Real Estate Insights

Looks like more lenders are going out of business and appear to be in worse shape then the government may believe. What will this mean to the consumer?

• According to an article in the Wall Street Journal, Option One, Countrywide and First Franklin (Merrill Lynch) will no longer offer 2/28 loans. A spokesman for Countrywide said that investors' demand for such loans is "very, very limited."
• Alliance Bancorp ceased operations on July 13th per a message placed on their homepage, and Heritage Plaza Mortgage, a California mortgage wholesaler and retailer best known for its Alt A products, has closed.
• General Electric Co. said that it plans to sell its three-year-old U.S. subprime WMC Mortgage unit following a surge in defaults by borrowers.
• According to Moody’s, Washington Mutual's Long Beach Mortgage, GE's WMC Mortgage, New Century Financial Corp. and Fremont General Corp. made loans that backed about 60% of the $5 billion bonds that were downgraded according to Moody's chief credit officer for asset finance. Their loans accounted for about 30% of the subprime-mortgage bonds issued last year, they said.
• Speaking of WAMU, they and Ameriquest Mortgage Co., and nine other mortgage lenders have been accused of race bias in lending. The National Association for the Advancement of Colored People (NAACP) claimed in a lawsuit that these companies charged blacks more than whites for subprime home loans.

The mortgage industry definitely needed to lose some fat, as these are large companies going out of business.  Lenders should be held responsible for the loans that they make and they probably could have avoided some of their losses if the bank's loan origination departments would have used stricter guidelines, qualifications, and experience requiremenst for the loan officers that they employ.

We are currently in a Real Estate Market where consumers need to get re-acquianted with their local Mortgage Brokers. During the past few years everyone was dipping their hands into the mortgage pot trying to make a buck. Now that interest rates are on the rise, housing prices have slumped, foreclosures are up, and consumers are finding themselves in loans that they did not bargain for, a lot of heat and misunderstanding is being placed on the mortgage industry.

If consumers would realize the difference between mortgage brokers and direct lenders then a lot of the current mortgage downfall could have been avoided. Mortgage Brokers and their employees who provide mortgage originations are individually licensed by the Sate of California, making them personally accountable for the home loans they sell. Direct lenders and banks are licesed by the Department of Corporations, and their employees can originate loans under the license of the bank, which means the employees are not required to have individual licenses and thus are not personally accountable for the loans that they sell. Another difference is that Mortgage Brokers and their employees must pass a state exam, a strict back ground check, and have some experience in order to get licensed by the state. The employees of direct lenders and banks are not held to any strict qualifying guidelines.

So why should consumers remeber to seek the services of a mortgage broker? A mortgage broker is personally resposible for the loans he/she makes. A mortgage broker has prior experience and has passed a strict back ground check. To stay competitive, a mortgage broker must be able to offer a wider selection of mortgage programs at lower interest rates and fees than direct lenders. In fact, a mortgage broker can offer the all mortgage programs of each bank he/she is approved to broker loans for at lower rates and fees than the direct lender can offer. But consumers also need to know that when it comes to fees, mortgage brokers must disclose every charge and any gain in the connection to each loan transaction, where as a direct lender is NOT required to disclose all their fees or any gains.  

So the next time you find yourself shopping for a new home loan, remember to start with you local mortgage broker first. Brokers are available to meet with in person and will stay in touch with the consumer during the full course of the transaction. Brokers must provide Good Faith Estimates of their fees and the interest rate for each transaction a consumer may apply for.