Mortgage brokers get squeezed
MINNEAPOLIS – When Wells Fargo & Co. paid $175 million in July to settle federal allegations of discriminatory lending, it blamed independent mortgage brokers for selling the loans, and it shuttered its entire wholesale mortgage operation.
For the brokers, who make their money connecting borrowers with lenders, this meant a key stream of income had just dried up.
“We were very blindsided by this,” said Scott Zak, who runs Capital Finance Inc., a one-man operation in St. Paul, Minn. “It changes things for us dramatically.”
The decision is the latest setback for mortgage brokers, who already are ailing from the housing downturn that led many other banks to end wholesale lending.
“For many brokers, they view the environment for the last three or four years as death by a thousand cuts,” said Rob Chrisman, a mortgage industry analyst.
Nationally, brokers originated 27 percent of total loan volume in 2008, according to National Mortgage News. Now, that figure is down to 10 percent.
Even more may leave the industry now that Wells Fargo is out of the picture, analysts say. In the first quarter of 2012, Wells Fargo funded $7.4 billion in wholesale loans, accounting for 14.5 percent of all broker-originated lending, according to National Mortgage News.
“By eliminating that channel, we can really better ensure our commitment to fair and responsible lending,” said Wells Fargo spokesman Tom Goyda.
Federal regulators had accused Wells Fargo of steering black and Hispanic borrowers into subprime mortgages and charging them higher fees and rates than similarly qualified white borrowers.
Fewer loans being closed hurts broker revenue, broker Erika Dragich said, but ultimately, borrowers will be affected most.
“There aren’t enough underwriters,” said Robert Carter, president of the Minnesota Mortgage Association. “Staffs are swamped right now. This just further impedes the ability to get a loan sold and closed.”