Death of the Mortgage Broker

OK, we've been lead down the garden path for the last time. No more dealing with mortgage brokers and especially no more "lender slash agents". The mortgage industry is in turmoil, and mortgage brokers are one of the casualties.

Here's what's going on - a mortgage broker is someone that does not work for one of the big lenders, like Countrywide, BofA, Wells Fargo, IndyMac or WaMu. Instead, he or she packages a loan and takes it to the wholesale department of a bank. In theory, the mortgage broker can offer a better deal, because he can take what he is paid by the bank and use some of that to get a better rate for the buyer. Also, he can shop the different banks and see who has the best deal. So for the last 19 years, this was not a bad way to go.

Fast forward to today. Most of the sub-prime abuses have come through mortgage brokers, so banks are now very leery of loans brought in by brokers. They will be at the bottom of the pile. They will get extra scrutiny and require all kinds of weird documentation from the borrower that we've never seen before. And once you get final loan approval with all conditions met, the bank may decide to send the package to a SECOND underwriter or require a SECOND appraisal just to make darn sure. So forget about a 30 day closing when using a mortgage broker. Try 60 to 90 days, and that's if it ever closes at all bacause banks are tightening the requirements every week.

How do I know this? From the school of hard knocks.

Some mortgage brokers I know have given up being independent brokers and have opened a Countrywide office. Doing what they have to do to survive.

Whether the mortgage brokerage industry will come back when things settle down, or whether they will be gone for good, or whether they will evolve into something different that we have not yet seen, I don't know. But I do know we are witnessing a major change, and there will be a lot of people that don't make it.

For now, all I can do to protect my clients is to make sure that any buyer is pre-approved with one of the big banks. A pre-approval letter from a mortgage broker is worthless. Sometimes the certainty of closing is worth more than saving an eighth of a point on a loan.