockets of properties that aren’t doing so hot, but as a whole we still aren’t looking too bad. (other than Greeley, CO..that is the exception) At this point I think the only way to make it in this market is to take the old playbook (what we have built up with our experience, etc) throw it out the door and be open to learning the new way do business with the new rules/programs in place. On a positive note eventually the 80’s will repeat themselves the “smart money” from RE investors will start to pour in and we will stabilize and eventually recover let’s just hang on for now.

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135 Art Vandelay
Oct 18th, 2007 at 9:42 am
To All of the soon-to-be-fired mortgage brokers: Come be an architect like me! You have all of the required skills necessary to be employed at Art Vandelay LLC.

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136 Johnny Chan
Oct 18th, 2007 at 9:54 am
Jeremy-You’ve been golfing for 20 years and your handicap is still 14?!?! Two words for you buddy: You suck.

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