Even if you’ve been living in a cave for the last few years, if asked, “Who caused the mortgage meltdown?”…the mortgage debacle that triggered a bank implosion and a real estate market slide that would make a Japanese landlord cringe…
You’d answer…”Those greedy mortgage brokers are the cause of this mess.”
Why would you pull that answer out of your hat?
Because that’s the most common answer everyone comes up with due to the never-ending barrage of bad press mortgage brokers get in the mainstream media. I’ll not rehash all the attacks as it only serves to perpetuate the myth. Suffice it to say, from a real estate investor perspective the demise of mortgage brokers will make life much more difficult.
What I will discuss is the systematic dismantling of the wholesale lending industry that is quickly making being a mortgage broker so difficult soon there may not be many left.
Bank Wholesaler Slaps Brokers in the Face
Last month we heard the CEO of Citigroup imply the reason they pulled out of wholesale lending was the poor quality of the broker mortgages they received. A ridiculous accusation that a company spokesperson qualified the following day. But the damage was done. Another news cycle blaming mortgage brokers for “poor quality” loans.
A few months back, we had the New York Attorney General Cuomo get his dander up due to what he called a systemic over-valuing issue. The case involved Washington Mutual and an outsourced appraisal management firm called eAppraiseIT. The short version (here is the long version) is Cuomo found a few emails where he noticed undue pressure was being exerted by Washington Mutual on the appraisal firm to the “hit the number”. This could in fact create overvalued homes, but without due process proving the allegation, he simply threatened Fannie Mae and Freddie Mac with a lawsuit.
Fannie Mae and Freddie Mac caved in to the pressure and settled with Mr. Cuomo. The agreement reached ended up forbidding mortgage brokers from ordering appraisals as part of the mortgage process.
How did mortgage brokers get blamed again? The alleged wrongdoing Mr. Cuomo supposedly found, if true, was committed by a bank…Washington Mutual…not a mortgage broker!
The news cycle once again runs for days how mortgage brokers can’t be trusted to order their clients appraisals.
This can’t all be a coincidence, right?
PMI Companies Deal the Final Blow
And finally today The PMI Group of San Francisco announce it won’t insure mortgages originated by mortgage brokers!
If that’s not punative…I don’t know what is. This could be the last straw for mortgage brokers. How is a mortgage broker supposed to make a living only doing loans that don’t require mortgage insurance?
This would mean he could only originate mortgage at 80% LTV or less…impossible!
The National Mortgage News put it this way…
“In what could be another nail in the coffin of the loan brokerage industry, The PMI Group of San Francisco confirmed it will no longer insure any mortgages brought to them by third-party originators unless these firms have a warehouse line of credit.
It’s believed that PMI is the first of the nation’s seven MI firms to totally exclude loan brokers from their coverage menus. In recent months other MIs – including Genworth and MGIC – have tightened guidelines on broker-sourced loans, particularly condominiums and high LTV notes. A PMI spokesman confirmed the new policy change to National Mortgage News adding that, “This does not apply to correspondents.” He said PMI would honor any commitments on broker loans in its pipeline.
Marc Savitt, president of the National Association of Mortgage Brokers, said he is seeking a meeting with White House officials to discuss issues affecting brokers (including the PMI matter) and believes the sector has been unfairly blamed for the nation’s mortgage crisis. “We don’t underwrite loans,” he said. The NAMB chief believes the nation’s largest commercial banks are part of a “well orchestrated campaign” to put brokers out of business and gain market share. In a letter NAMB sent to the White House today he writes: “Make no mistake about it. This campaign to eliminate our profession has absolutely nothing to do with consumer protection. It’s about market share.”(emphasis added)
PMI Companies Do Bankers Dirty Work
Mr. Savvitt is right. This has been the plan from the beginning. The maga-banks have always coveted the market share mortgage brokers possessed. Don’t think for a second they couldn’t pull off the destruction of their biggest competitor. The banks have the clout to pull this off. Clout with the media, the politicians, and obviously they have enough clout with the PMI companies to get them to do their dirty work.
Real estate investors definitely have a dog in this fight. Where is the real estate investor left when the only place to get a mortgage is from Bank of America or Wells Fargo?
Out in the cold…that’s where.