Mortgage Lenders

Lenders shutting out mortgage brokers

 

From CNN:

Some big banks have cut back on doing business with mortgage brokers - and if the trend continues, many mortgage brokers could close down.

That may be bad news for consumers because fewer brokers could lead to a less competitive marketplace and more expensive home loans resulting from consumers not being able to easily comparison-shop rates.

“The banks want to get rid of mortgage professionals to reduce competition,” said Alan Rosenbaum, founder of GuardHill Financial, a New York City-based brokerage firm. “It’s not good for consumers.”

A few years ago, according to Rosenbaum, mortgage brokers were responsible for 80% of the mortgage-lending business in America. He said that’s probably under 70% now and dropping.

The actions of two big banks have helped push that percentage down.

JP Morgan Chase (JPM, Fortune 500) announced in January that it would end its so-called wholesale operations. It will no longer fund loans arranged through brokers, instead it will make loans mostly through its own offices. And Citigroup (C, Fortune 500) said it will cut back the number of mortgage brokers it works with to 1,000 from 10,000.

“Our customers are best served when a mortgage officer works directly with them, explains our products clearly and then helps them carefully evaluate the choices in light of their personal financial situation,” according to an internal Chase memo.

However, brokers say they perform a needed consumer service by monitoring offers from an array of lenders, picking and choosing the best deals. That helps keep rates low because lenders have to make their terms attractive to keep their volume flowing.

Borrowers going into a Chase branch for a mortgage loan would, on the other hand, only receive the terms available through Chase. If brokers disappeared, borrowers would have to shop all the individual banks to compare deals.

Marc Savitt, president of the National Association of Mortgage Brokers, suspects that banks like Chase may think they can increase profits by cutting out the middlemen, but the added costs of bricks-and-mortar operations will ultimately make the business less efficient. Loan officers may find themselves sitting around waiting for customers to come in rather than fielding applications from mortgage brokers.

Nice to see that CNN has finally picked up on this. It’s only been going on for two years or so.

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