Dead Man Walking – Brokers Squeezed by Insurers

Morgan B - Whats up with you dude? If your not in the industry any longer why all the posts? Oh - and your comment about lenders and brokers bleeding billions out of the public leads to insight as to why your probably not in the business any more. No one held a gun to anyones head and forced them to borrow money. Come clean dude - if your not in the industry why the posts - don't have a life?

I started this blog back in the day when I was in the business because I was
tired of hearing about all of the broken promises of customers who went with
folks who basically lied to them. And often times, they did have a gun to
their head. Lenders and brokers used the signing table as the gun and didn't
answer their phones or hard-closed them in to signing with outright lies.
Secondly, I don't write 80% of the posts here - there are 5 people who write
here - I just own the site and write occasionally. What's wrong with that,
Joe? Or is the concept of building something of lasting value foreign to
you? If you're in the industry it probably is.

Very well said Morgan. The vast majority of wholesale mortgage lendiing was based entirely on fraud, lies and programs that allowed this to all go on under the pretense of following guidelines. The borrower's ability and desire to repay were not even a part of the equation. It was all about what Wall Street would buy.

This bizarre comment is clearly from a broker in denial about his own culpability (or possibly not even bright enough to understand his culpability) in the crisis we currently find ourselves. If the content of a blog isn't for you, why keep reading and commenting anonymously - no life?

This new dead man walking article does not surprise me. The only surprise is that it took you so long to publish it. Yes PMI is walking away from brokers. However they are the weakest of all of the MI companies. MGIC has made a commitment to broker business. It should also be pointed out the MI in general has added new guidelines such as the 38% back end ratio or the requirement of 2 months reserves. Please not that Joe Lockhart who oversees FHA, VA, Fannie and Freddie has requested that the treasury support MI companies. It seems reasonable that this request be honored. Otherwise every loan over 80 will go FHA and thats more risk than i think the US government wants. Once MI companies are bailed out the GSEs will be in a better position to underwrite more loans.

It is my understanding the TPO business is finally starting to ourperform retail. Underwriters have been for some time working harder on broker business and it is starting to prove successful. Brokers now have many more regulartory hurdles which will only make our business perform better. We have national licensing which includes criminal background checks, credit checks, fingerprinting, continuing education. Our indiviual license numbers will be on every loan we originate. Therefore it will be easier for lenders to determine who in specific is writting bad loan.

The whole mortgage marketplace is changing. The big old banks are going to be nationalized and broken up into smaller banking companies. Correspondent and Warehouse lines are being closed or tightened.

Note that National City closed down their retail division. Yet i dont see any discussing of that on here. There is rarely any discussion placed on the woes of Retail or correspondent business on this site.

The vast majority of brokers that exist today are 100% reputable. We are the guys that have created long term relationships with our customers and clients.

The Mortgage Bankers Association themselves recently came out and said brokers are here to stay because of our strong ties to consumers. Real Estate professioanals and consumers alike understand the value that we bring to the marketplace.

One last note, The mortgage bankers association has requested that the gses offer warehouse lines of credit. That leads me to believe that the entire mortgage industry is under strain right now.

This website is and has always been one about spreading fear. Fear sells. Its easy to sell fear. Its also shameful.

Mike,

Two points:

1) The National City story. I didn't see it. I would've published it if I saw it. I've been very busy and don't catch all the news like in the past. I don't have any bias towards retail. I think the whole system is equally messed up.

2) This web site has not always been about spreading fear. It's been about spreading reality and truth. A couple of opinionated articles is not shameful. The only shameful thing is greed that drove brokers and lenders to bleed billions out of the American public. Now THAT's shameful. Shedding light on the egregious behavior is anything but.

Morgan- Nice article. I am greatly torn as to whether or not brokers will continue to exist. Companies that decide to stay in wholesale will find ways to avoid loans with MI. For example; Amtrust Bank allows for up front MI (similiar to FHA) on conventional loans...thus eliminating the need for MI companies. However, a banks retail division is, and always will be more profitable than wholesale business on a loan by loan basis. Wholesale exists because I bank will receive more loans via wholesale than it could ever recieve through retail only. One thing that will give brokers a chance to survive is to honor your locks with the investor through whom you locked. Locking with one wholesale lender, only to pull the lock for .125 and give it to another investor will destroy the banks forwards commitments with secondary. Thus increasing the costs and risk to run a wholesale operation.

That's a good point. The better performing the brokers are the more incentive the banks have to keep them. That includes fall-out and loan performance.

Toby, I'd love to see your source for the stats you're quoting. It would be interesting to see if the reason why more broker loans defaulted was due to brokers originating more loans than banks.

Banks can't wait to terminate their broker relationships. They simply don't need us anymore. They're picking up other failing banks where they've lacked branches and assume they have enough presence--who needs a mortgage broker? Just think of Chase and WaMU.

Both PMI and Chase kept select correspondent lenders since they have more skin in the game...but I'm wondering how long we'll be safe.

Rhonda, see PMI's press room for stats on TPO losses. It is important though to note the difference between defaults and actual MI losses. TPO default rates are not much higher than retail, but the dollar losses are significantly higher. The reason, and this is only my opinion, is that the large majority of lenders that brokers once used are out of business. Hence poorly written loans that the PMI company might have pushed back on the lender (much like FNMA does) are not there. This leaves the solvent lenders (banks) which can absorb the badly written loans that did not meet MI critera in the first place. In short, if brokers can't back up their loans with some deep pockets then they are considered an added risk.

Remember MI companies are in this to make a buck. They don't care where it comes from and certainly are not cowtowing to the big banks. So as soon as the risk profiles change I think we can expect to see more MI programs.

The fact remains that broker origninated losses are outstripping retail losses three to one. These decisions are based on actuarials. It is a pure business decision. Nothing more. For what it's worth there will likely be some kind of MI available, just not in all markets.

The biggest problem for brokers right now is that lenders are not making much money off of their loans regardless of default rates. This has spurred many to cut back on their programs and cut off low producing (expensive) brokers.

This is a great point Tobby. Until the brokered loans begin performing better lenders will continue to look to reduce volume through the channel.

I think you are completely wrong, Brokers are not going away PERIOD.. yes they will have a bit tougher time adjusting but that is temporary.. you think some High Producing Realtor wants to deal with a Scrub at BofA who knows nothing about loans?? I doubt it..
Once all the MI companies take their beating I am sure one brave sole will sell MI to Brokers again.. No one forced MI companies to insure bad loans.. so I guess Richard Branson is moron to get into Wholesale???
I get so sick and tired of you Bankers acting like yall are so high and mighty,, Last time I checked Wholesale FHA is out shining Retail by long shot....

I am still in business and my phone rings every day.. so lets put Brokers out of business so you GREEDY GRIMEY Bankers can make all the $$$, and put the Consumers at a disadvantage...

I don't think brokers will go away per se, I just believe they will be marginalized to the point of irrelevance in the grander scheme of things. They will go back to the way they were before the boom, doing the deals that can't be done through private lenders and small banks that support them. Their slice of the pie will become minuscule in terms of the total $$ amount of mortgage originations. This is not to say there isn't a place for brokers, but it is clear that brokers are flying in to a strong head wind that will only get stronger.

And for the record, I'm neither a banker or a broker, I'm not in the industry any longer.

Morgan.
I would invite you to call me.
I am Lane Adler, a Broker for over twenty years.
I am curious to know your reasons for doing these postings and a few other questions.
Please call @ (818) 882-9205