Mortgage brokers deal with many of the best money sources around. You wouldn’t connect with these sources except for a mortgage broker.
What are these sources? Pensions funds, insurance companies, large out-of-the-area commercial banks and savings banks, real estate trusts, offshore money, etc.
A mortgage broker is similar to a real estate broker who finds you a house. The mortgage broker will find you a lender who will make you a home loan. Mortgage brokers shop around for you. You will often save time and money by using their services.
Low-doc mortgages were sold to struggling consumers and now many are worse off, reports Tim Elliott.
In late 2005, Mandy, a 55-year-old postal worker from the NSW Central Coast, heard an advertisement on her radio for a company called Professional Funding Group. The ad, offering credit to people having trouble making ends meet, was of great interest to Mandy, whose financial situation could best be described as disastrous.
Despite working 16 hours a day in two jobs, she and husband Keith, a truck driver, were several months behind on mortgage payments and owed thousands of dollars in tax, utility bills and credit card debt.
They had already tried and failed to sell their house – then valued at $380,000 – so decided to refinance with Professional Funding Group.
“And that,” she says, “is when the real trouble began.”
Professional Funding Group quickly found a lender, Challenger Mortgages, that issued the couple with a low-doc loan for $440,000. A low-doc (low-documentation) loan is designed to assist people who don’t qualify for a standard, or prime, loan. They don’t require the borrower to provide evidence of income, such as tax returns or payslips; in Mandy’s case, a representative from Professional Funding simply asked for their income and assets. Professional Funding then obtained a valuation of the couple’s house that, much to Mandy’s surprise, came in at $560,000.
Low-doc loans also come with a higher rate of interest – 10.95 per cent in Mandy’s case, as opposed to the standard 7 per cent or 8 per cent that applied then.
The government wants to arrest spiralling repossessions and brokers believe they are ideally placed to act for clients struggling to pay their mortgages. But some lenders appear less than enthusiastic about the idea.
As the situation in the property and mortgage market continues to deteriorate and repossessions look likely to hit at least 45,000 for the current year, is there a role for mortgage brokers to act as impartial intermediaries negotiating on behalf of homebuyers in difficulties?
There are few winners in a repossession, and the government is, quite rightly, putting pressure on mortgage lenders to use it as a last resort. And as house prices continue to fall – latest figures from Nationwide show a 15% drop on a year ago – lenders also have a vested interest in negotiating a deal for borrowers in temporary difficulties.
It’s far better for them to accept reduced repayments and roll up some of the unpaid interest rather than repossess the property and be forced to sell at a loss. And with the Bank of England predicting that if house prices continue to fall, as many as 1.2 million homebuyers could be in negative equity by next year, the possibility rises of lenders not being able to recover the amount lent.
Mortgage broker numbers have been decimated by the impact of the global financial crisis on the property and lending markets.
Megan Salt of the New Zealand Mortgage Brokers Association said its membership roll had dropped by 10% in the past year, although she said many of those who had left the industry were newcomers.
Mortgage broking is a relatively new industry, which traces its roots back around 14 years, but took off only during the past 10 years, and in particular the past five corresponding to a bubble in house prices.
“We have lost about 10% of our brokers,” Salt said. “But a lot of them would have been the new people who came in in the last few years. The older and more established people have built more sustainable businesses.”
Brown and Cindy Birkland, 39, face multiple felony theft counts and racketeering charges in connection with information used in loan applications. They are accused of inflating home values using fraudulent appraisals, falsifying loan documents, inflating buyers’ income, forging signatures on checks and loan documents, and submitting bogus invoices to obtain loan proceeds.
They are accused of doctoring information at the Sapphire Mortgage office in Henderson in order to secure larger loan payments, which in turn landed their clients in financial hardship.
The preliminary hearing in Las Vegas Justice Court was originally scheduled for August, and then Oct. 15. It is now set for 9 a.m., March 16 before Las Vegas Justice of the Peace Abbi Silver.
“Our hope was that we’d be able to have (Brown) back in Nevada in time to conduct the preliminary hearing against both defendants,” Kelleher said
Birkland’s attorney Gabriel Grasso did not return repeated calls for comment. Birkland has proclaimed her innocence on the Web site justiceforcindy.com, on which she solicits donations for her defense. On the Web page, she says mortgage brokers all over the country are finding themselves under attack.
I have even less tolerance for the surprise of so many of these Wall Street and Big Bank players who continued to come up with screwy loan products to keep the profits rolling. Most mortgage brokers are in a heap of hurt this year, but for the last several years brokers like me – who refused to imprison people with these horrible loan products – have been paying the price for our integrity.
Realtors began to shun us when we told them the truth, but the borrowers themselves despised us for informing them of the true risk of what they were doing. No matter how diplomatic I was, nobody wanted to hear that his or her desire for a home of a certain purchase price was so far above his or her means. It cost me to have a conscience, but I would look at these people and their little kids and think, If I get you what you are asking me for, you won’t be able to afford to feed your kids in two years.
My competition made hundreds of thousands of dollars putting people into future foreclosures, while I limped along wondering how long this could go on and how long it would be before we ended up surviving on our integrity and nothing else.
Again, to me the end result of these ‘no doc’, stated income, negative amortization loans and other products with two or three year teaser rates was obvious. The sophisticated investor or borrower and the self-employed – whose net income did not reflect their real disposable income – had the assets and reserves to rebound if the market shifted. The average consumer with a job and little savings – the majority of the mortgage market – did not.
Putting these people into such complex mortgage products that exposed them to extremely high risk was unconscionable. Other loan officers knew better and obviously did not care, but where were the Big Bank watchdogs? Where was that Banker man who used to shame us for even asking for a loan we had no ability to repay? S/he was sitting there helping us overcome a legitimate fear of failing as we signed on that dotted line over and over again.