A law was passed back in April that you may or may not know, but it signed the death notice for all mortgage brokers. The law got rid of yield spread which is the way mortgage brokers are paid. They earn a percentage of a loan and that gave the broker incentive to give a good rate, but not too good. The higher the rate the more the broker made. This was a Federal law that accompanies many laws designed to get rid of that creature prowling the back hallways of banks and making deals that banks could never make. The secret sacrifical lamb of the Great Recession is the mortgage broker.
And some may say good riddance. But not so fast. Mortgage brokers existed for one reason: banks could not get the deals done. Have you ever dealt with a bank? Have you ever gone into the deep dark hole of loan modifications? Banks are run by low paid (about thirty two thousand) personal bankers. These are warm bodies instructed to do the miniumum and secure a way to turn down a loan. Especially now. These are not brokers, these are not even loan officers. These low paid clerks are merely gate keepers and their job is to keep you from getting the banks money.
The dirty secret is the banks no longer want to lend money to the Middle Class. They would rather invest in China. Bank of America tears apart appraisals many times to make sure the market doesn’t get under them. In other words, your appraisal comes in at two hundred thousand, BOA or some other bank has their own appraiser look at it and reduce that amount by say thirty thousand. Now your house is underwater. Now you dont’ have a loan. It is called vanilla lending.
Vanilla lending is SOP now. They want only the cream of the crop and even then your loan might get turned down. Eight hundred FICOS and a generous income are not enough to gurantee a loan. So now you are not a vanilla loan. Now you fall into the land of people who cannot get credit. You turn to your mortgage broker. He could always work magic before, but he’s gone now. Most mortgage brokers are either gone or going out of business. In Illinois alone there is one quarter of the original fifteen thousand brokers left. And this leaves the banks in charge. Remember Mr. Potter in It’s A Wonderful Life? Well, Potter is not selling, he’s buying! He’s getting a lock on the market again.
So when your interest rate shoots over eight percent and you can’t get a simple Home Equity Loan because no one will return your call. Remember the Mortgage Broker. He is fast becoming as extinct as the good times that are now a distant memory.
Rocket Man will be out in the Summer