Blame It On The Little Guy

Mortgage Brokers.... Rest In Peace

"The broker model is broken," said Calculated Risk yesterday, citing comments from Jamie Dimon of JP Morgan (JPM) saying that delinquencies on broker-originated loans are three times higher than on loans originated in-house.

What's more, says Paul Jackson of Housing Wire in an email to me,

If you want to discuss what will largely be the single largest effect on Main Street of the BAC/CFC merger, it's this: say goodbye to brokers.
Countrywide is (was?) one of the largest remaining mortgage operations with an active wholesale lending channel; while Countrywide has repeatedly said it is committed to brokers, BofA has a decidedly different view, having shuttered wholesale last year.
No one has talked yet about this, but you can bet that BofA will take steps to pull CFC out of the wholesale mortgage origination channel. And that will definitely be felt.

Jackson has dug up an old quote from BofA's Ken Lewis:

While Charlotte-based Bank of America wants to sell more mortgages, Lewis said, the company isn't attracted to the mortgage industry's business model. "We like the product, but we don't like the business," he said. He added that the bank is "not particularly interested" in wholesale lending through outside mortgage brokers and bankers - an area where Countrywide has a presence.

That doesn't mean Lewis wasn't interested in Countrywide, of course. Mortgages can and should be inherently profitable things, so long as they're underwritten intelligently. And Countrywide's servicing revenues are large and stable. But if Countrywide is now going to stop using outside brokers, as seems likely, the future for those brokers seems bleak indeed - after all, most other independent mortgage lenders have already closed their doors.

Frankly, in an era where people can get mortgage quotes online almost as easily as they can buy car insurance, I fail to see why mortgage brokers should exist. It would be an industry crying out for disintermediation even if it weren't obvious that mortgage brokers are top of the list of people to blame for the current mortgage crisis. In the debate about "predatory lenders" and "predatory borrowers", the bigger truth is that the real problem was predatory brokers - people who abused the trust of both lenders and borrowers. If they do disappear, they shan't be missed.

I felt the need to comment on this article because I was in negotiations with
Wachovia a few months ago. There business model is outright disturbing when it comes to the Mom and Pop broker shop: "We will do everything we can to bully them completely out of the market place. We will even go as far as to decline a great loan from a broker and approve that same file from in house."