Mortgage Brokers Get The Final Dagger In The Heart


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.

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. Andrew T. Berman on

    It’s a total shame what we have witnessed. Mortgage Brokers have been repeatedly blamed for the actions of retail Mortgage Bankers. I have seen politicians talking about large Mortgage Bankers like Countrywide and Argent (when they were around) and call them Mortgage Brokers.

    Mortgage Bankers “let” Mortgage Brokers exist because they knew it was a very efficient model for originating beyond their physical branches. Once the blame game went from Wall Street to the Bankers, they were quick to let that slide right down to Mortgage Brokers and make them the ultimate scapegoat.

  2. Something you may be missing in this regarding the PMI companies and the broker relationship. Brokers sell the mortgage, they pass the buck along. Once it is out the door they are free and clear for the most part. If there is a problem later with a fraudulently originated loan, the PMI company gets left holding the bag.

    In theory, the risk should be somewhat mitigated if the originator has skin in the game. The reality is that the lender’s goal is to securitize it and leave somebody else holding the bag anyways.

  3. I read this article and think the author is being very short sighted. I don’t think the only reason (or the main for that matter) is quality. Let me ask a question…to sell MI or mortgages to people you need what one thing….CAPITAL….

    If I were your stock broker and said hey Mr Blake I have got a great stock for you buy in 2009 some CITI stock and take the other half and buy stock in all the MI companies (this same stock that PLUNGED in 2008 from low 30’s to 2-4 per share now!!)….would you throw me out the door?? (answer here is currently YES out the door) ok so now your a decision maker an MI company you only have so much capital to pay for record foreclosure rates and claims and get new business…. who do you help?? The small broker who sends 10-20 loans a year or do your best to stay in business with the big boys on the market who send thousands??

    This is not a scolding…like you are writing about how mortgage brokers are being unfairly blamed..please don’t attack MI companies. If you want them to keep working with brokers call all your friends and buy stock in all the MI companies..more capital = more loans insured. That simple!!

    Lets not let the screwballs in congress who are really to blame, make us turn on each onther in these hard times!! We need to stay togeter and demand clowns like Barney Frank and Chris Dodd quit now before they do any more damage.

    We are on the same team here please understand that!

  4. Good loan officers that currently work under mortgage brokers will move to the banks. Good mortgage brokers will shut their doors, and likewise seek employment with large lenders. Meanwhile, bad loan officers will continue to exist, also working with major lenders because they have federal charters that effectively shield them from legal exposure. Long story short, competition decreased, consumer costs increase, and the big banks win.

  5. I am not sure where the majority of the posts have gotten their infomration but a fradulent loan originated by a mortgage broker that causes a default with the lender in the first 12 months MUST be purchased back by the mortgage broker. That is how I am SURE most brokers do not submit fradulent loans to lenders. It all goes back to the lender underwriting said loan and dotting its’ i’s and crossing its’ t’s. If this was done ny the lender there would not be ANY fradulent mortgages being pushed through the lending process.

  6. In regards to Phil C post…Phil what your reffering too is correspondent business…that is not broker business. Allot of people don’t know the difference.

    A correspondent closes the loan on thier own warehouse line…sends the loans in review (dotting the i’s and crossing the T’s as you say) after the loan is closed, and then you correct if fruad is found the correspondents warehouse line is charged back for the loan so they have as much incentive as the lender does to keep the loans running. Brokers just send in the loan to the bank..the bank fully underwrites the loan and does all kinds of third party checks to insure quality, if something goes wrong the only thing that happens to the broker is thier broker ID is closed… then they go to the next bank until someting happens there. Trust me i have been involved with tracking down brokers for years.

    I as mentioned in my response fraud is not the main issue for these moves…it a capital thing not a quality thing.

  7. As an appraiser who took a hit in 2003-2007 because I would not sell my integrity to mortgage brokers, I find it hard to feel sorry for them. I had dealings with small & large brokers who I had to almost stand on their windpipes to get paid, and in 2003-2004 had to write off 40% of my billings as uncollectable. Then caught “he double hockey sticks” because I wouldn’t “hit the number” and in fact, more than one broker used profanity at me because I would not “play the game”. I’ll be the first to admit, I’m not good enough to call a value within $1,000 (I’m thinking $84k but $85 makes the deal, as long as it is within the range of values), but when I thought $85 and the broker wanted $150, I just said NO. I know there were appraisers out there making good money by hitting any number for the mortgage hores who didn’t care about the people they were putting upside down (although borrowers have to take as much of the blame because they knew their homes weren’t worth what they were borrowing). Both the borrowers and the brokers wanted to just take their money and run. Real estate brokers & sales people were just as guilty as well when they were writing FHA loans with “down payment assistance” and FHA was taking these like a heart patient popping Nitro. I think the greatest thing in our business was when FHA “JUST SAID NO” to down payment assistance from sellers (no matter what the route). One “not for profit” program was raking in over $20,000,000/month in “processing” fees (can we say Jim & Tammy ?? PTL & pass the collection plate). Now that state licensing boards are suspending licenses (if they revoke, the culprit can just go through licensing process again, that’s why a 50 year suspension is not atypical anymore), our industry is finally righting itself. Sometimes it just takes a million pound doo doo hammer to get the point accross that fraud in securities (which starts with fraud/errors in mortgage origination/lending process) has to stop. Until investors have faith in the ENTIRE process, the “credit lockup” isn’t going to go away.

