Can the new refi boom usher in new lending models to keep the industry ethical?
(from Bankrate.com 1/24/08)
Mortgage broker friends have been telling me there is a refinancing boom happening with mortgage rates sliding. With the new boom, I'm hoping the shady mortgage lending practices of the pre-credit crunch days have been scrutinized by and made more visible to the consumer. However, I hear once again those ubiquitous, vainglorious mortgage broker radio ads with that call to action - "mortgage rates have again hit all time lows and won't stay there, so call now".
We're ready to see the Charles Schwab-ization of mortgage lending - with rates visible to the consumer without hidden backends / yield spread premiums, or prepayment penalties that can indirectly compensate brokers. With product simplification, all the Schwab-like mortgage broker would add is his/her fee. I'm sure mortgage brokers will cry "it just isn't that simple", and that's likely true now, but we're heading in that direction because mortgage lending will, like airplane tickets and bond trading, become commoditized. Why? The product is essentially quantitative (as opposed to selling a house, which has qualitative aspects).
UPDATE 1/24 9:40pm: Friend Lynne Pope in Palos Verdes says her mortgage broker friend had a chaotic time trying to lock in loan rates today... no wonder... lenders have fired so much staff...
Nice observations Pat.
First, lenders are afraid of brokers. Many are being excluded because of the higher rate of defaults because of broker business. Direct lenders have more and better programs and rates than brokers. But lenders that haven't been burnt by brokers still have excellent broker programs.
Secondly, one of the side effects (consequences) has to be tighter regulation of mortgage brokers. With that in mind, Barack Obama has a decent mortgage crisis plan in mind. Regardless of who wins the election, Congress or the States have got to regulate mortgage brokers.
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I suspect that the current boom arrived just in time to save a whole host of mortgage lenders and brokers, both good and bad.
I don't think the lending downturn was deep enough or long enough to fully cleanse the system of the bad actors.
Possibly the institutions have learned their lesson, but only time will tell.
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Odd that you would harp on YSPs, when the rates charged by banks when they don't go through a broker are similar to the rates a broker would charge... but the bank doesn't need to disclose their gross margin, only the broker needs to.
Does that really seem right to you?
If you buy Kroger brand bread at the store, does it matter that Kroger makes more money than if you buy another brand... or only that the loaf is cheaper and comes from the same bakery.
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Why can't we automate and make all bank mortgage products transparent? Why just brokers?
Pat, you and I both know how simple this is. We heard this in the OTC market years ago (market makers don't disclose because you can't track their prices).
Here's the simple answer; publish MBS pricing for all to see. Require banks to disclose profit as well as brokers on every document (profit in relation to the "bellwhether" MBS price of the day.
That's the only way that I can see that will allow consumers REAL transparency in mortgages.
PS- It's not the brokers who are the problem, it's the originators
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