Bank of America (BofA) has announced it will bow out of the wholesale mortgage lending business, confining its funding of loans to direct-to-consumer lending from its mortgage centers and community banks. BofA insists this decision was not made in light of the recent discovery of faulty foreclosure documents and the ensuing public relations fallout. Rather, the decision to focus on retail lending purportedly stems from a passion for personalized customer service.
BofA is not the only banking giant to cease the funding of loans generated by mortgage loan brokers (MLB). JPMorgan Chase announced last year that it would only be dealing in direct-to-consumer lending through its mortgage centers as well. This means Wells Fargo & Co. is currently the primary source of all wholesale mortgage-lending funds.
Regardless of whether or not BofA has closed its wholesale lending department as a personal relations maneuver, the effect on the real estate market (and the economy as a whole) is of great concern.
first tuesday take: As thousands of BofA mortgage customers suffer through protracted foreclosures, this veiled attempt to appear dedicated to consumer protection is an effort to reassure homebuyers they should borrow from BofA since their paperwork will not get lost in the mortgage loan application machine. [For more information on foreclosure delays in California, see the October 2010 first tuesday article, 2Q California foreclosure data.]
While BofA receives considerable financial benefit by halting wholesale lending and funding of broker-generated mortgages, borrowers will suffer the consequences of the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, the actual effect of which is to eliminate MLBs from the highly lucrative consumer loan market. By subtracting the MLB from the loan origination equation, BofA will retain a greater profit on each loan that would otherwise be shared with a MLB who packaged and sold them the loan.
Although borrowers may potentially save as well (if BofA is benevolent enough to pass these savings on), there will simply not be as many choices on the mortgage loan market since the system for distributing mortgage money to buyers is reduced by eliminating the MLB and the Federal Deposit Insurance Corporation (FDIC) closing the small, politically impotent banks. As we have already witnessed, this will drive up loan charges as the effect of the SAFE act and barring MLBs kills competition.
The Federal Reserve (the Fed) is now using new strategies, untested in the U.S., to pump fresh cash into the economy via quantitative easing (buying 30-year T-bonds), which will ostensibly drive mortgage rates down even further. BofA’s strategy to lock MLBs out undermines the Fed’s efforts to introduce greater quantities of cash into the mortgage market and stimulate money lending.
As the Fed purchases billions of dollars worth of BofA’s stockpiled T-bonds, the nation’s largest private bank has decided it will be the sole administrator of those funds, opting to consume a bigger piece of the pie (comprised of front-end fees) while elbowing the MLB away from the table and interfering with the distribution of funds to California’s vast and geographically widespread homebuyer market. [For more information on the Fed’s new strategy to stimulate the economy, see the October 2010 first tuesday article, The Fed purchases treasuries, fights inflation.]
The hurdles to Real Estate Settlement Procedures Act (RESPA) MLB activity, which lenders placed in their way by guiding the SAFE Act into law, have been raised even higher by refusing to fund or purchase the loans they package. It looks like those of you who just earned your Nationwide Mortgage Licensing System (NMLS) registration and endorsement may not need it after all. Lenders do not want your assistance in locating homebuyers and homeowners who need financing.
I don’t think that B of A will be missed much in the Broker world. I currently work with a direct Mortgage Lender, but when I started in this business as a Broker, I’ve never used their services (Countrywide a few times). This just demonstrates their Arrogance to the Industry. Unfortunately, the general public doesn’t see this side of the business, so they can’t relate to the frustrations that Real Estate Professionals have to deal with on a daily basis. Many people in the South Bay have urged their clients to stay away from B of A, and even some of the larger banks too. The experience has been very discouraging to many of the Realtors here. Some of these so-called Pre-Approved Borrowers end up being turned down for their loan at the very last second (after releasing their contingencies) and everybody is left wondering, “what happened?”. They won’t succeed with the elimination of the MLB and will return to the Market, acting like they’re doing everybody a favor. The real reason will be they need the MLB more than the MLB needs them.
Well I’m not supprized at the announcement. They have clearly gone the extra mile to ensure that there is less competition. They spent a lot of money making sure they and the other big lenders did not have to comply. THey don’t have to comply with SAFE act rules the rules that are supposed to protect the public don’t apply to the ones the public needs the most protection from. It is all about the mighty dollar. They use the excuse of better customer service. THey have never cared about service. Just ask anyone that has an account with them. Just ask anyone that has tried to get a loan mod from them. Just ask anyone that has done dealing with them and the truth be told. I will continue to find my clients deals when they are refused by these money hording ingrates. And find other ways to stimulate the economy without lining B of A s pockets.
Never did trust B of A. And there business decisions over the last couple of years have made me glad I am not a stockholder. As a Realtor I always try to stay away from their loans programs, Wells for me has always been the better bank.
I guess, instead of looking to BofA as a steady buyer of MLB deals, all of you should look to other lenders.
Congress is in the pockets of anyone who is willing to fund their next lie … err campaign. But don’t blame the banks, because Congress blackmails industries with threatened legislation if they don’t line up with the bribes.
Write solid, performing contracts, and NOONE can compete with you.
The real reason BOA is no longer in the WHOLESALE BUSINESS has to do with the bank wanting to compete directly with the MORTGAGE BANKING INDUSTRY to cut off any competition. The banking industry today is STILL realing for not being able to SELL REAL ESTATE DIRECTLY to the banks customers. Now, they are after the mortgage brokers and their goal is to put them out of business as soon as possible.
When you eliminate competition you also control the market and the product. Mr. Realtor will find himself on the losing end very soon. Just you watch our big brother will be after your commission very soon because paying someone 6% to handle paperwork can be done for less by a bank real estate agent. They have a stronger lobby group then the Realtors…it is just a matter of time.
As a Realtor, I couldn’t be happier about this. I can’t tell you how many clients I know who qualify for direct BofA loans go to a mortgage broker for help getting a great product. They end up with broker origination fees, that a strong loan officer at BofA does not need to charge and the mortgage brokers do not alway fully understand the lenders program like a BofA loan officer does so they more often misrepresent the product, causing delays or for the buyer to pay for appraisals and Inspections only to fall out of escrow. It used to be that mortgage brokers had the ability to source a program for a borrower who had a particular problem with stated income or low down or questionable property but I rarely see mortgage brokers adding value to buyers. Some of them are real nice but so are plenty of L.O.s. There are probably a few that really have something to add, just haven’t seen it myself.