Guest Commentary: Tired of the Blame Game, This Mortgage Insider Says, "Lay Off The Brokers"

Blogger's Note: Lou Barnes, a Colorado-based mortgage banker who writes a Fed-watching column for Inman.com, sent us email decrying the "intra-industry mudslinging" in which mortgage brokers are being blamed for the subprime meltdown. His thoughts follow.

"Everyone in the mortgage business today is effectively a broker. Mortgage "Lenders" died with the S&Ls and the birth of the modern mortgage-backed securities market, sometime around 1983.

"Wells Fargo brokers its mortgage loans out the back just the same as a broker working from home does. Countrywide fancies itself a bank and a lender, but is just an immense mortgage bank, operationally indistinguishable from the 1960s pioneers.

"Brokers are blamed for vast misbehavior, but that's just intra-industry mudslinging. Wells was the largest sub-prime originator in 2006 by a mile, roughly $85 billion; as that position became embarrassing, it admitted this spring that it only kept $24 billion, and had "no credit risk" in that portfolio (it had sold the risk into the nouveau "credit derivative" market, born around  2000, which spawned all of this horrifying product). So, who did more harm with subprime 2/28 resets and suicidal underwrting, the brokers down the block, or the big guys?

"It doesn't matter! Today, mortgage "retailers" all do the same things, selling to wholesale, which in turn sells to Wall Street, which in turn derivatizes, selling both interest-rate risk  and credit risk."

So speaks Lou Barnes. Thoughts? Comments? Fire away.
Photo Credit: LATimes

Comments

[andy miofsky]

If the 2/28 loan was designed for astute investors who expected to refinance, why must Wells Fargo discontinue offering the program to borrowers? Blaming it on the brokers is not the root of the problem. If it was then I do not understand the logic behind retreating just because due diligence is lacking in the loan application process. Beef up the standards and support the product, or is something else at work here? I blogged about this today at http://www.bankruptcylawnetwork.com/2007/07/24/anatomy-of-a-confession-wells-fargo-pulls-plug-on-popular-subprime-mortgage-loan/

[J.Wells]

Where would borrowers go if we had no brokers, to the bank right? Let me see if I understand, I visit a bank and the teller who takes 5 minutes to process my deposit, and has to get a supervisors signature, before they can print me a reciept might ask if I would be interested in a home loan? If I were interested in a home loan, I am certainly never going to walk into my bank or any other one and ask for the assistance of thier loan officer who is roughly about 25 years old. If the kid sitting in that bank branch has a party to head out to on a friday night, I doubt my finacial well being is much concern to him. So its hard to see how getting rid of the broker does anyone especially a borrower any good.

Thank you for bringing to light the fact everyone is a middleman, I would estimate 100 hands on each loan file from time of application to it is delivered to the whareshouse of the servicer, along the way probably 20 copy packages of that file exist and are hopefully disposed of properly. The real shame is the borrowers who made every payment on time are finding it impossible to get a new loan in the 30 day window they have from the day the prepayment is up until the loan recasts to a rate near 10%. Stated income loans got them into the situation, but the same products are being yanked out from under them today. I want to know why you are pulling the rug out from the folks who managed just fine until that rate recast? I do want to say of the few Savings & Loans that I have home loans with, both have extended rate extensions for a fee less then 1 months property taxes. Its only for 1 year but they have made an effort long before my rate recasts and without refinancing. Maybe its our big banks that let us dig our grave, now they will bury us alive rather then help us out?