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The Fate of Mortgage Brokers is not a Happy One

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By : John Smith    99 or more times read
The few mortgage brokers who survived the foreclosure tidal surge are in many respects innocent of charges leveled at them. In many cases they took more care than bank call centers to match their clients to their offerings, and thereby spared them frequently from foreclosures. Unfortunately for these brokers though, their markets dried up around them and many became victims of the recession too. Thus, in the end they shared their fortune with the larger lending industry – the market’s faith is gone, it needs rebirth, and an assurance of even stricter standards too.

There are now less than a third of mortgage brokers remaining, compared to when American residential markets experienced their final peak. Those who remain are short of business and treated like the plague by most potential clients. At their peak the brokers were involved in over half the nation’s home loan approvals, and earned good income from commissions. The 8,000 survivors from the 23,000 brokers registered with the National Association of Mortgage Brokers in 2005 say that long term relationships with key customers and realtors keep them going, helped along by their not having recommended dodgy products like adjustable rate junk loans that simply could not survive the mortgage disaster.

“They were and always will be considered crap,” a somewhat forthright California mortgage broker still in business told me. “We knew that Countrywide’s products were junk that would get people in trouble when the market went to hell, and I knew that if I wanted a business when the boom went bust that I [had] better not sell that crap because they would get foreclosed. “What our industry really lost was integrity. These young kids that came into the business to make a lot of money fast did [just that] and now they’re gone.”

These days, of course, the government has made the home loan industry tighten up its act, and getting mortgages is now much harder for homebuyers. Many direct lenders have gone broke too as their funds dried up, and they’re now down to 650 compared to nearly 6,000 in 2006.

The mortgage industry’s reputation disappeared along with throngs of discredited lenders and their discarded mortgage brokers. That’s not completely fair. Many of the mortgage brokers who remain were sober ones whose clients survived foreclosure. The system is much safer now, with better rules in place – but will the nation’s memory hold when the boom times inevitably return?

To my mind mortgage brokers provide an essential service, especially to new home buyers ignorant of the pitfalls in an aggressively scavenging market. Personally, I hope the good ones do survive.
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