So I'll cruise along always searching for songs Not a lawyer a thief or a banker

Reprinted from Virginia Mortgage Press

As an economist and researcher in the wholesale mortgage banking space, I've observed and studied the Mortgage Broker business and industry formally and informally for much of the past two decades.  Affected by the data our firm (Wholesale Access) has compiled and analyzed, and juxtaposed against observation, I have, over time, become a big fan and advocate for mortgage brokerages because Mortgage Brokers (owners) and their loan officers have substantively improved the efficiency of the mortgage delivery system and lowered its cost structure relative to what it replaced.  Choice is greater, customer service is better and consumer costs are less.

For these reasons, I'm incited to pick up the pen to not let people who disparage mortgage brokers go unanswered.  To that end, here are several recent letters The Mortgage Press has picked up on.  There have been many more over the years.  Another recent letter went to Shiela Blair, Chairwoman of the FDIC.  She too blames mortgage owners for the unfolding sub-prime mess.

Let me conclude by saying that several years ago, I called Joel M. Berman, publisher of The Mortgage Press, to let him know that information led me to conclude that Ameriquest's (a lender) practices and policies would prove to hurt mortgage brokers.  That has certainly been borne out, unfortunately.  In fact, my letter to the editor and journalists at The Wall Street Journal was prompted by their exclusive focus on a bad loan officer (never a licensed broker, by the way) named Altaf Shaikh.  Mr. Shaikh got his start in the business at none other than Ameriquest.  Such irony cannot be feigned.

Tom LaMalfa,  Managing Director
Wholesale Access

Letter number one to Sen. Chuck Schumer, July 17, 2007. 

Dear Sen. Schumer:

In recent month, I have noticed how you have criticized Mortgage Brokers in a variety of forums.  You are consistent, but also wrong in pointing fingers of blame at them.  The fact of the matter is that mortgage brokers are largely innocent bystanders in the sub-prime mess that is unfolding.

Neither mortgage brokers (owners of brokerages) nor their loan officers (LOs) ever, ever make the acceptance decision in the mortgage transaction.  Credit acceptance decisions are always made by the lender.  It is the lender who always approves (or rejects) the borrower, who always okays the brokers or LO's commission, who always moves the loan to the closing table.

Frankly, LOs are salespeople - that is their job and that is what they get paid to do.  Their job is to find mortgage loan applicants, take their applications - that is, whatever is required by a given lender - begin processing the loan and pushing it further along the pipeline.  It is purely fee for service.  They do not evaluate borrowers or their credit.  Again, it is not their job.  I know this because I have studied the role or Mortgage Brokers for nearly 20 years, since their advent in the primary market delivery system.  I am not a broker, never have been, nor am I related to any brokers or LOs.  However, and importantly, I am a life long (since McGovern) Democrat, a "liberal" (ADA, Public Citizen, Common Cause, etc.) and a monthly contributor to the DNC.  I mention this only so you don't conclude I'm some wild-eyed "free market" Republican.

Indeed, I (we) have the data that shows the brokerages only deliver what the consumers demand.  In recent years, that has been (affordable) housing.  It is the lack of the latter that mortgage brokers are now getting blamed for.  That is wrong and may even be scapegoating.,  The reality, the bottom line, is that the Federal Reserve printed way too much money (a la one percent Fed funds), they passed it along to commercial banks who dumped the money on brokers, who dumped it on willing and waiting mortgagees who had nothing to lose and everything to gain if property prices continued to rise as they had for six consecutive years.  It is really so straightforward.  It is for this reason I write to you to explain why brokers should be viewed as no-fault factors in the sub-prime mess.  I will write my senator, Sherrod Brown, and House Financial Services Committee Chairman Rep. Barney Frank so they understand this (my) position and observation point in this letter to you, as a key member of the banking committee.

Sincerely,

Tom LaMalfa

Editor's note: The top five contributors per OpenSecrets.org to Sen Schumer's Campaign committe and Leadershiop PAC from 2003 - 2008 were as follows:

Contributor         Total          Individuals    PACs

UBS AG              $104,750    $77,250        $27,500
Citigroup Inc       $100,800    $73,800        $27,000
JPMorgan Chase   $77,800     $47,800        $30,000
Goldman Sachs    $68,040     $63,040          $5,000
Morgan Stanley    $68,000     $58,000        $10,000

In total, Securities and Investment firms contributed over $1.6 million during that time.

•  No matter what is being said in the popular media and especially CNBC, credit for the mortgage markets is not getting better.  Guidelines are tightening.

These are just a few of the recent changes for some of our lenders (please note that each change does not necessarily apply to all of the lenders we use):

1.  Elimination of lending to partnerships, S-corps, LLCs or life estates;

2.  One lender has stopped lending in California all together.

3.  Maximum of 4 properties besides the primary residence (still, only one primary residence is allowed).

4.  The security instrument or Deed of Trust here in Virginia, requires a pledge to use property as a primary residence within 60 days of purchase and "occupy the property as their primary residence for at least one year after the date of occupancy."

5.  Borrowers are permitted to have only one second home.

6.  If rental income from the subject property is used to qualify, the following requirements must be met:

Landlord History: Borrower must have a two-year history of managing rental properties.  Two years tax returns are required for verification.
Rent Loss Insurance: Property must have a minimum coverage of six months rent loss insurance.
(with certain income strength we can get these requirements waived)

7.  One lender has a max 70% LTV for investor 30 year fixed rate mortgages.

8.  The applicant’s income must be reasonably expected to continue for at least the next three years.

9.  An IRS-4506-T must be signed on all files.  This gives the lender the ability to request copies of your tax returns directly from the IRS.

10.  Handwritten pay stubs or W-2s are no longer acceptable.

11.  Lottery winnings are still acceptable as long as you can expect to receive it for another 3 years.

12. For a self employed individual a profit and loss's income can be used for generating income history as long as it accompanies audited financials for at least one year and is consistent with that prior year.

Not a lot has changed but it is still changing and it is getting tighter - not less restrictive.

And for all that this article, Risk-taking is back for banks 1 year after crisis.  So the risks are being taken, just not with mortgage origination.

He was head of the New York Federal Reserve.  He should know the privately owned Fed was started in 1913, long before the last depression.