What Does the Future Hold for Independent Mortgage Brokers?

Market analysts have been speculating about the imminent death of the mortgage broker for a while. Many banks suffered huge losses when the markets crashed in 2008. They also had to deal with low interest rates and a slow economy. As a result, many of them quickly left the marketplace. At least some of them have started working directly with the homebuyer.

Does that mean that the days of the mortgage broker are numbered? Yes and no.

There has been a gradual decline in the number of mortgage brokers over the last few years. Their numbers may drop even further during the coming years. This, however, doesn't mean that all independent brokers will have to quit the market soon. That is unlikely to happen.

What does the mortgage broker do?

Mortgage brokers act as the middlemen between lenders and home buyers. However, the new rules issued by the Consumer Financial Protection Bureau may force many independent brokers to quit the business.

The new rules prohibit mortgage brokers from placing homebuyers in costlier mortgages with the sole objective of earning a higher commission. They will also prevent the broker from receiving commission from both the lender and the borrower. While brokers are not exactly happy with this development, consumers will definitely welcome this move because it makes working with the broker safer.

However, this many force many brokers to quit the business. And if that happens, the consumer may find it difficult to shop for a mortgage. Brokers make the whole business of getting a mortgage easier. They understand the market and know the best deals and rates. They have access to banks.

If there are no brokers, homebuyers will have to go from lender to lender until they find the best deal. Getting a home loan is already difficult because it requires a lot of documentation. And if the broker vanishes from the scene, the process makes even longer. This will affect the borrower in many ways.

It is true that they can log on to the mortgage shopping sites. However, most of these websites only provide referrals. They don't provide enough information for the borrower to compare rates.

Working with a mortgage broker is risky. Many unscrupulous brokers place borrowers in risky mortgages. They are only concerned with their commission. In fact, these brokers have even been blamed for the crash of the housing sector.

However, now that many of these greedy brokers have quit the sector, the new rules eliminate most of the risks associated with working as a broker. Now for the borrower the biggest challenge is finding a mortgage broker who has access to a huge number of lenders.

Over the last few years, several big banks in the US and Canada announced that they would no longer work with independent brokers. Some of these banks even went to the extent of saying that loans originated by their loan officers performed much better.

Numbers don't lie
 

Independent brokers have been quitting the industry for a while. That was mainly due to the crash of the housing sector.

While in 2006, The National Association of Mortgage Brokers had around 25,000 members, their number fell to nearly 5,000 in 2013. This drop in their number has also reduced their market share. During the last 2 years, independent brokers originated only about 10% mortgages. They accounted for nearly 30% of the mortgage originations during the period between 2004 and 2006.

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