Mortgage Brokers Make Presence Felt During Florida Refinancing, Home Sales

A marginal presence in the industry 20 years ago, Florida mortgage brokers have become the face of the $10 trillion home loan industry, the single point of contact between a sophisticated financial world and borrowers committing to spend hundreds of thousands of dollars to buy a home.

Brokers often present themselves as disinterested parties, but the industry feeds on fees from lenders and bonuses when they complete a deal.

These professiona.s helped dramatically expand the housing market in the first half of this decade, extending loans to risky borrowers. Approximartely 403,000 brokers handled 68 percent of all loans in 2004, according to the research firm Wholesale Access.

Commission-based pay varied widely, although an experienced bad credit Florida home loan officer at a brokerage or bank could earn $150,000 with a reasonable amount of effort in 2003, estimated researcher Christine Clifford. Some newspaper reports talked of brokers who made well into six figures.

Brokers’ ranks swelled in the 1990s when lenders began to offer them incentive payments for doing loans. In return, lenders gained a flexible, aggressive sales force to deal with booming demand and a proliferation of new loan variations. Consumers looked to brokers to guide them through mountains of paperwork and a maze of loan offers to the promised land of home ownership.

Many assumed that brokers were required to offer them the best possible deal. But generally they are not required by law to act in a consumer’s best interest, and their own profits rise when they sell higher-interest Florida mortgage loans that cost consumers more.

Brokers as a whole have encouraged the notion that they are on consumers’ side. The website of the National Mortgage Brokers Association called a mortgage broker an “expert mentor” for home buyers until congressional criticism in February prompted the trade group to change it. It now says that the broker is “a knowledgeable professional.”

Brokers were ready to do business as greed or fear drove borrowers into a Florida housing market already strong and starting to get top heavy. After the collapse of the stock market in 2001, condos and McMansions became the get-rich-quick scheme of choice for speculators, who would buy new properties before they were built and “flip” them when they were finished.

“You saw your brother-in-law make an easy $60,000 or $80,000 and you thought, ‘I should get into this because I’m obviously smarter than my brother-in-law,”‘ said Steve Johnson, director of MetroStudy, a real-estate consulting firm in Riverside, California.

Others worried that the booming market would leave them behind.

“It caused people to believe that if they didn’t buy now, they were never going to be able to have a home of their own, and therefore extended themselves beyond any historic standards,” said Angelo Mozilo, chief executive and chairman of the largest U.S. mortgage lender, Countrywide Financial, at a recent presentation.

Many consumers showed little interest in the details of their loans.

“I could put something in front of them that says they’re going to give me their first-born child and a million dollars a year for the next 20 years - they’ll sign it,” said San Angelo, Texas, broker Martin Farris.

Harry Dinham, president of the broker trade group, said Florida mortgage borrwers need to get quotes from several brokers to avoid getting ripped off.

BEWILDERING OPTIONS
The marketplace could be bewildering for subprime borrowers, as people with little financial savvy were sold sophisticated financial instruments. A recent Harvard Joint Center for Housing Studies report concluded that “the lack of understanding of market conditions leaves many consumers prone to simply paying too much for mortgage credit.”

Once they settled on a broker, consumers were often not shown the right options.

“We have never even met a borrower who was given a choice between fixed (conventional loans) and ARM (adjustable rate mortgage) on subprime,” said Jordan Ash, head of the Financial Justice Center at the Association of Community Organizations for Reform Now.

The complexity could be overwhelming. Some of these loans put borrowers deeper in debt every month, as the payments were not enough to cover interest costs.

Those who didn’t have a down payment were able to borrow the entire cost of the house by splitting it between two Florida mortgages.

In addition to those who gave poor advice, some unscrupulous brokers encouraged and abetted fraud, as consumers struggled to understand their loans and lenders scrapped for their business.

Particularly problematic was the “stated income” loan, which didn’t require borrowers to prove income or other assets in exchange for a slightly higher Florida mortgage rate. They were nicknamed “liar loans” within the industry.

One lender checking a small sample of applications against federal tax forms found that almost 60 percent of loans had income exaggerated by more than 50 percent, according to an April 2006 Mortgage Asset Research Institute study.

One borrower who has multiple sclerosis and is confined to a wheelchair, Monica Wray, 41, of Temecula, California, said she was surprised when she checked her loan application later that she owned a cleaning business.

“I laughed, because I can’t even clean my own house,” Wray said.

Brokerage Fidelity Capital Funding said the broker did not lie on the application.

“He talked to her and she said she owned a cleaning service and made a certain amount of money, and that’s what he used to qualify her on,” said sales manager Tom Calise, the supervisor of broker Nick Minielli, who declined to comment.

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