Brokers fight to survive

Ben Kreisher and his wife Pati pose for a photograph as they display documents from the closing of their mortgage at their home in West Chester, Pa. on Dec. 20, 2007. The Kreishers, who now fear losing their home of 35 years, say key details of their mortgage — such as the fact that their principal balance could actually increase over time — were obscured when a local mortgage broker came to their home in April 2006 with papers to sign.

The Associated Press
Published: Friday, February 1, 2008 at 6:01 a.m.
Last Modified: Thursday, January 31, 2008 at 8:31 p.m.

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 persuade would-be customers that they're ethical and helpful abound.

"The general consensus is we're all holding on by our fingernails," says Melbourne, Fla.-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'll 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, even if all they need is help refinancing an existing loan.

Ben Kreisher, 86, of East Goshen, Pa., is struggling to keep up with the home loan he refinanced with a local mortgage broker 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.

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, which aren't required in a handful of states. By next year, the trade group's standards will be mandatory.

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

In Workman's opinion, big banks, such as Wachovia Corp. are using ads to emphasize their credibility at the expense of mortgage brokers.

The housing crisis has triggered a huge shift in the industry's dynamics. Big banks, such as 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.

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