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Mortgage Brokers Fight For Business

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By ALAN ZIBEL, The Associated Press

Published: February 1, 2008

Mortgage brokers who haven't fled the industry or been forced out are in survival mode.

They're coping with little or no business as the economy slows, accusations that they're to blame for the mortgage meltdown, stricter lending standards and the threat of new regulations. Efforts to convince would-be customers that they're ethical and helpful abound.

"The general consensus is we're all holding on by our fingernails," says Melbourne-based mortgage broker Ritch Workman, whose 21-employee company closed an estimated $35 million worth of home loans in 2007, compared with $100 million in 2005, when the market was at its peak.

Since April 2006, more than 26,000 mortgage brokers have been put out of work, reducing the number of brokers to 122,500 in November, according to the latest federal statistics. A Labor Department report due today is likely to show that the field's ranks continued to shrink in December.

There are still about 400,000 workers in the mortgage industry, but another 130,000 of those jobs will disappear before the mortgage industry work force is aligned with demand for its service, estimates analyst Paul Miller of Arlington, Va.-based investment bank Friedman, Billings, Ramsey & Co. in a report last month.

Job losses will continue because it will take time for the Federal Reserve's latest flurry of interest-rate cuts to spur would-be homebuyers into action. Borrowers who are in the market remain skeptical of mortgage brokers.

Ben Kreisher, 86, of East Goshen, Pa., is struggling to keep up with the home loan he refinanced with a mortgage broker nearly two years ago. He says he would have been better off with a reverse mortgage, commonly used by retirees. "No one even mentioned that option to us," he said.

These are the kinds of complaints that have spurred state and federal officials to propose tighter regulations, some of which would restrict lucrative sources of income for brokers.

Last month, the Fed proposed regulations that would restrict yield-spread premiums, fees that brokers earn from lenders for steering customers toward what critics say are loans with higher-than-necessary rates. The Fed wants the premiums disclosed and agreed to by borrowers in advance of committing to a mortgage.

Promising They'll Be Good

To combat a shady public image, many mortgage brokers are using promises of ethical behavior as a marketing tool through groups like the Upfront Mortgage Brokers Association, whose members pledge not to saddle borrowers with unexpected charges.

The industry's largest trade group, the 22,000-member National Association of Mortgage Brokers, is also working to improve members' business practices. It is rolling out a voluntary "seal of approval" for brokers who agree to an ethical code of conduct, continuing education and criminal background checks.

Borrower Beware

Still, borrowers should remain skeptical, cautions Christopher Cruise, a Silver Spring, Md., mortgage industry veteran.

"Treat us like you would treat a car salesperson," Cruise said.

Some in the industry say they're being treated that way by banks that were a primary source of business during the housing boom.

In Workman's opinion, big banks are emphasizing their credibility at the expense of mortgage brokers.

Bank of America Corp. and National City Corp., have stopped making loans through brokers entirely, relying instead on their loan officers. Brokers' share of new mortgages rose to 60 percent in the past 10 years from a 20 percent market share in the late 1980s, according to Wholesale Access, a Columbia, Md., consulting firm. This year, the brokers' market share is likely to slide to about 40 percent as banks move toward making more loans directly, said Tom LaMalfa, managing director at Wholesale Access.

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