Mortgage brokers feeling the heat

Mortgage brokers have raised themselves from the ignominious position of a middle man to an esteemed profession within a very short lapse of time .They have acquired this by tact and contacts. Last year there were 500 active brokers, today it has decreased by 42.5% to 351 for this quarter .The brokers themselves realize that the banks are becoming difficult to handle.

Most of the banks’ New Year resolutions include investing millions into branching networks. They are rapidly discouraging the use of mortgage brokers.
The brokers seem to have sat together and charted out a strategy to oust the brokers sooner than later. This plan seems to have worked well too. The norm says if a customer switches mortgage in the first three years of taking the loan, the broker would be penalized .If the client flips in the first year about three-fourths of the commission would have to be paid back. For the ensuing years half to one-third of the commission need be returned.

It has not been an overnight affair. The facts have surfaced .Brokers have always wielded the pricing structures .In many cases commission has been extracted on both accounts (both the borrower and the lender).The basis of the commission too is at fault. It is calculated according to the size of the loan and not the quality. Sometimes jumbo loans having high risk factors are processed by the brokers without paying much attention to the credit score and the present conditions and primarily overlooking the future prospects of the client. It is these cases which go in for defaults and costs the bankers dear. Brokers have forever forayed into predatory lending practices. They have convinced customers to buy a house for more than they can afford in mortgage.

All is not well at the industry front as well. With the advance in technology, the processing time has decreased at the cost of the expense .This makes the commission to the brokers too much to afford cutting out their profit margin. With international banks joining in the rat race competition and pricing pressures are getting at the bankers. That is why they want to spread their tentacles far and wide and capture the local market on their own terms, cutting out the broker activity.

Only time will tell if the brokers will manage a revival in their fortunes. For the time being the going is tough for them. Last year about 80% of the mortgage loans were processed by the brokers .In the last quarter these figures dropped by 7%.The quarterly survey by the Market Intelligence Strategy Centre predicts a rapid fall in these figures.

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