OR: The Future of the Mortgage Broker.
By Martin Andelman
The holding of the National Association of Mortgage Brokers Western Conference, or NAMB West, seemed like the ideal time for me to consider the future of the mortgage broker, and more to the point, whether the mortgage broker has a future. I mean, let’s face facts… if the banks have any say in the matter, and they certainly have and likely will, then the mortgage broker is at best in trouble and at worst doomed.
So, being the self-proclaimed thought leading, out-of-the-box thinker that I am, I set out to do some out-of-the-box, thought leadership type thinking on the subject, and I think I’ve come up with something that hasn’t already been written about exhaustively in the press. If you’re a mortgage broker, it may or may not be right for you, but keep an open mind… the idea may grow on you.
House painting. It could just be the new career you’re looking for.
Look, who has more experience with homes than you do? Oh sure, there are real estate agents and appraisers, but for one thing, they never made any real money anyway, so to most of them the meltdown just means spending more time carpooling the kids, or picking up a teaching job. And besides, homes are still going to be bought and sold, so they’ll be okay. Those homes will of course be financed too, just not by you, so it’s you that has the real problem here.
There are quite a few other reasons why mortgage brokers should consider transitioning to the house painting industry… and in a sincere effort to be helpful, I thought I’d outline a few to get the ball rolling. I’m sure you have your own reasons pro and con, so it might be a good idea to kick the concept around with your spouse and see what his or her thoughts might be.
A Dozen Reasons Mortgage Brokers are Uniquely Positioned to Dominate House Painting Industry.
1. You know where the homes are.
2. It’s a growth industry – When you can’t buy or sell you might as well paint.
3. Leverage your existing knowledge of homes, and still talk about TARPs.
4. “Yield Spread Premium” replaced by “Premium Yield Spread”. Phrase now applies to choice of paint, but no one cares if it’s disclosed to homeowners.
5. Expertise in “refinancing” replaced with expertise in “refinishing”.
6. Skill using a calculator remains at a premium, and when lease on Mercedes or Lexus runs out a 1992 pick-up fits in culturally with new peer group.
7. Opportunity for predatory painting and being bilingual still a plus.
8. No stressing out over current interest rates or unfair competition by banks.
9. Relationships with real estate agents and brokers more valuable than ever.
10. Trade in “white-collar” job for “no-collar” job. Paris Hilton says: “Overalls are hot.”
11. Flexible hours, save on dry cleaning, work at home. (Not your home, perhaps, but “a” home.)
12. Long-standing professional association provides opportunity for networking at trade shows. Painting & Decorating Contractors of America (PDCA) Est. 1884, offers scholarships and emphasizes safety.
See, and you thought I was going to be sarcastic, instead of thoughtful, insightful and caring, as I so clearly was. It’s not as far fetched as you thought going in, right? Holds some merit?
Since at this point I’m confident that I’ve got a few of you on board with the whole idea, I thought I’d go a step further and provide some specific insight into the language of the house painting profession, which will help those making the transition that much more comfortable from day one of their new career. Every industry has its own lexicon, and house painting is no exception.
12 Phrases to Learn When Transitioning from Mortgage Broker to House Painter:
Move the truck!
Don’t let go of the ladder, you idiot!
I thought you said you wanted blue.
Hurry up, house painter!
Wash the roller and the brushes!
It was like that before I got here.
Can you cash my check?
I don’t understand.
God, my back is killing me.
I only had one beer, boss.
I used to be a mortgage broker.
Okay… so have I made my point, or do you need more? The banks and mortgage bankers want your brokering behinds gone, and unless you plan on robbing banks and donating the proceeds to your elected representatives, you should plan on the banking lobby getting their way more often than not.
In other words, as a mortgage broker today, you’re one of two things: You either recognize that you’re in trouble career-wise, or you’re deep in denial, thinking-wise.
Gaze into the countenance of a mortgage broker today, and you’ll see someone that looks like a Christian Scientist with appendicitis. Someone not exactly sure what the future holds, but concerned that without something close to divine intervention, it’s very likely going to hurt.
It shouldn’t be a secret that some believe the mortgage broker to be dead man walking. At the other end of the spectrum there are those awaiting the return of exotic stated income teaser rate loans and, one might presume, the resurgence of 8-track tapes and typewriters. Still others seem to be banking on a never-ending stream of tax credits and REOs to keep the market moving forward, at least until, they seem to think, “things get back to normal”.
