Mortgage brokers fall on tough times
Mortgage brokers are leaving the business in droves as the crisis in subprime mortgages leads to fewer products to sell, tighter lending standards and a backlash from lenders who blame them for the meltdown.
Brokers don't lend money, but they match home buyers with lenders in 58 percent of all home loans. They typically offer loans from a dozen or so banks and lenders, earning commissions of 1 percent to 3 percent from the borrower, lender or both. Their ranks swelled during the real estate boom.
Several thousand of the nation's 53,000 brokerages closed this year, say the National Association of Mortgage Brokers and research firm Wholesale Access. By early 2009, just 30,000 firms will handle fewer than half of all home loans as the industry suffers a record shakeout, predicts Tom LaMalfa of Wholesale Access.
Much of the turmoil is due to the housing slump and surge in home loan defaults. Unconventional loans that fueled the crisis, such as no-down payment or interest only, have become scarce.
Lenders are also demanding higher incomes and credit scores before approving even conventional loans. Audrey Acquisti, owner of MSource Financial Group in Clarkston, Mich., says about half of her mortgage applications don't result in loans, and thus produce no revenue, vs. 20 percent six months ago. She and other area firms are weighing a merger to cut expenses.
Darrell Sexton shuttered his Indianapolis brokerage, The Money Station, at the end of last year after sales plummeted from $5.2 million to under $1 million in three years. While Sexton's firm also was a lender, much of the decline was in his subprime brokerage business.
Sexton says he had to put his own 7,000-square-foot house up for sale, though it has languished because of the housing downturn. He's looking for a sales job in another industry.
"You begin to question your self worth," he says.
Compounding the stress is that some lenders and lawmakers blame the crisis on aggressive brokers who they say pushed mortgages that customers didn't understand or couldn't afford. Brokers can earn higher commissions by steering borrowers to loans with higher interest rates.
"Who made this mess? The short-term folks," John Robbins, who chairs the Mortgage Bankers Association, said in a May speech.
In an interview, Sen. Charles Schumer, D-N.Y., singled out "rapacious" brokers who are "sort of the Wild West." He has introduced a bill that would prevent brokers from touting mortgages that are not in borrowers' best interest.
Some lenders are taking heed. Wells Fargo has stopped selling subprime loans through brokers.
Brokers concede there are some bad actors, but say they're just peddling loans lenders develop.
"It's like blaming the corner grocer for lung cancer because they sell cigarettes," says broker Marc Savitt of Martinsburg, W.Va.
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