Some US lenders are cutting back on doing business with mortgage brokers, raising concerns about the impact on consumer choice.
A report by CNNMoney, produced overnight, said the banks’ decision to scale back use of brokers was “bad news for consumers because fewer brokers could lead to a less competitive marketplace and more expensive home loans resulting from consumers not being able to easily comparison-shop rates”.
According to Alan Rosenbaum, founder of US-based brokerage Guard Hill Financial, some banks want to get rid of mortgage professionals to reduce competition.
He said brokers in the US are now responsible for around 70 per cent of mortgage lending business, dropping from around 80 per cent.
Cited as a bank that has cut out brokers is JP Morgan Chase, who “announced in January that it would end its so-called wholesale operations... and will no longer fund loans arranged through brokers, instead it would only make loans mostly through its own offices”.
The decision to cut brokers, according to an internal Chase memo, was based on the premise that “our customers are best served when a mortgage officer works directly with them, explains our products clearly and then helps them carefully evaluate the choices in light of their personal financial situation”.
Citigroup also said it would cut back the number of mortgage brokers it works with to 1,000 from 10,000.
President of the National Association of Mortgage Brokers Marc Savitt, CNNMoney reported, said banks like Chase were looking to increase profits by cutting out the middlemen – but added that the costs of bricks-and-mortar operations would ultimately make the business less efficient.
“Loan officers may find themselves sitting around waiting for customers to come in rather than fielding applications from mortgage brokers,” he said.