At the moment, the only lender is the United States government. That state of affairs, however, won’t last forever. It may take 3-5 years or longer, but the government will eventually have to buy the toxic assets still clogging bank balance sheets, and hopefully by then a new generation of investors won’t remember that their fathers who once sold mortgage-backed securities that, although rated AAA, turned out to be something between worth less and worthless. And when that day comes, the thinking goes… happy days will be here again.
Of course, by then… you’ll be living under a bridge, your spouse will have long since remarried a dentist, and you’ll be an expert at cooking up a very tasty squirrel pie when the kids pull over for a visit. Either that, or you’ll have thrown yourself out a window on the 89th floor of the Bank of America building in New York, hopefully taking at least one investment banker with you.
Banks and other direct lenders apparently view putting mortgage brokers out of business as key to getting things back on track. It’s as if to say: “You see, Mr. and Ms. Investor? We’re getting rid of the less-than-trustworthy and therefore risky part of mortgage lending, so come on in… the water’s fine… it’s time to get back into the pool (pun intended).
Too Politically Connected to Fail…
In case you haven’t been paying attention, the banking lobby has an awful lot of political clout in Washington D.C. these days. Perhaps it’s the fact that Secretary Geithner spends so much time on the phone with Goldman’ s CEO, Lord Blankfein, that I think I read recently that part of President Obama’s plan to pay for health care reform is to make the call a 900 number in order to provide medical care to several hundred thousand of the uninsured in this country.
In 2007, just a year after becoming CEO of Goldman Sachs Group, Lord Blankfein received total compensation of $53,965,418, but he also realized $45.76 million from the vesting of stock, bringing his total compensation and other awards to about $100 million, according to Goldman's proxy filing with the U.S. Securities and Exchange Commission. Apparently, Goldman did quite well in 2007? And, after a full year on the job, I suppose it’s not unreasonable that the firm’s CEO should win the friggin’ Powerball lottery as a single ticket holder. Whatever.
My point here is that the banking lobby is driving the legislative branch of our government, and at least sharing the driving with the executive branch. A great example of this control was seen this past year on numerous occasions. One was when the proposed bankruptcy reform bill, which was not only proposed by House Democrats, but also was something that President Obama said he would support throughout his campaign, and again as recently as February 20th this year, when he introduced his plan to stem the tide of foreclosures and stop the free fall in housing prices by Making Home Affordable again.
During his speech introducing the plan, he referred to judges having the right to write down mortgages on primary residences, which was the key component of the bankruptcy reform bill. But when it came time for a vote, something must have become more important because Mr. Hope turned into a fast change artist and was nowhere to be seen. When the bill, which was strongly opposed by the banking lobby, was defeated in the Senate, Senator Dick Durbin made the following comment as a guest on his hometown radio station:
“It’s hard to believe in a time when we’re facing a banking crisis that many of the banks created – they are still the most powerful lobby on Capitol Hill. And frankly, they own the place.”
Makes you feel all warm and fuzzy inside, doesn’t it?
But by far, the most prescient statement made by an absolutely shameless banker this past year came straight from the mouth of the President and CEO of the American Bankers Association, Edward Yingling. Ed was testifying in front of Congress related to a proposed new federal agency dedicated to protecting consumers when he said:
“It is now widely understood that the current economic situation originated primarily in the largely unregulated non-bank sector. Banks watched as mortgage brokers and others made loans to consumers that a good banker just would not make and they now face the prospect of another burdensome layer of regulation aimed primarily at their less-regulated or unregulated competitors. It is simply unfair to inflict another burden on these banks that had nothing to do with the problems that were created.”
Personally, I think that statement makes things pretty darn clear for the future of mortgage brokers. He might as well have come right out and said it: The only way mortgage brokers are going to get close to homes in the years to come is by painting them. And you think that I’m reading too much into his statement before Congress? Well… fair enough… I’ll dial it back a notch. How’s this: Mortgage brokers, as a whole, are going to be the bank’s betch from this point forward.
In the Interest of Full Disclosure…
Before I launch into what I think the mortgage brokers of this country need to consider as they limp forward, I think some disclosure is in order.
For one thing, what I know about mortgages you could put in a thimble. My wife and I own three homes at present and all I know about mortgages is how to get one without reading it.
The other thing you should know is that I liked my mortgage broker. I thought he did an excellent job. Not only did he look at all kinds of different loans available at the time, but he had the decency not to attempt to make me an expert on each and every nuance of all the loans he didn’t select, which I appreciated a great deal. And when it came time to sign, and I told him that he HAD to be at our home by 8:00 PM because we wanted to watch LOST at 9:00 PM… well, he showed up by 7:45 PM! That’s what I call being responsive to a customer’s needs.
