Jay’s Note: Please give a big Phoenix Real Estate Guy welcome to Justin McHood, mortgage guy extraordinaire, from Arizona Mortgage Team. Justin’s going to contribute here on a quasi-regular basis — until he runs away screaming like a girl, quits or gets fired. His insight into the world of mortgages should prove beneficial to us all! Follow him on Twitter @jmchood.
Earlier this week, one of the largest mortgage brokers in the US shut its doors – not all that uncommon in today’s marketplace. But what was unusual was the candor of the CEO when addressing the challenges of the mortgage broker business model.
“With everything that is going on in the industry, I feel the broker model is dead. With HUD policing 1% origination fee more, the upcoming disclosure of YSP as a fee that is coming out of the borrowers pocket, etc, I think a company really must bank to be competitive.
By enforcing HUD’s requirements and not having the flexibility of a banker to offset it, there are no margins to pay for the proper infrastructure to maintain compliance and QC and have decent margins left. The warehouse line credit is 10% what it used to be so if a company is not a banker already, it is not going to happen.”
For a moment, let’s assume that this CEO is right and that the mortgage broker model is dying – or already dead because it is not profitable.
Is it a good thing if mortgage brokers just go away?
Maybe, maybe not.
Getting A Mortgage: Easier or Cheaper?
Most people I speak with generally feel that the way the average person finances a home and obtains a mortgage is a complex web of potential pitfalls and is far, far too complicated and cumbersome. If the mortgage broker channel is eliminated, will it become easier to get a mortgage?
Probably.
But if it becomes easier, that doesn’t mean it is a good thing.
One of the benefits of having multiple channels a consumer can get a mortgage is that with the current system, generally speaking the more informed a consumer is about their options, the “better of a deal” they can get.
Simply put, you can turn your brain off, walk into your local bank and ask them “where can I get a mortgage” or you can use your brain and your body and try to hustle around and find a better deal than the bank will give you by using a mortgage broker.
If the mortgage broker goes away – in a relatively short period of time, perhaps mortgages will become a one-size-fits-almost-all type of financial instrument – where there really isn’t a way to get a deal any different than everyone else gets.
Will it be easier to get a mortgage if the numerous options are consolidated and mortgage brokers just go away? Probably. Will it mean that everyone gets a better deal on their mortgage because the process of getting a mortgage will become easier? Probably not.
But in my experience, if given a choice between the two, most people I see would choose easier over cheaper.
And if you believe the “easier over cheaper” argument, it isn’t hard to see how the regulatory changes being made combined with popular opinion about mortgage brokers in general, the mortgage brokers will all soon be going away.
Maybe the CEO was right after all.
About the Author: Justin McHood is a mortgage broker with VanDyk Mortgage Corporation. You can find him at Arizona Mortgage Team, on the Zillow’s Mortgages Unzipped Blog, and at most East Valley Friday Nights gatherings. He’s the one in the blue shirt.
The Phoenix Real Estate Guy was started by Jay Thompson, and I have a little blogging problem... he liked to say...
Jay,Some of my clients need a broker and some do not. The problems arise when the agent uses only one referral source for all clients, regardless of the need for the extra cost services. It has more to do with the credentials of the borrower (or lack thereof), than the lender services and costs. Some need more attention, some don't.The problem in all facets of our industry…agent cost too.,.is that there isn't a cost structure that makes the differentiation, under one roof. Charging client X who needs less attention the same as client Y who doesn't…is like always paying for a steak, when you are only ordering a cup of coffee. If the industry at all levels doesn't change that…then it must die in order for people to be treated fairly. It's up to us…has been for a long time…and the industry has failed the consumer in that regard on many levels.
In my local area the mortgage broker has pretty much died out for several reasons. The real impetus was when the smaller banks started going under and Homecomings Financial changing their policy on brokering loans. Then the REO surge with bank sellers requiring pre-quals through their LOs and/or only allowing financing with direct endorsement ldners really put the nail in the coffin.WIth most buyers now using government programs they feel it is a one-size-fits-all. Because of the dwindling pool of LOs in my area I now advise clients to talk to their bank or credit union first before I refer them to any local LOs I may know.
Jay, congrats on another great addition to the blog. Justin is very good at the "tells it like it is" writing that has always been such a huge draw here on TPREG.Justin, as far a mortgage brokers… Who knows? But, I'm glad to hear your .02… Maybe there will be a way to get a "free mortgage" once all the dust clears.
Is he required to wear a blue shirt while blogging too?
