Mortgage Brokers vs. Mortgage Lenders: The Standoff
Ding! Ding!
Home mortgage brokers and lenders may be headed for a showdown.
The housing market slump, now in its second year, is testing alliances between the two, who have become more mutually dependent as the competition for borrowers has intensified.
A particular issue is the increase in bad loans returned to lenders for refund, putting many out of business and leading others to spread risk to brokers who thought themselves immune.
Lenders have been telling brokers to make good on contracts that previously had been ignored, or are refusing to soften contract language that had allowed brokers to wash their hands of responsibility after a home loan is closed, brokers said.
About two-thirds of mortgages flow from brokers, according to research firm Wholesale Access.
Mortgage lenders in the past few years have increasingly used brokers to match them up with customers. Brokers typically have at least 10 lenders they go to for quotes for a potential borrower. When a loan closes, the broker earns a fee or a slice of the loan’s profit.
“I’ve seen cyclical swings before but I haven’t seen them (lenders) going after the brokers,” said Eric Weinstein, chief executive officer of Centreville, Virginia housing market-based Carteret Mortgage Corp., one of the nation’s largest privately held brokers.
“Lenders make the decisions, I’m just selling what they have out there,” Weinstein said.
The broker says he’s been rejecting contracts offered by wholesale lenders that require he buy back loans with any inaccuracies or that go delinquent during the first year. In the past, brokers could agree to buy back loans only in cases of known fraud.
Carteret is rejecting one in every two contracts today, compared with one in 20 a year ago, he said.
The change in the broker-lender relationship is the latest illustration of finger-pointing over who’s to blame for the bad credit mortgage loan meltdown that has exacerbated the housing downturn and hurt the whole $10 trillion market. The heads of two main U.S. mortgage organizations - the Mortgage Bankers Association and the National Association of Mortgage Brokers - have traded barbs on the issue.
John Robbins, chairman of the MBA, last month said “unethical” people - including “short-term folks” who care about the commission and not the loan - have given the industry a black eye.
NAMB President Harry Dinham later said Robbin’s comments were “truly unfortunate” and that the MBA was trying to shift blame away from banks and Wall Street, which buys loans and packages them into securities.
Lenders, forced by Wall Street investment banks in the past year to buy back billions of dollars in bad loans, claim they already had tough contracts with brokers.
The meteoric rise in loan repurchases due to poor underwriting and dormant housing markets has dented profit at lenders and has left them looking for ways to reduce liabilities going forward, analysts said.
“The problem is that all this is being forced down on them from Wall Street,” said Douglas L. Davies, a Seattle-based lawyer who represents lenders and brokers.
SOURCE: Reuters