Smalltownbanker

Mortgage Brokers, RIP

In case you do not realize it, the vast majority of local Community Banks are also mortgage brokers. These Community Banks and other mortgage brokers are an integral part of the industry in the United States. If you really want to see the mortgage/housing industry collapse just eliminate the mortgage broker.

In 2003 when rates reached the point where they are now I worked directly for one of the top three lenders in the nation. Even with the brokers out there this industry giant was taking 120+ days to process and close an application to refinance one of their own loans. It would take years for the national lenders and banks to hire enough loan officers, processors, underwiters and closers to handle the volume that would be dumped on them if brokers went away, assuming that they would even want to. Keep in mind they will benefit tremendously from the constricted availability of mortgage loans.

Large banks and lenders like Bank of America, Wachovia, Citigroup, WaMU, Wells Fargo & Countrywide stink at customer service. Brokers exist because they are more capable of delivering the level of service the consumer wants and most of them care about that consumer, much more than the megabank does. Large wholesale lenders have the tools that will allow them to virtually eliminate fraud in the application process. They do not use them because up to this point the default rates have not justified the cost. That is changing and wholesale lenders are implementing more of these controls every day.

The "Mortgage Crisis" was not caused by brokers. The lax practices of the large wholesale lenders attracted a fringe element to the industry through the broker channel of loan origination because it was the easiest point of entry. Anytime there is a weakness that can be exploited for ill gotten gain it will happen, regardless of the industry. If wholesale lenders impose strict rule sets for their brokers, verify application data electronically using available technology and follow the rules, the industry can return to a normal, efficient and healthy opperating environment in a matter of months without stifling the entreprenuerial spirit that makes this a great industry to work in.

If wholesale lenders adopt sound underwriting and verification practices the bad mortgage brokers will go away very quickly without a single law being passed.