BluefoxToday blog : Are They Made To Big to Fail?

Are They Made To Big to Fail?

It is apparent that an increasing amount of our country's financial power is being consolidated into the big four banks; Bank of America, Chase, Citibank and Wells Fargo making these guys absolutely To Big To Fail, what's next?

Will there be further consolidations... maybe big bank inspired elimination of mortgage brokers? 

Whoops, it's happening now unless you take action,  Big Banking Buddy FDIC is helping big banks eliminate one of their largest competitors leaving consumers with even fewer choices as early as 2010 unless you take immediate actionRead how

For those of you who do not subscribe to the lending and real estate site Think Big Works Small you might enjoy their humorous take on banks to big to fail.  See Video

Comment balloon 7 commentsBill Ladewig • October 29 2009 01:24PM

Comments

We've been talking in meetings about how the banks are controlling the inventory, valuation and loans.

Posted by Vickie Nagy over 8 years ago

Bill, I've been in the industry for over 18 years and have worked as a broker, mortgage banker and currently loan officer for a big bank. I agree with you, there needs to be competition so the consumer can benefit. Unfutunately, there was a ton of abuse in our industry that has to be addressed and dealt with. NOt an easy job. And the government is doing what they can to ensure it doesn't happen again. Unfortunately, they may be trying to do too much.

It's like being a kid on the playground and having to follow the new stricter rules imposed on the good kids because the bad kids hurt someone. Let's hope the rules don't get too tough that only the big banks can afford to play on the playground. I'm crossing my fingers.

Posted by Anthony Ebright - NMLSR ID #247647 Purchase and Refinance Mortgages (FHA, VA, Conforming, Jumbo - Wells Fargo Home Mortgage) over 8 years ago

Anthony, thanks for your comment.  I agree there has been a huge amount of abuse and one of the leaders was Countywide now owned by BoA.  There is no question mortgage brokers participated in the abusive feeding frenzy but they were encouraged by the banks who bought their loans. 

During the time of abuse I received mortgage banker flyers daily telling me how I could make seven points on an Option ARM, two on the front and up to five on the back.  One banker allowed up to six rebate points.  All the broker had to do was sell a high margin to someone without a Margin clue who was focused, with the help of the Broker or Banker, on the 1.00% start rate.

It was a time of rape and pillage by brokers and banks equally.  As a side note, I have funded three option ARMs in my career and they were referred by a financial planner.  Pushing a product like that, with even a fair commission, on a first time buyer is criminal.

Most of the participating low life mortgage brokers have moved to greener pastures... stealing candy from babies and snatching purses of elderly ladies leaving honest brokers as a convenient scapegoat.

Just for the record while all of the remaining big four banks originated sub prime loans wholesale and retail, I don't believe any of them offered Option ARMs.

 

 

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) over 8 years ago

How are big banks "eliminating one of their largest competitors" - by reducing broker originated loans? Broker loans aren't "bought" by banks, they're funded by banks.  Brokers originate loans and banks fund them - that simple.  Banks pay no overhead or benifits to brokers while obtaining the servicing rights to the loans.  Banks utilize an existing processing and underwriting platform for brokers so it's a "low cost" option to boost funded loans.  Banks want brokers - not the baggage they carry.  Look deeper into why brokers are being squeezed.  Look at accountablity and control in the quality of the loans closing.  It's not about volume or limiting the options for the consumer, it's about controlled risk.  Why did BOA exit wholesale over a year ago? 

Brokers for many years had the upperhand in pricing compared to the retail channel.  Roles are reversed now and it's all about quality and control.  Just because banks are limiting what the broker can do dosen't mean borrowers options are limited to 4 large banks.  Borrowers can and will shop with or without brokers. 

You're clearly a good egg, the problem wasn't you.  It was the remaining 11 in that dozen.  You can't deny that.  Sure the banks broght this on themselves, so now they have to fix it.  If you can't tell, the times they are a changin'. 

Posted by Dave over 8 years ago

On last item that I didn't address:

You stated  "It was a time of rape and pillage by brokers and banks equally."  Wrong.  Banks instituted a maximum overage policy across the board years ago.  I'm not talking 2006, I'm talking 1999 - 2000.  No matter if the borrower is willing to pay a higer rate, you can't charge it. 

Posted by Dave over 8 years ago

You stated banks have the upper hand in pricing.  I don't think so, you have obviously not seen my weekly Rate Survey

I am not sure why BoA got out of the wholesale business but they were never a strong wholesale contender and it was during a time when they were negotiating with Countrywide who had a huge wholesale presence.

When I say "Banks" it would mean, in this context, mortgage banks.  You are wrong if you claim mortgage banks had "a maximum overage policy, across the board".  They absolutely did not.  Some did, the ethical ones, but not all. 

Of course Banks buy brokered loans.  Brokers have many sources to sell their loans, it is a commodity purchased like any other.  Once purchased from a broker it is funded by the bank.

Which brings me to answer your first question "how are banks eliminating one their largest competitors".  Banks have pressured the FDIC to eliminate YSP which Brokers must disclose and banks do not.  Without YSP brokers cannot provide borrowers with lowered closing costs and banks will still offer that advantage.

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) over 8 years ago

Bill,

They are too big to fail, sad to say. Hopefully the upcoming reforms on this front are strong enough to erase that label.  The power they accumulate with that label will always be abused.

Posted by Esko Kiuru over 8 years ago

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