  8. The reason mortgage brokers are being taken out of the loop, is because of there influence over the valuation process. I’m an appraiser and I get an average of five calls a week from mortgage brokers looking for comp-checks. Definition of comp-check: Meet My Value!!! Mortgage brokers have no one to blame but themselves, and the appraisers who went along with their program.

  9. While there are certainly some bad mortgage brokers out there who deserve to be run out of business, not all of them were bad. The same could be said about appraisers.

    What burns me up is the banks with the help of some corrupt poltiticians and benefit of tax payers’ money that walk away scott free.

    The problem of fraud will continue in a different form. Some of the appraisal management companies will now assume that role; we have already seen it with Wamu and E-appraise it.

  10. As an Appraiser, I too find it hard to feel sorry for the crooks in the mortgage broker field. These folks would put pressure on the appraiser for values as well turn times and have the nerve to withhold payments if there numbers were not hit. When the appraiser would not allow these crooks to prevail they would comp search until they find a weak or crooked appraiser to hit the number for them. I am happy to see them getting what they desrve. It’s the bad apples in the broker field that has spoiled it for the very few; I mean very few brokers with integrity.

    If the brokers want to regain confidence with the puplic and other business professionals in the industry they should report the bad brokers instead of looking the other way. By looking the other way you have allowed your bad brokers to betray the publics trust.

  11. Among the appraisers I know the one goal in starting your own business is to get on lenders list to avoid the pressure and lack of payment from brokers. I’m sure there is some honest one’s. But over the past 10 years I don’t think I came name more than 3 or 4 lenders or brokers that didn’t pressure you. Are you familiar with cut and pasters. Have run across several that were brokers and lenders. Where I am at the real estate agent told the loan org or broker who to use. If you killed a deal the agent to the lender I want refer my customers to you if you continue using that appraiser. Hell country wide was one of the absolute worse. Don’t feel bad brokers they have been wanting to rid of the apprasiers too. AVM’s and now BPO’s for foreclosures. When I first got into appraising my supervisor told me that once you start pushing value and not putting needed repairs down your name would get around quick and the local banks wouldn’t use you. Not anymore so many small town banks were acquired by the big nationals that a honest appraisal went out the door with sales and profit goals replacing. I have been very disillusioned for a long time. Have been trying to start a different business and get out. I currently utilize my appraisal skills for investing for myself. I was telling realtors in early 05 that the market was over supplied and starting to decline. Wouldn’t believe me. I got alot of satisfaction out watching alot of them loosing investment properties to foreclosure and going bankrupt over the past couple of years.

  12. Greed is at the heart of the mortgage mess & the greedy mortgage brokers, along with the greedy real estate agents, geedy homeowners, greedy buyers and greedy sellers fed the greed of the greedy lenders and the greedy executives of these lenders and the greedy Wall Street brokers and greedy investors.

  13. Truett Neathery on

    Also, excluding Licensed appraisers allows Certified appraisers who have had their cert for 3 months can garner all the appraisal business in areas that have few conforming properties and would be misunderstood by inexperienced appraisers who were hired by price and speed. Same problems all over again, just a little farther down the road.

  14. I have been an appraiser since the 1970’s–probably before most of the “bloggers” were born. I dont know why anyone is upset, surprised or shocked the market collapsed—it makes a correction every 10 +/- years, remember? Of course every bust cycle has a new villian–let me see, once it was the Savings and Loans, but the appraisers ended up being blamed for that one (the reason we now have licensing); then one cycle was Jimmy Carter recession/inflation/stagflation 20% interest rates debacle; the 94 Clinton meltdown; 2000 dot com bust followed by 9/11 2001. Each cycle had a completely seperate cause, but the one constant in every cycle is the only thing anyone remembers–housing prices collapse.

    And please, if I hear one more appraiser whine about some other appraiser who did or didnt give someone a value on some property, and how unfair it all is, and it hurt business, etc, etc. Welcome to the adult world. Exactly which profession out there doesnt have it’s ethical issues as it is practiced? There will always be someone who will do anything for something!

    But in this case, we all know the root cause of the current debacle—idiots like Barney Frank, Maxine Waters, Chris Dodd—–morons who cant even spell economics, and probably havent had a private sector job since high school, who were politically seduced by smooth talking, financially savey, more educated wall street con’s who stroked their egos by spounting the touchy feely socialist/communist dribble as in a house for every family whether you can pay for it or not garbage, that created the environment for fannie and freddie’s loosening of underwriting standards and loan programs.

    Come on now—if you are allowing 100% financing to buy a home, at 4% interest—exactly what did anyone think was going to happen when 1) housing prices dropped even just a little? or interest rates raised, just a little? It doesnt take a rocket scientist you know!!

    That is the saddest part of the current situation–the people in control are frankly, too ignorant to understand the dianamics of their actions.

    Cheer up—-we finally are bottoming out—-and we can all look forward to the new boom cycle!!

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