As bad as the subprime mortgage meltdown has been, market analysts don't question that there will be a recovery. The concern is really about how soon the bounce-back will happen. The toll the mess has taken on the reputation of mortgage brokers, however, is a different matter.
With the housing market spiraling out of control, the role of the mortgage broker has come under intense scrutiny by the media, Congress, as well as consumer and advocacy groups. The criticism has not been pretty. New York Senator Charles Schumer (D-N.Y.), chairman of the Senate Housing and Transportation Subcommittee, has been especially outspoken. Schumer has called mortgage brokers "the underbelly of society" that "prey on people. They're rapacious. They're vultures."
So while the market will eventually be due for a recovery, will brokers be equally able to redeem their names? Or are their reputations permanently scarred as a result of the subprime fallout?
Also, have they taken too much of the blame for the housing fiasco, or have they been justifiably skewered for leading too many homeowners into mortgages they could not afford?
The answer to the latter probably lies somewhere in the middle, but there's little doubt that brokers are now on the defensive as they try to tell their side of the story.
"Yes, we did sell product, and yes, there were people in our industry who used product badly," said Jill Hoogendyk, a Phoenix-based broker and president of Home Point Mortgage. "It only takes a small percentage to have that become a problem. I would admit that did take place, but I certainly don't think we are the big bad guys that made all this happen and somehow took advantage of borrowers across the board." She added that a bill that would have required loan officers to be registered did not win approval in the Arizona legislature last year.
Still, mortgage brokers originate more than 60% of home loans nationwide, and with almost no regulation or oversight governing the industry, the criticism they've received is probably not surprising.
Steve Heideman, a mortgage broker and president of the UpFront Mortgage Broker Association, which promotes consumer advocacy, believes there is a dangerous lack of education among brokers. The housing boom caused a "capacity utilization issue" among brokerage firms that were desperate to bring in people to sell mortgages.
According to Heideman, 60% of brokers have been in the industry three years or less. "I could hire anyone off the street, and that scares me," he said. "We want to know why mortgage brokers have such a bad reputation, look where we're pulling our talent from."
Heideman said he would ultimately support some sort of state-level legislation that would require brokers to be certified in order to prevent the "used-car salesmen" from taking over the industry. But, more than anything, he thinks brokers just need to be better educated about the market and the "suitability" of a mortgage for a borrower.
While Heideman does not believe that brokers are blameless, he also thinks they've taken an unfair brunt of the criticism. Others in the industry, such as mortgage banks, he said, have gotten off easier. "It's like being mad at the fox for eating the chicken you put in charge of guarding the hen house," he said. "We're only selling things that were given to us by the mortgage banks."
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has been at the forefront of addressing the subprime market fallout, but a spokeswoman for the congressman said he has not been putting unfair focus on brokers. "Mr. Frank is trying to look at the full picture," said Heather Wong, Rep. Frank's spokeswoman. "He wants to know how we got from A to Z, and he is not signaling out one group for blame."
Rather than stay on the defensive, some in the brokerage industry are actively trying to clear up what they believe are misconceptions that have been perpetuated by the media and politicians.
Greg Krauza, president of the New York Association of Mortgage Brokers, said his group has taken to lobbying members of Congress to get its message out. It even sat down with Sen. Schumer after the two sides exchanged op-eds in the papers. "We feel he has been very responsive to us," Krauza said. "We wanted to explain to him that there are some good subprime loans out there. It's important to look at the industry as a whole, instead of just blaming the broker."
The NYAMB even recently hired its first public relations firm to help its efforts. "We want to combat any erroneous information out there and make sure that we put forward a positive message," Krauza said.
Heideman said that brokers do not have the "pockets to fight and defend ourselves" the way mortgage banks do, making them more susceptible to blame. "Granted we have some culpability, but I think we are the easiest targets," he said. "We are a simple country with a simple media that needs an easy scapegoat." But, he added, "I think we all share equal blame, we really do."
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