Mortgage brokers(OT?)

Since we're talking about finances...

What is the deal on mortgage brokers? Even with the poor economy I'm still seeing ad for outfits like Lending Tree which I guess is a mortgage broker.

When I went to get a house loan years ago I went to the place with the money, a bank, and never dealt with middlemen. I didn't have much of a credit history either since I had always paid cash for cars and had never bought a TV or anything on time. One of the points in the discussion with the bank was not to have house payments over 1/4 of ONE salary. Well, I paid the house off after 20 years and it sure was great to make that last payment. So, anyway, my theory is why have all these middlemen sucking fees out of someone's finances?

KEH

Times have changed. You may recall that when you got your first mortgage, the closing costs were exorbitant. Fees have dropped way down, primarily because of competition. But there is no requirement that you use a broker, you can simply call around to different mortgage companies on your own.

I don't think Lending Tree is technically a broker. More of a listing service.

Mortgage brokers were a part of the whole financial meltdown problem. A lot of shady brokers helped unqualified borrowers get loans. Of course, the borrowers, lenders and underwriters all had a hand in it.

Some of these ads that advertise great deals are in reality just companies that sell leads to independent mortgage company loan officers. It's a cutthroat business. I got into it for five years after my moldmaking business headed overseas

Yes your right. When my brother got his loan for his house 5 years ago, he just told me this last fall after the meltdown,as it reminded him, they were willing to give him more then he needed to barrow. Well being smart he said no. Others would be glad to have that extra money lent to them. New tvs, or a car or 300 cds, a computer ect.

I'm about to close on my re-finance with the bank that has always had this mortgage. Ultra conservative bank that will still only allow 85% of appraised value. I've always had good credit and always delt with this bank. They still ran me thru all the wringers. I suppose that's why they are not one of the banks that are in trouble.

I don't know much about the mass-market mortgage brokers, but can speak highly of the local shops. They are excellent at breaking up logjams in the underwriting process. Two examples, in both cases they simply took the loan to a different lender.

I was buying a property and in the initial loan application they inquired as to where I would get the cash for the down payment (to make sure I wasn't borrowing it, too, a common and reasonable question). I said "sale of marketable securities" and provided them with a brokerage statement showing part of my stock portfolio, the value of which FAR exceeded the amount of the down payment. Before closing, I got a handsmoe annual bonus that left me with enough cash to make the down payment, and chose to use that money, instead of eating capital gains taxes from selling the stocks. The underwriter dug in and demanded that I show evidence of having sold the stocks, and held up the closing because I wa using other cash instead of selling the stocks. The mortgage broker I had engaged (because I was working from a distance), simply called another bank that he worked with, described the situation and asked if they would take the loan. They agreed. The broker picked up the file from the yo-yo that had it, and took it to the other bank, and we closed on schedule.

In the other case, I was the seller, of my last home outside Cleveland. The county required an inspection of the septic system with every home sale where that apllied. If it failed, it was the responsibility of the seller to leave money in escrow to bring it up to snuff. When I bought it five years prior, the sellers then did have to replace the entire system, whcih was 30 years old by then. So I lived in the house, by myself, on a septic system rated for a four-bedroom house. In other words I wasn't overtaxing its capacity. I got caught in the crash so it set for quite a while, vacant, as I had moved east. We're working toward closing and it comes time for teh septic inspection, and Catch-22 kicks in. They can't inspect a system on a property that has been vacant for more than six months, and they can't inspect, if it has been vacant that long, until after it has been occupied for six months. The bank won't sign off. We tried to work it out by having a county-licensed inspector inspect it anyway. He couldn't write it up as an official inspection because of the time requirements, but he went to great lengths to explain that the system was five years old, that there was minimal sludge in the tanks and that the mechanical equipment and drain fields were in first-rate condition. Add to that that I was losing enough on the house (Imagine the seller having to bring cash to closing -- there's been a lot of that the last few years.) that I was in no position to cough up another 15 grand to leave in escrow for six months. Again, the underwriter was going to hold up the closing. It didn't help that the buyers were city folk a little nervous about this whole idea of having a well and septic system. With the unofficial inspection they were willing to take their chances after I dropped the price some as an incentive and still the bank was dug in. The buyers had a mortgage broker involved on their end, and I told them to either have the broker take the loan to another bank or to start shopping again, something they should have done weeks earlier. THey did and we closed five days later, after I coughed up another pile of cash in escrow to cover the interest and taxes accumulating while their first lender dithered.

