Jeff Swiatek, The Indianapolis Star
USA Today
Realtor Joe Bell poses outside one of his properties in St. Petersburg, Fla. Mortgage rates have sunk to levels not seen in more than a half-century but brokers and lenders report not a flood but a trickle of customers. By Chris O’Meara, AP
INDIANAPOLIS — Most of the mortgage brokers that seemed to populate every office building and commercial street in cities nationwide just five years ago have vanished.
Ken Blaudow, owner of Indy Mortgage had 85 employees originating home loans in 2003. Now he has three and is about to give up his leased office in Castleton, Ind., and move his company into two bedrooms of his house.
“It’s drastically down,” he said of his industry. “And there are a lot of funky new rules.”
Much of the decline has come from the implosion of the housing sector since 2007. Prices and sales plunged during the recession. Foreclosures hit record highs almost everywhere.
As government rushed in to respond to the crisis, caused in part by overselling of risky mortgages by brokers who got rich on exorbitant fees, regulations on the industry multiplied.
States in the past two years began requiring brokers to pass licensing exams and undergo background checks. A criminal record, even a past bankruptcy, can now prevent someone from writing a mortgage. If states don’t already do it, a federal law coming in January will require licensing exams and criminal background checks nationally.
Brokers and loan originators find lenders for people seeking a mortgage on a new home purchase and charge a fee for that service.
Many of the sometimes-exotic products that independent brokers used to push — jumbo loans, subprime mortgages — also have been restricted or banned.
The new industry that’s emerging is much more conservative, regulated and, some would say, less consumer-friendly.
“I don’t think (the changes) will be better for the industry. It costs more to do business. And the consumer has fewer choices. But those are the cards we have been dealt,” said Al Thorup, executive director of the Indiana Mortgage Bankers Association.
A study by Bankrate, a financial information supplier, found that mortgage fees are on the rise, jumping 23% in the past year alone. Nationally, the average fees that a homeowner paid for a $200,000 loan are $3,741, compared with $2,739 last year. This does not include fees for real estate agents typically paid by the seller.
Bankrate says the jump in mortgage fees is due in large part to the increased scrutiny lenders must give every loan, under tougher guidelines from federal regulators and two quasi-government companies that guarantee loans, Freddie Mac and Fannie Mae.
“It takes five to six times the work to get a loan to close than it did two years ago,” Blaudow said.
Credit histories must be dutifully compiled for all borrowers. And any number of new criteria can lead to a refusal to lend. One new practice closes the door on loans to anyone who’s done a short sale — a way of selling a house when the sale proceeds fall below the balance on the mortgage — in the past three years.
Banks have actually fared well in the restructuring of the mortgage industry.
That’s because many banks didn’t engage in the riskier lending practices, such as granting adjustable loans at subprime rates to people with less-than-stellar credit, that some independent brokers and their companies did.
Banks also will be better able to bear a coming federal regulation that will require any company handling federal FHA or VA loans to have $2.5 million in assets.
Ron McGuire, president of F.C. Tucker Mortgage in Indianapolis, said the changes in the mortgage industry mean “we’re back to the way underwriting was 20 years ago when you had to have a down payment, you had to have a job. And that’s a good thing.”
But McGuire said he worries that the decline of independent brokers now gives a handful of large national banks more of a chance to dominate the mortgage industry.
Copyright 2010 The Associated Press. All rights reserved
