Notes and Opinions from one of Arizona's Most Trusted Loan Teams

I excerpted this from a much longer article about proposed regulation of the appraisal process. The article was written by the CEO of the company that provides this website for us along with many REALTORS and appaisers. For the sake of fairness, the article points out that some unscrupulous mortgage brokers existed during the boom years and then just as quickly disappeared. However, despite what you read, he doesn't feel that mortgage brokers are responsible for the current real estate troubles and we agree with him. I have provided the link for the full article in case you are interested.  JL

Mortgage Brokers: The Good, The Bad and The Ugly

by Dave Biggers

Dave Biggers is the founder and Chairman of a la mode. With a REALTOR® mother and an appraiser father, he was pre-destined to be holding “the dumb end of the tape” with his dad while still in high school, and paid for college as a residential and commercial appraiser. An engineering and economics major, Dave used his technical background and understanding of appraising to start
a la mode while still in school in 1985.

"....But where did that cheap and easy money come from? Not from the brokers. They only were selling what the lenders were tripping all over each other to offer. Lenders and the GSEs and everyone in between knew full well that unqualified borrowers were being placed into loans designed for a different financial profile. The last time I checked, mortgage brokers didn't do the underwriting of all these fraudulent and unsupportable loans. They did their "brokerage" jobs, by putting borrowers in front of as many lenders as they could, getting them a shot, and the lenders opened their doors wide and said "Come on in, the water's fine". Of course it's fine, because when the water gets hot, the lender won't be in it, since they didn't have any skin in the game. Loans got sold upstream, bundled into blocks of mortgage backed securities, and out of the lender's hands as quickly as they came in.

All the while, the AVMs used by Wall Street and the ratings agencies and the automated underwriting systems used by the lenders made nary a chirp. If appraisers and mortgage brokers are all so corrupt and compliant, I wonder why the "objective" underwriting systems from Fannie and Freddie and the "objective" AVMs didn't raise alarm bells all day long.

Actually, I know why. Because any "objective" analysis would show that neither appraisers nor brokers were to blame for the problem, and nobody at the GSEs or the lenders wanted that really "ugly" part to come to light. In the end, it was unvarnished underwriting negligence and pure consumer greed and fraud that drove the market to the edge, and beyond.

Mortgage brokers didn't do any more than anyone else to make that happen. In fact, even the statistics that indicate that they were neither better nor worse get interpreted to make it seem like they were to blame. Case in point, the Mortgage Banker's Association recently publicized a headline stating 58% of all mortgage loan applications which were later found to be fraudulent had been originated by a mortgage broker. But the same organization had often included articles showing 60% to 70% of all loan applications, good and bad, came through mortgage brokers. If brokers originated more than 60% of all the loans, and they were involved in only 58% of the fraud, then the lender's own loan officer employees were actually more likely to engage in fraud than brokers.

In the end, 100% of the fraud involved borrowers and lenders. That sounds trite, but think about it. No matter how many people are involved or what their agendas may be, the fundamental underlying assumption should always be that lenders will not loan money to someone who is likely to default, and even if so, that there is a hard asset of sufficient quality and value to cover the loss when it happens. But with lenders offering "no doc" loans to everyone with a pulse, and even some without, and the media encouraging everyone to get in on the feeding frenzy, is it any surprise that there were borrowers who were willing to say and do just about anything to get in on the "flipping" frenzy?"

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