I also should admit that I don’t have the foggiest idea what my mortgage broker made on our mortgage, but then I just bought a new Suburban and I don’t know what GM or the dealership made on that transaction either. He didn’t tell me what he made on our mortgage, so I didn’t tell him what I made on my last client at work. Fair is fair.
He didn’t charge us any points or fees, and I’m fairly certain that whatever he got paid, well… I’m pretty sure that I wouldn’t have been eligible to receive that check had I shopped loans at 11 banks like he did. I don’t think I’ve ever seen a sign at Wells Fargo saying: Get your loan here and we’ll write you a commission check for ten grand, or anything like that.
You should also know that I have an Option ARM and I like it just fine, so sue me. Of course, if my home’s value drops by 75% before this is over, and my payment triples as a result, and I can’t refinance to a fixed rate, I won’t like it one bit, but I can’t really blame my mortgage broker for all that.
Three more things you should know and then I’ll move on:
1. I hate the banks with the white-hot intensity of a thousand suns. For a while I was having trouble deciding whether I hated the investment banks or commercial banks more, but since every financial institution on Wall Street became a commercial bank in order to get TARP funds and unlimited access to zero interest loans at the discount window, the decision became moot and I now hate them all equally.
The fact is that bankers of one type or another, committed egregious acts of fraud, lied about, well… everything, leveraged investments beyond all reason, destroyed the bond market, lowered reserves for future losses so they could pay billions in bonuses, and ultimately bankrupted themselves, the federal government, and much of the planet. I’m almost positive that my mortgage broker didn’t do any of that. He seemed bright enough and all, but I don’t think he would have been up to all that and still have had time to shop around for my loan. And I’m damn sure that sub-prime borrowers had nothing to do with any of that either, capisce?
The bottom-line is, mortgage brokers didn’t cause the Chernobyl-type meltdown of our markets and it wasn’t the fault of people with sub-par credit scores and meager incomes that wanted to buy houses either. I know what the banking lobby would have us believe, but to them I can only say… sell it somewhere else… I have excellent reading comprehension skills, paid attention in graduate school, and I’m not buying any of it.
2. I firmly believe that if we, and by we I mean everyone who’s not a senior banking executive in this country, do not stand against these uns crupulous tyrants and break the financial oligarchy that have a vice-like grip on the cojones of everyone in Washington, from our Commander in Chief to the junior senator from Illinois… oh wait, that’s not a good example, is it? Never mind, the point is that unless we stop the banking lobby from controlling our government, it’ll be 2025 before Congress can even think about not further extending unemployment benefits.
3. I’ve spent a 20-year career as the CEO of a highly successful communications strategy consulting firm that has helped Fortune 500 companies and others across the country and around the world overcome a myriad of challenges by strategically and creatively positioning them to compete in changing environments and win. And that’s all I have to say about that, you can Google me to find out more. The point is… I may not know squat about mortgages, but I’m no amateur when it comes to what I’m about to suggest.
So What and Who Cares?
Okay, so the meltdown was not the fault of rogue mortgage brokers, but that plus roughly a grand in cash will still buy you a three-bedroom/two bath townhouse in Detroit, so what does it matter? The bankers are going to hang you for it anyway. By the time Congress gets through with your industry, you’ll be lucky if a bank will let you hand out credit card applications while standing in their parking lot dressed as a duck. Unless…
You had to know by now that I had something in mind, right?
Unless the mortgage broker industry recognizes its future as being uncertain at best, and rather than hoping against hope that banks forget past sins and invite brokers to the dance when the band starts playing again, the industry decides that it must reposition itself… redefine its value proposition, and control its own destiny, reinventing what it means to be a mortgage broker.
Thus far, and I know I’m going to get some nasty emails over this… the mortgage broker industry has been pretty darn insipid about the whole thing, in my opinion. As part of my research for this article, I watched a series of videotaped interviews with the presidents of mortgage broker state associations from various states across the country. Each one was asked the same question, and I’m paraphrasing here:
Interviewer: “This has been a very tough year for mortgage brokers. Can you tell the mortgage brokers watching, how you see their collective future? Is there a light at the end of the tunnel?”
In each case, the association president answered by offering some combination of statements about how the industry must:
· Focus on the needs of our customers.
· Recognize that many of those leaving the industry never should have entered in the first place.
