Are Mortgage Brokers An Endangered Species?


By all accounts it seems the banking lobby will get everything they’ve been ask for from Congress over the past decade and in do so may legislate mortgage brokers out of existence.

A little history lesson is in order to understand all the political and media spin designed to sway their and public opinion away from mortgage brokers the banking industry orchestrated for the last 10 plus years.

During the 70’s and early 80’s, banks dominated originations carving out a whopping 80% of the retail loan applications. Brokers quickly picked up the slack and by the early 90’s the numbers reversed. The market, especially real estate investors, liked the idea of a personal mortgage broker who understood their goals scouring the landscape for the best products and rates.

Banks have never been know for the best customer service or pricing and the public punished them by fleeing to the broker community. During this time brokers enjoyed about 75% of all originations leaving the crumbs for the banks.

They didn’t take that lying down. The quickly got their lobbyists working on legislation that passed in 1999 to poison the market against broker by demanding brokers show their “yield spread premium” income while the banks were allowed to hide their own. The thought was the public upon seeing this often times enormous “profit” that was heretofore hidden would put brokers in a bad light with consumers and they would come running back to the banks.

It didn’t happen.

As it turns out consumer either didn’t know or didn’t care. Some critics ( myself included) would say the brokers decided one “dirty trick” deserved another and devised ways of obfuscating the YSP. After all banks were getting away with setting up an un-level playing field in the first place so they could claim they were just “evening the score”.

Undaunted in their pursuit of the killing off their competition, many believe the banks decided upon a “scorched earth” plan to rid themselves of retail mortgage competition once and for all.

The Plan was one they pulled from the S&L playbook a decade earlier. Give the mortgage brokers just enough rope to hang themselves just like the Savings and Loans did.

Remember the Savings and Loan crisis of the late 80’s?

Banks wanted the S&L’s out of the way back then too. When a few greedy large S&L’s decided they wanted “deregulation” so they could make commercial loans it was the banking lobby who helped them get it.

At the time it seemed like “strange bedfellows”, but it only took a few years to see the banking industry genius behind their “assistance. They knew the S&L’s were unprepared to thwart their own greed and would create a “banking and real estate crash” lawmakers and the public would rightfully lay at their doorstep.

All the banks had to do this time around was find an equally stupid idea, attach a lot of money to it, and let the brokers commit a little “banker-assisted” suicide.

Enter the subprime loan.

Bankers priced them, marketed them, and feed them to a stupid, greedy bunch who cobbled them down with out the knowledge they’d just been had.

It worked.

Lawmakers and the public are clearly laying the current real estate and banking debacle at the doorstep of mortgage brokers. Legislation will pass making mortgage brokers all but extinct.

It worked so well that the banks may have succeeded in taking down not only the brokers but the mechanism that put them in business in the first place…the GSEs…Fannie Mae and Freddie Mac.

On Friday there were cries to bailout the GSEs since they too got caught in the bankers web of greed. The infection of subprime losses it seems put both GSEs on tilt. With them out of the way, the broker have no hope of staging a comeback since it’s Fannie and Freddie’s pathway to the money markets that give brokers something to sell.

The banker planted subprime virus not only killed brokers and the GSEs, but will likely kill the real estate industry and economy for the next few years too.

But when the dust settles a few years from now, every one will go to a bank to get a mortgage because that is all that is left.

Mission Accomplished!

If investors thought getting a loan was hard before, just wait. You ain’t seen nothin’ yet.

About Author

Rob K. Blake, a 15 year veteran of the mortgage industry, is a renowned public speaker, author, and former radio talk show host. His blog,, is dedicated to educating mortgage consumers, mortgage providers, and investors about both mortgage and housing markets.


  1. Are brokers on the way out? Maybe. They’ve earned their spot, but they wouldn’t be the first economically viable profession to be strangled to death by more politically connected competitors. It’s a tragedy, but there it is.

    But did the banks engineer this? No. Don’t be silly. To believe that you’d have to believe that Bear Stearns committed suicide and that Citibank is risking the death of its entire organization just to squeeze out residential mortgage brokers. Um, no. This is a false conspiracy theory.

  2. Brock,

    Is it really so hard to believe? Bear Stearns is not a bank…they are an investment firm…and who bought them…JP Morgan Chase…a bank….at less than $10 a share…with the first billion insured by the Government.

    Sounds like another bank got a sweetheart deal…kinda like when BofA gets Countrywide with an enormous servicing portfolio for less than $8 a share.

    Citibank was on tilt at the beginning of the year (as much from bad credit card lending as subprime loans) but the sovereign funds of Singapore and the Middle East step in. Have those funds stepped in to help any other industry…investment firms, mortgage lenders, etc.?

    Gosh it’s almost as if they scripted it, eh? If they had actually gone under…you might have something …but they didn’t.

    I’ll bet you dollars to donuts when this is all over…not 1 major bank…depositor bank…goes under. As a matter of fact, they will be stronger at least that’s what Abu Dhabi’s investment arm and Prince Alwaleed bin Talal are betting on…

    My guess is they know something we don’t….or is that a “conspiracy theory” too?

  3. Rob,

    The Emirates have cash and know to buy stock during a downturn. Buy low, sell high. It’s not complicated.

    Sheesh. Can we get back to REI tips & practices? These “high brow” posts are mostly a waste of time.

  4. Colin - Buying Florida Property on

    Don’t know whether the banks engineered this or not – but they do seem to have a much bigger stranglehold on the market than they did before. Brokers we contact are nervous and find it very difficult to arrange financing quickly but our banks are more seem to be even more arrogant than previously.

  5. Have to agree with Brock here, the banks did not ejngineer this. The Harvard boys got suckered with one of the oldest street selling con tricks going. Guy opens a stall selling stuff in boxes,you bid and gamble on what is in the box. Except the guy in the street had mixed all the bad debt with the good debt and bingo.

  6. Oh, don’t get me wrong the guys on Wall Street paid the price for over-leveraging the CMO’s that took a bad bet and made it exponentially worse.

    The guy on the street who filled the box…that was the banks themselves. Sure the traders should have looked in the box, saw what was being sold to them before leveraging it and selling it around the world. And they probably did. But once again, the banks made it so profitable the “blind-eye” was as predictable a Wall Street reaction as it was a mortgage broker reaction.

    Banks are at the core of this and the proof will be as I said above, when the dust clears and nobody can get a mortgage from any source other than a bank…and of course, when investment firms, wholesale lenders, private mortgage insurance companies, etc…have their fair share of bankruptcies…yet no major depositor bank does.

    There is more going on here than meets the eye. There is power grab in regulatory authority where the Fed is trying to usurp the Treasury, the SEC, OFHEO, HUD, The Comptroller of the Currency, and the mortgage crisis is handing them the opportunity.

    If they win, banks win. It’s that simple. And they will win by pointing out the “fact” that investment firms, GSEs, wholesale mortgage lenders, and some non-depositor banks, all needed “bailing out” or actually went under. They can then point to the entities under their control – depositor banks – and say, “Look what we were in charge of is fine. Put us in charge of all of it and you’ll never have another debacle like this again”. And sadly that might just work…

    Thank goodness for blogs and comment sections so I can come back in 3 years and say, “I told you so…”

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