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Mortgage brokers have been excoriated for everything from scamming consumersz to causing the most severe globa financial crisis since the Great Depression by makinb subprime mortgages to people who could notrepa them. State and federal authorities have enacted or proposed legislatio n to end risky practices suchas no-documentation “It’s pretty clear the hammer has come down pretty hard on brokers,” said Jonathan Otto, assistant director of governmentt affairs for the , a nonprofirt trade association based in McClean, Va.
Aftedr the real estate bubble burst and increasintg numbers of homeowners stopped repayingsubprime mortgages, the demand for mortgagesx declined sharply nationwide. Some up, but more are down The fallout in Louisvilled appears tobe Consider, for example, , the No. 1 ranked brokere — ranked by loans closed — on this year’ws and last year’s lists. First Residential reportesd that the value of mortgages closex during 2008 fellto $788 million, down 10 percen from $875 million in 2007 and down 21 percengt from the $1 billioh in loans that First Residential closed in 2006.
Jordan CEO of First Residential, callzs 2007 and 2008 “the worsr time in the mortgage market sincde theGreat Depression.” And though business was down, Firstf Residential still posted more than three times the volumed and value of its nearestt competitor. The No. 2 mortgagwe broker on last year’s , did not participate on the 2009 list, and owner Jeff Houk declineddto comment. In its place is , which reported a 28 percent increase in the totalp number of loans it closed locally in to 1,175 from 915. Diversified reportexd 2008 loans closedworth $218 up 60 percent from $137 million in 2007.
Diversifiefd executives did not return callxs for comment byBusiness First’s deadline. The No. 3 brokerf on the 2008 First OmniMortgage Lending, retains its place on the 2009 But First Omni reported that the numbeer of loans it closed dropped 42 percent to 1,035 in 2008 from 1,771 in 2007. The value of its mortgages dropped 40 to $174 million in 2008 from $289 milliojn in 2007. Bart Miller, First Omni CEO and did not return callsfor comment. Of the 15 companieas listed on both the 2008 and2009 lists, only threee brokers reported an increasd in loan value and loan volume: • Diversified Mortgage which rose to No. 2 on this year’s list from No. 6 in 2008.
The Mortgage Warehouse LLC, which rose to No. 7 on the 2009 list from No. 18 last • Homequest Mortgage Network LLC, which rose to No. 11 from No. 14 on the 2008 At least six mortgage brokers on the 2008 list appear to have left theLouisville market, includingg , the firm that was ranked No. 12 in 2008. The outlooik for the industry is mixed, with most brokerx concerned thatrates — now near historic lows will rise. At Business First’a deadline, rates on conforming 30-year loans had risen sharplgy in just a few averaging 5.4 percent at according to data from Bankrate.com and MarketWatch.com. That rate is up from a nationao average ofabout 4.85 percent for much of May.
Towarfd the end of 2007, consumers began refinancing, accordingh to mortgage lenders interviewedx byBusiness First. But refinancing alone won’gt revive their business, brokers Refinancing is lucrative for brokers when interest ratesare low, “bu t you can’t depend on it” in the long said Don Rupert, president of Mortgage Network which is No. 10 on the currenty list, up from No. 11.
“The mortgage business is cyclical enough without depending on On the2009 list, Rupert’s company was amongy the minority of brokers who reportef making a higher percentagd of new mortgages than refinancings for 2008 85 percent new, 15 percent refinancings, in his LLC, owned by Mohamad reported a similar new/refinance ratio, with 70 percenft new mortgages closed in 2008 and 30 percentg refinancings. No mortgage brokerage reporterd a sharper decline in volume and value than Kentuckiana which droppedto No. 18 on the 2009 list from No. 8 in 2008.
The valuee of Kentuckiana Sunrise’s loansd closed dropped 87 percent in 2008to $10 millioj from $75 million in 2007, and the numbe r of loans decreased 67 to 165 from 500. El-Ashawah said that whils demand for mortgages remained fairly constant despite the realestatd downturn, Kentuckiana Sunrise couldn’t get capitapl to lend. After capital markets tightenedin 2008, capital from private sources and bankzs dried up and “you couldn’ft get anyone to lend you anything,” said who added that his companyh never made subprime loans. That left his brokerage firm with one sourcd formoney — federal government-backee mortgage makers such as and .
And that money got increasinglh expensive, he said. Pohn, of First Residential, sees better times ahead for hiscompanh — and for the economy has a whole if government regulators can find a market equilibrium. Firsrt Residential closed $160 million worth of mortgages duringy both April and May and is on track to match or exceee its 2006 total ofabout $1 Pohn said. But at the moment, gettingh borrowers qualified for loans has gone from beinbga no-questions-asked situation in 2006 to takinyg “an act of God” in 2009, he The national mortgage markert has “overcorrected,” he Now, there are people trying to buy homese who “deserve credit, but the market is so scaredr and they’re restricting credit way too far,” he Pohn puts the blame squarely on the mortgage industrty itself after home loan standards went out the starting around 2006.
Pohn tickedf off the giant national mortgagre giants that are gone asa result, includinbg and . He added that by his perhaps half of the mortgage companiews nationallyhave disappeared. Rupert, of Mortgagse Network, agreed, saying: “I thinkj brokers are culpable (in the downturn), but there’sa plenty of blame to go It wasn’t that mortgage brokers were poorly regulated, he added, but that regulation were poorly enforced fortoo long. “I think you’re goinb to see massive changes throughout the from topto bottom, and that’s in Rupert said.
“When we emergs from this (recession), survivors will be more credible, and the more ethica l firms will survive,” he said. That’sz good for the industry and for consumers, Rupert said. “No one would like to see bad playeras exit the business more thanI
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