Given the financial stakes involved, getting a mortgage was surprisingly easy. During the mid-2000s, all it took was a visit to the local bank branch or mortgage broker, either of which a borrower could find in the nearest strip mall. The process took only a short time the loan officer did a few calculations, pulled a credit report, and requested some additional financial information. When the deal closed, the borrower needed to sign a handful of documents, and the money and property title were transferred.
All this is a breeze when times are good and credit is easy, but even when things tighten up, such as in the current period, the mortgage lending business is very efficient. It has to be; profit margins are paper thin and volume is necessary to make any kind of money. With thousands of brokers working on commission, they needed to make a lot of loans to earn a good living.
For a home buyer seeking a loan, the most important contact was often either a mortgage banker or a mortgage broker. These professionals' jobs involve examining the borrower's financial situation, working out the math to determine the appropriate size and type of loan, collecting the relevant documents, and securing the funds necessary to make the loan. Similar to independent insurance agents, who provide a broader distribution channel for the large insurance carriers, mortgage bankers and brokers provide a similar service for the big financial institutions with the cash to originate loans.
Mortgage banks and brokerages are generally small businesses; at the peak of the housing boom, 75,000 of them were scattered across the country, employing 350,000 workers. They are low-cost operations that often appear and disappear quickly, depending on origination volumes and business conditions in a particular region. Their competitive advantage is choice; they offer borrowers a variety of potential deals, from government-backed loans to those offered by major depository institutions.
Mortgage bankers and brokers had historically been lightly regulated; states set the rules that applied to them, which varied substantially across the country.
This enabled these originators to become major players in subprime lending; during the housing boom, they accounted for more than half of subprime lending.
But after a mortgage deal closed, the broker's role ended. Only if homeowners came back to refinance or buy another home would they ever encounter a broker twice assuming that the same broker was still in business.
Most borrowers never meet the other professionals involved in making and managing their loans. These include appraisers, inspectors, and title agents people who are supposed to make sure the house being purchased is worth its agreed-upon price. Mortgage underwriters evaluate the lender's risk in making a loan. The underwriters' models compare information about a borrower to details about others in similar circumstances, to determine the chance that a loan will be paid back regularly and on time.
Mortgage insurers provide a backup in case the models are wrong and the borrower defaults. Mortgage servicers collect monthly payments and pass along the proceeds to the owners of a mortgage, and they are also responsible for working with borrowers who are struggling to make their payments.
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06102010
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