Justin, If the mortgage broker goes away we are left with the four horseman of the apocalypse, Wells Fargo, Bank of America, Union Bank, and CitiBank. I always give my Clients a selection of names to compare rates and service. While the major brands are included with good loan agents, I will always give the option of a Mortgage Broker for all the reasons mentioned in your post.Competition is good for the Consumer for pricing and service. My father always told me that a cheap man pays twice, so like your real estate agent, pick your loan dude carefully.Best of luck on your posting, you certainly jumped into the deep end of the pool with Jay's following.
CONGRATS!
Justin, the only problem with the bank vs broker scenario is the bank has limited offerings, the broker in the past had many more options.As in any business, the ethics of the different entities varies. Banks in no way are as honest, and often are not near as competent as a broker is.If the broker goes away, it will be a sad day for agents.
I really liked this post but I also have to say I disagree with some of the comments. The death of the mortgage broker will only mean less personalized service for borrowers and the same if not higher costs. Gone will be the days where your local mortgage broker stopped by your home for dinner and completed your loan application on a Saturday. Big banks are too slow to get out of their own way. There is too much red tape and too much bureaucracy for them to be effective. Think I'm joking? I have Bank of America on the phone right now and I have been on hold for 2,584,998,782,983,224 hours! Furthermore, if we do move to the "one size fits all routine" this will also effectively kill the free enterprise model that has made our country so great. That's why restaurants have menus. People need choices! Personally speaking, eating cheerios for the rest of my life sounds rather boring. I feel sorry for the "good" brokers that are being pushed out of the business. Let's just hope they find homes with small boutique banks that remember what customer service is all about.
Hey themightyquin,I could not agree more! People need choices not fixed monolithic bureaucracy.Good mortgage brokers will make it, bad ones are truly dead men walking including hopefully those real estate agent/mortgage brokers.
Oooh, did someone mention real estate agent / mortgage brokers? Like the same person doing both jobs? I wrote about that over two years ago:http://www.phoenixrealestateguy.com/the-combina…..I think my stance on this combination is clear….
I'd rather see him in a blue shirt than say, his underwear. Or worse…
Mortgage brokers are part of the process and I doubt that they could ever be removed from the equation. Agents could never handle those extra complexities, and without a mortgage broker people would have no real options for shopping for the best deal for them.-Tyler
First: HOLY MOLY. Ok, I am going to keep up with comments the best I can — bear with me, I am a pudgy slow kid that somehow got on this racetrack and it might take a while to get in shape.Here goes:@facebook-714:"the industry has failed the consumer in that regard on many levels…" <I agree, and if you ask me, a complete re-vamp is needed but that is an entirely different story>@MattGood point on the "government-one-size-fits-all" programs – FHA is FHA. What amazes me is how good some companies can be at FHA and how bad some companies can be at it. 90 day turn times at one, 10 day turn times at another. Turn times seem to be the main differentiation [email protected] for the kind words – your ransom payment is in the [email protected] have different shades of blue shirts… some days I feel like light blue, others I have to go with dark. With flame orange hair… gotta be careful with shirt choice so my fashion consultants [email protected] point. If I were a Realtor, I would probably try to find a loan officer who had the ability to "shoot straight" no matter where they worked — bank, broker, whatever. The ability to be authentic is probably the most important quality in today's mortgage world – and in my opinion, I have met more authentic loan officers lately as the industry shakes out.As far as the deep end… I hope I can hold my breath for as long as I thought I could when I jumped until I can surface and learn to swim with the big [email protected],Thanks, let's see if I can keep [email protected],I agree with your comments generally. In a free market, more choice is better. I didn't want the post to turn into a socialism/free market discussion but it could have easily went that [email protected] like this "Let's just hope they find homes with small boutique banks that remember what customer service is all about." If you are a good mortgage broker, my recommendation is to at least try to find a place like this to land so that you can stay in the industry and keep making a living.
Justin, Key word is "authentic". The consumer is looking for that in real estate agents and lenders. I have an excellent mortgage broker that has been a straight shooter for years.The good thing about the deep end of the pool is you either learn to swim very quickly, or you try to get out of the pool – don't let us see you.. what did Jay say?, "run away screaming like a girl" – take big breaths!
Justin,First off, Congrats at the new author position at PREG. Personally, I like the idea of having a broker shop for me. Whether its for cars, real estate, insurance or loans. It's nice to know there is a professional who specializes in something I may not have sufficent knowlege of. Although it seems like a bank is needed to have a "speedy" close right now or even to be eligeable to make an offer certain REO properties. I feel like you loose options when walking into one bank and ask, "What can you give me?".