So they do serve a purpose if they are truly working brokers in the local market. I still have my doubts about the Lending Tree type outfits. My suspicion is that they are the ones actually making the oan to get to closing, and then selling them off. I don't know it for fact, but it wouldn't surprise me if a lot of their loans are were the sub-primes that got securitized and helped ignite this whole mess we're in.

MarkB has it right. Places like lending tree are not a broker. They are paid a fee to do the advertising for brokers and lenders.

Brokers write a loan and then pass it of to a morgage co or bank. They get paid to write the loan (by the lendee, but not always, and usally make something on the other end "selling" the loan). However most never put out the money as it comes right from the actual lending instatution "buying" the note. They primarily make their money doing the leg work.

And yes brokers contribuited to the melt down. Just like stocks, they paid to sell. Brokers don't care who's buying, just that they are selling. If they can buy from another broker (write new loan) and make a buck they do. And just like stocks they sell to each other collecting fees each time. I went through three "sells" berfore landing on a reputable lending co.

A less than reputable broker could/would put anything down to "sell" the note. Thats how a janitor can buy a million dollar house with a monthly payment more than he brings home.

The system of selling on commission only works where the seller has to work to make the sale. Widgets aren't easy to sell, you gotta talk people into it. Car salesmen have lots of competition, tough to make a sale. But selling money on commission is nuts- the customer already wants the product, and its the lender that needs to impose rules and conditions to keep from getting into trouble. Enter the mortgage broker, who only gets paid if a loan is made- so you've got borrower and broker conspiring to defraud the lender, and defraud they did, after the underwriting rules got loosened by Barney Frank and Company. Imaginary income, NINJA (no income, no job or assets), imaginary down payment, etc. If the old system of the loan officer being an employee of the lender had not been abandoned, the bubble would never have happened. The bad news is, the recession would just have come sooner, because the sad fact is that there just isn't enough work left in this country to keep everybody employed. The housing bubble and stock market bubble masked that for awhile, by creating artificial demand.

In 2003 I refinanced my home, it was a lot easier then dealing with the morons at a bank.

I had an independent agent (who likely got $500 for her work) and she came right to my home and the wife and I signed the papers, it took 15 minutes. I walked her out to her car and she thanked me for my business.
I personally dont see a problem with advertising for loan services as long as it is responsible lending and not the BS that has occured with loaning $250,000 to a person or persons that make $20,000/ year working at a restaurant as a waiter.

When home mortgages are treated as if they were a joke, (like no possibility of repayment)
Then the system will eventually collapse.

I went to the bank to get my loan as I always do then they sold it to Fanny Mae. Sooner or later Ol' Bama will get you. giggle.
Walt

Good use for the word "barrow."

http://www.merriam-webster.com/dictionary/barrow

Simply put, the Brokers, whether real estate, mortgage, marriage or stock, do the footwork (broker) for the client. For that service they get paid for their work.
The client, in most cases can go to a bank or mortgage co. and get their loan but for the 'deal' they must go to each lender and arrange their terms. The brokers already know who can get the best terms and where. They merely put the parties together, for a fee.
For good, bad, or indifferent it's the way of the business world.

Good comments about loans being sold to another institution. I was aware that happened when I got my loan and told them that I was borrowing from them and expected to come to them to make payments, not some one else. They said they did not resell loans. Guess that's one reason they are still in business.

KEH

In other words, you are saying wholesale vs retail pricing?

