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Paul Said:

What is the future for mortgage brokers?

We Answered:

The future is NOT GOOD for mortgage brokers! The National Association of Mortgage Brokers (NAMB) is having to do some fast talking to convince everyone that these are capable, honest and competent professionals. One of the actions that the NAMB is working on is to adopt a Code of Ethics that all licensed brokers would be expected to adhere to. I'm afraid this might be the classic example of "too little too late." I'm sure there are many excellent brokers out there. However, with the subprime boom, people were coming out of the woodwork to become mortgage brokers to make some fast money. Unfortunately (but not surprisingly), many of these new brokers had no idea what they were doing and just cared about making a lot of money. They didn't care whether their clients could actually make the payments or not or whether the latest loan product was right for them.

Unfortunately, I think that most major mortgage companies will dump their Wholesale operation (as Washington Mutual announced yesterday) because Retail is less risky (since you're not relying on the integrity of a third party). With all the scrutiny mortgage companies are under, they're doing everything they can to reduce or eliminate risk. Taking loan origination completely "in-house" is one way to do it.

Maybe the NAMB will be able to save the day by rehabilitating (to some extent) the reputation of mortgage brokers. However, I am not very optimistic about this. If the major mortgage companies pull up the "welcome mat," then the brokers will have no choice but to go out of business. If a mortgage broker asked my advice, I would recommend that they try to get a job as a Retail Loan Officer with a major mortgage company.

I'm sure the Wholesale Market will come back eventually but I doubt it will be anytime soon. The good ones will survive but this situation will definitely separate the "wheat from the chaff" (which is a good thing).

Thanks!