· Concentrate on education.
· Accept the fact that we don’t have a crystal ball.
· See the positives of the banking industry now stabilizing.
· Know that consumers will always need mortgage brokers and that mortgage brokers will always be there to help them with their mortgage needs.
Hang on a sec… I need a sip of water. I just threw up in my mouth a little.
Come on guys, that’s not taking the bull by the horns, that’s just plain taking the bull. Don’t get me wrong, I’m not beating up on the association presidents, really I’m not. I mean… it looked to me like the video guy ambushed them at a conference and asked them the first question that came to mind. No big deal.
The point is that I’ve read a lot about what others in the industry have to say and it’s not all that different. In fact, of all of the articles I’ve written in the last year, this is the one I tried to research the most, and also the topic on which I found the most repetition in my research. I don’t care whom you ask about the future of the mortgage broker, you get pretty much the same responses from everyone involved. It’s kind of creepy, if you ask me.
Mortgage brokers have to set their own destiny going forward, in my view. Kissing banker butt and hoping to be thrown a bone simply isn’t going to cut it. I’m saying these things because I liked my mortgage broker remember? And I want mortgage brokers to be around the next time I feel like throwing a few of my hard earned sheckles at a condo in the mountains, or what have you. I don’t want to have to engage in unintelligible and unbearably boring conversations with banking dweebs in order to figure out which one I should choose as the winner of a modernized version of the 1960s television game show, “To Tell The Truth”.
Let Me Ask You a Question…
When I hire a real estate broker, he or she works for me… in my best interest… period. He or she takes time to understand what I want to do and why, and then does everything possible so that my objectives are at least met, if not exceeded. Not only that, but he or she stays in touch over the years and even provides me with an essentially unlimited supply of narrow lined pads of paper, which eliminates my need to purchase message pads on which to write phone messages.
When I hire an insurance broker, he or she also works for me… in my best interest… period. He or she takes the time to thoroughly understand my insurance needs and not only delivers what I think I need, but leads me to purchase the insurance products I didn’t know I needed, but am glad to have bought. And not only that, but I’ve had the same insurance broker for like two decades now. I don’t think I could get rid of him at this point if I wanted to. He knows more about my life than I do.
And when I hire a stockbroker or financial advisor, as they now seem to prefer being called, he or she works for me… period. He or she takes the time to understand my short and longer term goals and then often makes some pretty terrible recommendations, which cost me a fortune every 5-7 years, but that’s not the point here. He or she also calls me throughout each year, raises new topics, helps me understand my choices, which are often bad and worse, and in general tries to do the best job possible even when confronted with crummy market conditions.
So, why is it when I hire a mortgage broker he or she works to protect the interests of the bank? What is up with that? To be entirely candid, I did not know that was the case until this past year when I started writing about the mortgage meltdown and foreclosure crisis and a mortgage broker informed me that my own mortgage broker had no fiduciary duty to me, but rather had such a duty to the bank that originated my loan. And not only was I surprised to learn this little tidbit, but I haven’t heard from my guy since, and I don’t even get free pads of paper or a refrigerator magnet… nothing.
Also, I was pissed that my mortgage broker hadn’t told me that he was actually working for the other team. Had I known that, I would have hired someone to check his work. Why do all the other brokers in my life protect my interests, and hang around for years, while my mortgage broker thinks he’s a banker and the only time I hear from him is when I need a new loan?
The only way this is a sustainable business model for serving the needs of consumers is if interest rates remain flat at 4.75%, and the bank accepts stated tax returns and paycheck stubs written by hand on a napkin. If that’s the case then I don’t suppose it matters what type of service you deliver as a mortgage broker. The chances of me referring you to someone I know are about the same as you riding a unicorn to your next appointment, but who cares, everyone’s a buyer. In that type of environment, you can probably pick up three new loans while ordering the Grand Slam Breakfast at Denny’s breakfast counter.
A Profession in Need of Positioning…
The profession that brokers mortgages needs to be re-positioned in the minds of consumers… badly. Positioning is a concept that was first discussed in the book, “Positioning… The Battle for Your Mind,” written back in 1981 by Al Trout and jack Reis.
Positioning is what consumers think about when they hear the name of a product or brand. For example, when we see a BMW, we’re supposed to think “Ultimate Driving Machine,” but when we see a Volvo, we’re supposed to think “Safety”. Safety is Volvo’s positioning.