The middle men group up a bunch of morgages that are cookie cutter the same, and sell them to a big bank for lower interest - getting a cut. Wholesale deal.

The smaller bank, credit union, etc. can pick through a deal & situation individually, but has to work harder to get there so they have the same intrest rate, can be more creative but are spending more time on each deal so it's like a retail sale - individual.

This is why a lot of people can get into a loan in a hurry if they fall into the cookie cutter formula; While people with unusual deal (more land, non-residential, non-traditional husing, etc.) have to really shop around to find someone willing to spend the time to put together a singular deal for them.

--->Paul

The original question was:
“So, anyway, my theory is why have all these middlemen sucking fees out of someone's finances?”

No, I’m not relating to the trading of mortgages or any other commodities.
I’m attempting to point out what brokers do and why they’re there in the processes.
To begin with brokers DO NOT have products. They may buy and sell but if they do they’re wearing two hats, one of a broker and one as a trader.
Just speaking on the subject of mortgage, lenders have money and people have property. Most people don't want the trouble of advertising and showing their property so they hire a real estate broker. The broker brings a buyer together with a seller, writes a contract and they’re off to the heartburn trail. That’s broker #1 who had neither a property nor the desire to buy one.
Next the buyer needs to borrow (or barrow himself) money. The real estate broker connects the buyer with a mortgage broker. The mortgage broker takes a loan application and proceeds to contact lenders that HE THINKS will consider the buyer for credit. This is broker #2 who has no money to lend. We will assume that at this point the transaction completes and all is well.
The brokers are paid a fee for their services.
For Broker #1 it’s called a commission and for Broker #2 it’s buried in the service and lenders fees on the closing costs.
Now, to put it bluntly rather than simply. The brokers do the work the average buyer or seller doesn’t have the time to spend or the know how to wade through the processes. For that service they hire a so-called expert to do the work for them and they pay for the service.
I hope this clears up my intentions.
Paul, by the way, You're correct about the bundling of mortgages and I suppose you can refer to those people as 'mortgage brokers' but it's not the usual use of the term.

"In other words, you are saying wholesale vs retail pricing?"

Advertising works. Also, if the buyer doesn't take the bait the real estate agent will recommend a mortgage broker (do you have to wonder why a real estate agent recommended that particular broker?).

Avoid them like the plague. Use a local bank that doesn't resell the mortgage.

I just kinda have avoided loans & middlemen all my life as much as possible, and so I really don't keep up on the junk. A lot of it seems to be how to chisel away money from others any more, but - that's from the outside looking in, and don't really care to look into any closer than that.

--->Paul

Love land contracts. Did it 9 times. Write your own ticket-all parties sign and its done. No fees hardly at all. Little as 2 people involved. No brain. The Lord helped me through it all. Figured payments, interest, amortization, etc. me and the wife. You can do it. Me I couldn't anymore. Too old. Or......

What you're glossing over is that your Broker #2 (the mortgage broker) doesn't get paid unless the deal closes- so he has ample incentive to "push the envelope", ethics-wise.

Case in point (actual case)- 75 year old woman comes to my office- she borrowed $200,000 on her house (to help her daughter through a divorce- daughter was helping with the payments until she lost her job, now mom's house is going into foreclosure). Mom's total income was $1,300 per month (pension and SS), payment was about the same. Her question to me: "Why did they loan me so much money, when I obviously couldn't pay on my own?"

I looked over the printed application, and called her attention to the "Income" section- In addition to her SS and Pension income (which were correct, to the penny), there was "Other income- $3,000/month". She had no idea how it got there. She had a copy of her original hand-written version, and it had only her true income. Long story short, broker did a "stated income" loan, and just "stated" the imaginary $3k in order to qualify the loan.

Mom had moved in with her daughter and they were happy with that situation; she had taken all the equity out of the house with the $200k loan; so I suggested she just let it go back, as though she had "sold" it to the bank for the $200k. (and it was worth substantially less than that after the crash). She was happy with that, and did so.

Bad news is, the crooked mortgage broker didn't go to jail.