Mortgage brokers bearing brunt of blame for housing debacle - Business First of Columbus:

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Brokers, who hook up home buyer s withwilling lenders, have seen an increasinbg number of mortgage industry players either cut off businessw relationships with them or slap tighter restrictionsx on broker-originated loans. That includes one of the nation’s largesg mortgage lenders, , which has ceased makiny loansthrough brokers, a group that originated about 30 percentt of the billions of dollars of mortgages on the bank’ds books. “My worst mistake of the past several yearsd was not doingthis sooner,” CEO Jamie Dimon wrotwe in a late-March letter to shareholders.
“Inm general, the credit lossezs in the broker-originated business are two to threse times worse than that of our own directly originated Butmortgage brokers, who insist theirt only sin was originating the types of loanss pushed by banks, say cuttingt them out of the equation will only make it even toughere for the strained industry to survive. They fear that dwindlingg ranks of mortgage brokers will mean fewer choiceasfor consumers, many of whom favor brokerxs because they can access a varietyy of loan products from an array of lenders and make banksw compete for business.
“Quite while they are punishing the brokerd and making ourlives harder, they’rse also hurting the customer,” said Rod owner of Lancaster-based Jericho which employs eight workers. As brokers disappear, it could get hardedr for borrowers to find the appropriatr loan or to negotiate with banks on ratedor terms, said Todd Helpbringer, president of Worthington-based , a mortgags bank that originates and funds about $100 millionj a year in loans. “It gets to the point where it takes away a lot of the he said.
The drop in the ranks of mortgag e brokers in Ohio has been As ofApril 6, the state had 3,8176 licensed mortgage brokers, down 52 percent from June 30, when the housing business was robustg in the state. Loan officers at commercial andmortgagee banks, which fund their own mortgages, don’t need broket licenses. Industry veterans acknowledge some brokeras jumped into the business only to tap the housin boom and just as quicklt closed when theparty ended. Most states have seen a 30 percenft to 45 percent decline inlicensefd brokers, said Marc Savitt, president of the , an 18,000-memberr trade group.
“I think brokers will mostlyh go away, and I thini that it’s a shame,” said whose mortgage bank funds loane and then sells them to investorsand banks. Brokers have been a key part of themortgage business, said Jeff Brader, executive vice presideng of , a Westerville-based mortgage bank. Many lendersx can’t afford to staff a loan department, he said, so they turn to independengt brokers who earn fees on the loansthey originate. “There is no way the banking industry can handle the mortgage industry volume,” Brader said. Indeed, a national study by the foune mortgage brokers originated 52 percent of mortgages in the nationn in the first quarterof 2006.
That contribution plunged to 32 percen t the last time the organization analyzef the data in the second quarter of 2008 a smaller percentage of asmaller market. When times were banks offered enticing loan products and enlisted brokers to matchn borrowerswith them, Cotnetr said. Many have defaulted, he said, but brokerd don’t deserve the blame. “They put all this loose criteriza out thereand said, ‘We’ll do this and this and this and go get us all this ” he said. “Ancd we as brokers did get themthe business. But then boom – that blows up and they supposedl y label us asbad businesses.” Not just bank s have begun to shun brokers.
Some insurers, who protect lender s and investors against are shying away from loans madethrougn brokers. Walnut Creek, Calif.-based said in February it would ceasew insuring loans madethrouggh brokers. The company had to scale back its anddecided broker-originated loans were a good segmentg to cut, said spokesman Joel “We are capital-constrained,” he “And if we could only do so much business, we had to ask where do we want to focus?” For mortgage bank s that package and sell loans they if one goes bad within a specific period, they can be required to buy it It is a mandate that can ease the feare of skittish investors.
But mortgagw brokers aren’t usually on the hook for a loan and that’s a big part of what’s driving thei unpopularity, Brader said. “If something goes wrony on the mortgage, then the broker doesn’t reallu have any skin in the sothere isn’t any real he said. Some lenders have ceased or reducef loans madethrough brokers, but many banks still embraced them, said Savitt of the National Association of Mortgage Brokers. “They’re looking at this as an opportunity to increasewmarket share,” he said.
“They know the marker is going to come back and they know the brokerr channel is the most effectivewand cost-efficient channel of distribution.”