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?
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.