I'm not putting any flashy pictures or exotic text in this post I just want to point something out. I saw a news broadcast recently that focused on the lack of ethics within the "mortgage broker" community. the entire hour long broadcast talked about the economic turmoil that we are in and blamed mortgage brokers.
The people (so called analysts) on the screen unequivocally agreed that the only way to go is with a bank and that if you go with a mortgage broker you will get "screwed"! I watched with absolute disdain for the entire hour... For these people to call themselves analysts and to talk for so long about something that they do not entirely understand is mind boggling.
They kept using words like "predatory" and "unethical" to describe mortgage brokers. The thing that I just cannot wrap my brain around is how banks are shedding so much of the responsibility. What I mean is that I get bombarded by account executives all the time who are trying to push the latest and greatest "option ARM's" and other junk products.
The flip side of the coin; the reason for offering those products in the first place is because investment firms and investors in general had an appetite for those pools of mortgage backed securities that were being sold on Wallstreet like politicians have an appetite for hookers on Main st.
Banks and wholesale lenders knew that they could sell the pools of subprime mortgage backed securities so they originated subprime mortgages based on the demand. They sent their fleets of AE's out to all the brokers they could think, they dressed up their ugly products into nice looking alternatives, and they pressured us brokers to produce as much junk for them as we could.
When it was all said and done and the crap hit the fan the government stepped in and helped the banks and wholesale lenders shed the responsibility by blaming brokers for originating the business. I have been around the block and I know that there are some unethical brokers out there. I know that there are some people in the business who even if the loan is a bad idea for the unwitting consumer they will try to get them to "take the deal" anyway so that they get a paycheck... I saw a lot of that the first time I ever entered into a mortgage shop and took my first position as a "loan officer". I would like to point out however that if the demand was not there and the banks did not push these products onto us that the dirty mortgage shops and brokerage firms would've never opened their doors for business.
Now that the smoke has cleared and the debate is beginning to settle down the government is stepping in to protect, help shed responsibility (blame game), and bailout the major investment firms that kicked this catastrophe off in the first place. Initially there was a whole lot of talk about "helping" the struggling homeowner; freezing interest rates on ARM's. If you actually read some of the fine print in the "Hope Now" proposition you will see that it helps a vary small percentage of people who are in ARM's and the majority of those people that it helps are not struggling with their mortgage payments.
Then comes the big guns! and the FED comes out swinging wildly, slashing rates that only help out the big banks, and bailing out lenders who are largely responsible for the "subprime meltdown". The government seems to have all but forgotten about John Doe who is about to lose his home while they protect the people responsible.
The truth is rarely easy to swallow as is the case here. Now I want to point out that despite everything that you may hear or read that not all brokers are bad. The example that I am going to use here is the company that I work for. We are a very small firm and while I do business across the state of NY, we really cater to the local real estate scene. We are a 3 to 5 man operation and it is against our policy to try to goat someone into a loan that will ultimately hurt them. I am giving you that information so that this next piece makes sense. In the last 4 years this company has closed around 475 loans. We just heard from the banking department yesterday and we are waiting for our grade to come in; however they gave us the numbers.
Out of those 475 mortgages originated in 4 years there is 1 that defaulted and 2 more that are at risk of default due to late payment. I do not know what our grade will be, but I would say that is pretty good performance especially when you look at what everyone else has been originating in the past 4 years.
Those numbers definitely prove something! They prove that all of the propaganda that large financial institutions and our government are using to "cut out competition" is simply false. The appetite for those riskier investments is gone and as a byproduct brokers who were thriving on them are gone. The market or "free trade" as we call it (rather falsely now-a-days) was structured in such a way that a balance is struck. Once the equilibrium is knocked off center the market corrects itself and different types of business's rise to the top while others fall.
Bad brokers are out because they cannot survive in this market climate. Lenders are making up reasons to Pare Lending in order to maintain cash reserves. I believe however that one of the best solutions to this crisis is to assign mortgage brokers a grade (already being done) and then allow them or deny them the right to do business based on past performance. That will surely shut out unscrupulous brokers and a big part of the problem will be solved.
It started at the pump, not the mortgage shop...
