Foreclosure Watch: Bank Lending Spells Doom to Mortgage Brokers

Some banks have decided to operate their own lending units in lieu of mortgage brokers. If other banks follow suit, this could lead to the downfall of the mortgage brokering industry and further increase foreclosure rate.

The decision of some banks to do away with mortgage brokers could also affect homeowners, especially those who are facing the threat of foreclosure. Fewer mortgage brokers mean homebuyers will be deprived of a competitive marketplace and will have to face expensive home loans.

And in this current economic crisis, higher home loans would just exacerbate the increasing number of repo homes.

Guardhill Financial founder Alan Rosebaum opines that banks want to do away with mortgage brokers because they want to reduce competition in the market. He points out that mortgage brokers used to handle about 80 percent of the U.S. mortgage lending business. Now, he adds, mortgage professionals only handle 70 percent of the market and the percentage continues to drop.

Big banks such as JP Morgan Chase and Citigroup have already announced that they will fund loans through their own offices and not through mortgage brokers.

Brokers argue that they have been providing important consumer services such as monitoring offers from lenders and picking out the best mortgage loan deals to help homeowners avoid foreclosures.

According to brokers, the services that they provide to consumers help reduce interest rates that allow homeowners to save their properties from foreclosures.

National Association of Mortgage Brokers President Marc Savitt believes that big banks such as JPMorgan and Chase want to eliminate the middlemen because they think that they can increase their profits.
On the other, Mortgage Bankers Association President John Courson does not believe that banks’ decision to stop dealing with mortgage professionals could lead to the downfall of the lending industry and an increase in the number of foreclosure properties.

For him, the development could only lead to a competitive environment because brokers will be forced to show higher surety bonds and net worth.

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