Will large mortgage banks like BofA, WAMU, drop their wholesale mortgage products?

Question

[Please answer this question only if you are a mortgage professional, an MBA, a real estate professional, or someone in a similar profession who is very familar with mortgages]

I'm currently an assistant to a mortgage broker and I was very lucky to have worked with one of the ethical mortgage brokers though I will admit that sometimes he over stated some asset figures. I'm not too happy about that--but he would give his clients the best mortgage terms on the cheapest basis. i.e. he didn't charge them points when he didn't need to.

However, I'm hearing that the mortgage broker industry may end next year due to the alledged plans of several large banks like BofA (already did it), WAMU, Wachovia, Citi, Indy Mac, Wells, and so on. I've also noticed that these major banks are starting to expand their retail divisions thus making me believe that pretty soon we are aheaded towards a direction where mortgage brokers will become no more.

Does anyone else out there believe this to be so?

Answer 1

Bank of America has announced plans to phase out its wholesale operations early in 2008. I expect this to a manner of relatively short duration for BOA, since it's not about to eliminate a source of profit once conditions return to a more normal situation. Mortgage wholesaling is generally a profitable venture for the large banks, which have been badly burned of late by risky and inappropriate lending practices. BOA's venture with Countrywide may be a part of this decision, but I don't expect the situation to be a long term decision for any of the major banking institutions.

Answer 2

The large banks have always liked the broker because it has allowed them to book loans without the overhead. They either were fooling themselves or foolishly believed their Buy Back Contracts with their brokers would protect the quality of the loans.

The internet has grown up and will continue to become more sophisticated. I believe in the future we will all be getting our home loans by internet, from a large bank 's phone room, connected to a $7.00 hr tech who screens the file against a check list and then passes the file up the line to an $8.00 hr processor.

The overhead challenge for the big banks has been answered by the internet and one by one they will be dropping their wholesale divisions. The need for an originator on the ground was a balance between risk, quality and cost. They lost on all three.

Answer 3

As lenders continue to go out of business or close their retail shops it will only lead to tighter origination practices.

Only time will tell, however, I do not believe that the industry will sustain itself on retail origination methods alone. Additionally, there is still a GREAT contingent of customers who want personal service and will not obtain a mortgage over the Internet.

Real estates booms and busts are cyclical and occur every so many years. What is happening now reminds me of the last cycle around 1984. Things will bounce back and they will be different but they'll bounce back nonetheless.