What do we think about when we’re introduced to a real estate broker? Well, I think narrow lined pads of paper on which I write phone messages, but that’s not the point. I’m kidding… when I think real estate broker, I think about buying or selling real estate. I think… new house, or vacation home. When I think insurance broker, questions come to mind about coverage I either do or don’t have. And when I think stockbroker I think… well, bad example… you don’t want to know what I think about when I think stockbroker, but maybe next year you will… we’ll see.
The point is… I don’t know what to think when I think mortgage broker. Should I think “advocate” or “adversary”? I’m not entirely sure. Should I think: “Gee, here’s an opportunity to find out something I’ve wanted to know about the mortgage market,” or should I think “this guys just shilling for the bank and won’t tell me the whole truth about anything”? Should I ask a mortgage broker about anything besides mortgages? Or is the knowledge of mortgage brokers limited to one subject: mortgages?
What can I use a mortgage broker for? And when should, and when shouldn’t I use him or her for whatever that thing is? I’m serious… looking forward, I don’t really know how to answer any of those questions… and that’s really a problem.
Whose interests does a mortgage broker represent in a mortgage transaction? Mine? The bank? His or her own? If the answer to that question is anything but “mine,” then you can’t and won’t be trusted by your clients. If the answer is “the bank’s,” then you’ll be dependent on the banks to decide if they want to let you play and to what extent they’ll allow your involvement. And if the answer is “your own,” then you’ll likely get your butt kicked more than once when someone like me discovers that you stuck me for a few extra thousand by hiding it on page 37 at the bottom in a formula that requires me to bone up on my algebra in order to catch it.
It’s time to sit down and ask yourself a few questions:
As a mortgage broker, what is your product? Is it the loan itself? Is it arranging for the loan? Shopping for the loan? What about advising the borrowers as to which loan is right for their needs? Or is it something even broader, something to do with total debt management?
Does your product stop at mortgages or do you also advise people on improving credit scores? And what about other types of loans? Do you provide anything related to loans for other purposes?
What about credit cards? Do you know where interest rates and fees are relatively better than they are somewhere else? And what about general banking relationships? Can you advise me as to which bank represents a better fit for my needs and why?
I don’t know the answers and chances are you don’t know all of them either. And even if you think you do, what we’ve all endured, and what we’ll continue to deal with in the foreseeable future is more than reason enough to question whatever it is that you thought before the meltdown occurred. It may not be the Great Depression, but it’s the Great Disruption for sure.
If you haven’t already done so, it’s time you came to terms with what’s happening in this country. This is not a “market correction”. It’s not part of some cycle that we’ve seen before, so whoever is saying that they know the answers to questions about what the future holds is lying… or just comically foolish. Just look closely at Tim Geithner’s face the next time he’s on television. Then come and tell me that he knows what’s ahead. Like hell he does.
I can assure you of some things, however. Like the fact that we haven’t hit the bottom of anything, for example. Real estate values will continue to decline. The banks will continue, with the approval of Treasury, to pretend that they’re stable and trying to help themselves and this country, instead of the insolvent mess that most of them unquestionably are.
Next year, hundreds of banks will close, unable to stay afloat without the continued infusion of secretive government loans. TARP is only the discussion bait for public consumption; the real numbers are in trillions, not hundreds of billions. Consumers are going to need expertise in various matters related to loans, credit and debt for some time.
Are you willing to reinvent and reposition yourself as a mortgage broker… willing to place your client’s interests above your own, or is this an idea to which your people will pay lip service only? Are you prepared to do more, work harder, likely earn less, and compete based on a lot more than just a lower rate or shaving off a point here and there?
Because you can absolutely count on the banks willingness to do whatever it takes to make sure that any future line they’re standing in, they’ll be standing in front of you, the mortgage broker.
Of course, whether they are in front of you really is up to you. We may not know exactly what to expect from our mortgage brokers these days or in the future, but we’re all going to know for a long time that we can’t trust the banks to do what’s best for anyone but the banks. And when you stop to consider that as our current catastrophe worsens, and things feel like they’re never going to improve, we’ll need help and we’ll turn to those we trust to provide us with answers.
Will the mortgage broker be one of those trusted advisors, or will I find my mortgage broker at a bank’s warehouse operation, positioned under some executive’s desk trying to make a good impression?
Martin Andelman is a staff writer for The Niche Report. He also writes an almost daily column on Ml-Implode.com called Mandelman Matters. He also publishes a Monthly Museletter and you can follow "Mandelman" on Twitter. Send your reponses to firstname.lastname@example.org