Mortgage Brokers Stung By Subprime Loan Criticisms
Embattled mortgage brokers are defending themselves against the accusations by politicians and consumer advocates that they are to blame for causing the meltdown in the home loan industry by giving loans to borrowers who couldn’t afford them.Reacting to strong criticism, particularly from New York Sen. Charles E. Schumer, mortgage brokers say it is unfair to paint the entire industry with the same brush because of the actions of a few bad players.
“Don’t just keep labeling mortgage brokers as the bad apples,” said Nancy B. Gascoyne, a broker at MultiSource Funding in Cheektowaga, N.Y., past president of the New York Association of Mortgage Brokers.
“There are things wrong in our industry, just the same way there are wrong things in our government,” she said. “You’ve got to try to fix them as you go along.”
“In many ways, the mortgage broker is misunderstood. We seem to be taking the brunt of the ire,” said Gregory A. Krauza, a broker at Twinstar Mortgage and current president of the state brokers’ trade group.
“Most mortgage brokers are actually local business people who rely largely on referrals and their reputations. We are what is right about this business.”
New York mortgage broker groups say they’re already subject to a good deal of regulation, but they are willing to accept more scrutiny if necessary.
However, they want it equally applied across the industry, to include all mortgage loan originators at banks, finance companies and brokerage firms.
“In every industry, there are bad actors, and that’s the reason we support the licensing of everybody at this point, whether it’s a mortgage broker, a home loan lender or a bank.”
Those are the words of Harry H. Dinham, a Texas mortgage broker and president of the National Association of Mortgage Brokers, a trade group that represents about 10 percent of the industry.
“These people need to be weeded out of the industry.”
Mortgage brokers have come under fire in recent weeks as soaring mortgage loan defaults and foreclosures — especially in “subprime” loans — threaten to ignite a housing crisis.
More than 13 percent of subprime [bad credit mortgage] loans are delinquent — the highest in years — and losses and foreclosures overall have spiked to record levels.
Higher interest rates and falling home values leave borrowers unable to make payments or qualify for mortgage refinancing and sell their homes.
Banking regulators estimate that 1.8 million homeowners could lose their home in the next two years as mortgage rates reprice upwards.
Brokers are responsible for more than half of U.S. mortgages. They don’t actually lend money, but act as middlemen to link the customers with banks or mortgage finance companies. In exchange, the lenders pay the brokers fees that depend on the interest rate or other terms of the mortgage.
A particularly common fee is the yield spread premium, or the difference between the wholesale rate the lender offers to the broker and the actual retail rate that a borrower pays.
The higher the retail rate, the higher the premium. And federal law requires that it be disclosed in the home mortgage loan papers.
Continue reading in the Buffalo News …