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I don't think the industry would be the same if mortgage brokers went the way of 8 track tapes (I know – this dates me). So far in 2009 our clients who were working with a mortgage broker closed 100% on time (and occassionally early). In *every* transaction we've been involved in (whether our client was the buyer or the seller) where the lender is a bank, the sale has closed and average of seven days late. In every case it's been an issue with the banks being so backed up in loan processing that they can't get the loan documents processed on time.We know some very good mortgage brokers and typically provide a list to our clients who ask for a recommendation.
@Francy,Agreed! It has been my experience that some of the best loan officers in the business have worked in small broker shops and have built up a loyal client base.I think one of the biggest reasons they have a loyal client base is because these brokers are in the service business – and when it is a bank, they are in the… well… "banking" business I guess.As I talk with other loan officers in the business, there is a low rumble going as the regulatory environment changes to where it is going to become difficult if not impossible for a broker to operate, but it might be slightly early to play "taps" yet. But the danger of brokers riding a dinosaur is real because of the regulatory changes looming.What I see happening is most of the good loan officers who work as brokers are at least thinking about getting a backup plan – where they could still be in the business and not end up working for THE Bank of America!In my experience, not matter what ends up happening — the good loan officers will always find a way to help get their clients a loan… no matter where they end up working.And it remains to be seen if those loan officers can still get loans closed early when they work for a bank!It will be an interesting case study.
@Brendan,Thanks – hopefully I won't end up running away screaming like a girl.I agree with you generally, any time you use a broker, it is their job to hustle up and find you the best deal – where if you go direct to the large company you end up feeling more like a number standing in line at the DMV.It will be interesting to see what kind of changes come down the pipe as the big banks get more leverage and the regulatory environment changes… will the mortgage broker model be left standing?Honestly, I don't know.But in the free market system, I think it is safe to say that "more choice" is a good thing, not bad.Justin
It is going to really be interesting to see what the Zillow model does. So far they have some pretty awesome calculators and ways for consumers to compare rates and costs of the loans.
Great Post! I enjoy reading your blogs. I am a Dallas Realtor and I know for myself, I couldn't do my job without a great mortgage broker.
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The future of Real Estate has forever changed! Mortgage brokers, Realtors, Appraisers……pull up your boot straps and dig in. Times have changed. Have you??
Justin,First, I agree people often prefer easier over cheaper. Have you seen the premade frozen peanut butter and jelly sandwiches at the grocery store? How much can you pay for laziness? The price is on the box.Anyhow, statements like these are generally made during times like these. People, like the CEO of a closing company, will make statements quickly without fully taking into account the extreme nature of the comment.While there will be changes in the mortgage business, mortgages will always need people to sell them. The companies can't afford to not have the brokers out there selling. If they aren't selling then, when the market changes, people won't refinance. Then the price of laziness will be the interest rate and other factors they're overpaying.
Do you think that this is a result of a higher forclosure rate with brokers? Or something else?
@Matt,Agreed — "mortgages will always need people to sell them…" in some form, there will always be loan officers out there helping people… no matter if they work for a big bank or a small broker shop.We will have to see how it all plays out!
@Craig,My personal opinion is that it is mostly a combination of regulatory changes and a land grab going on by the larger banks. Again – opinion only – I think that the foreclosure rates of the various channels have a small amount to do with it.Thanks for the comment!
Yeah Congrats on the new postions. Keep up the good work
Yeah Congrats on the new postions. Keep up the good work
Nice post and congrats. It is true though without the broker things may go easier but the costs will increase due to the lack of competition. So to say that things would be better without the broker is hard for me to believe. It really does depend on how you look at it. If price doesn't matter at all then it's better for you. If you don't like being screwed around by the monster banks then you want to keep the brokers.
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I don't think this will be the death of mortgage brokers – gosh I hope not, I'm one of them. I do think some will get weeded out. Hopefully, the ones that are left are the straight-shooting, authentic mortgage brokers who really care about putting their customers first. -Todd K.
I want to extend my sincere congartulations for Justin, the new author position at TPREG.
Its nice to hear that I do not have to worry about the services and walk by distance,because, brokers will do the shop just for me. Especially for me that is involved with the real estate, and other financial matters, Its a good-break idea that Justin had offered.Whether its for cars, real estate, insurance or loans. It's nice to know there is a professional who specializes in something I may not have sufficient knowledge of.