Mortgage brokers jump ship
From The Real Deal
By The Real Deal, Monday, January 18, 2010.Editor's note: This article is reposted with permission by The Real Deal. Click here to view the original article.
By CATHERINE CURAN
NEW YORK -- Richard Bouchner, who co-founded real estate and mortgage brokerage Commodore Property Group in 2003, thought last month that business was returning after a tough year for mortgage brokers.
He'd gotten a referral for a borrower he described as a well-qualified, financially savvy New Yorker buying her first apartment. He'd arranged a 30-year fixed mortgage of around $480,000, at 5.125 percent with no points.
Then his client read the fine print, saw that he'd make $4,800 on the deal, and opted to get her loan from the bank instead.
"She said, 'Rich, I don't feel comfortable with this yield-spread premium,' " Bouchner recalled, referring to the money a mortgage broker makes for locking in an interest rate above par on a loan for a borrower. Banks don't have to provide similar disclosure on their profit on a loan.
Bouchner's experience reflects a massive shift in New York City, and nationwide, away from mortgage brokers, who have access to a variety of mortgages from lenders, and toward banks, which make mortgage loans directly to buyers.
Mortgage brokers saw their share of the business decline steadily in the first three quarters of 2009. In the third quarter, mortgage brokers accounted for just 12 percent of total mortgage originations -- their lowest share of residential mortgages in the 20 years that Inside Mortgage Finance Publications, a Maryland-based publisher, has tracked the industry.
Meanwhile, large banks' share has ballooned to 51 percent, the highest Inside Mortgage Finance has ever seen, according to publisher Guy Cecala. Correspondent lenders, including smaller banks, credit unions and larger mortgage broker firms, make up the rest.
"Generally that's the trend on a national basis, and on a more macro basis, mortgage brokers have become an endangered species," said Cecala. "There's a major onslaught [against them], and a serious question right now whether the mortgage broker industry will ever recover."
In New York, a Darwinian struggle is underway.
Independent mortgage brokers are decamping for the relative safety of big banks. Other mortgage broker firms are keeping staff lean to weather the downturn. Brokers still in the game face a long and growing list of hurdles: more regulation, disclosure rules and regulatory scrutiny, plus fewer loan products and less access to lenders. ...CONTINUED
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Submitted by Jason Berman on January 18, 2010 - 6:01pm.
It's too bad this article doesn't take the time to explain yield spread premium is something that can be used by the consumer to lower closing costs. Banks use the same pricing schemes, they just don't disclose their premiums to consumers as they aren't subject to regulation requiring them to do so.
This article makes it seem like Yield Spread Premium is bad. In fact, it's been used by millions of homeowners to lower closing costs and choose better options for their particular situation.