Today I had several Mortgage Professionals contact me regarding PMI Private Mortgage Insurance Company cutting off mortgage brokers via email and comments here. I thought it must be a rumor…but it’s not, effective February 20, 2009 PMI Mortgage Insurance Company will no longer underwrite or insure loans for mortgage brokers. However if you’re a lender, PMI is ‘Right alongside you…we’re in it for the long run”.
From an email I received today from a Loan Originator:
It’s believed that PMI is the first of the nation’s seven MI firms to totally exclude loan brokers from their coverage menus. In recent months other MIs – including Genworth and MGIC – have tightened guidelines on broker-sourced loans, particularly condominiums and high LTV notes. A PMI spokesman confirmed the new policy change to National Mortgage News adding that, “This does not apply to correspondents.
There has been a “joke” going around for a while that soon we will all be banking with “THE Bank of America”…
Gene, it’s a sick joke. No competion is never good for the consumer.
Banks used mortgage brokers to be the sales men for the products they created, underwrote and funded… they were a part of the whole transaction… they never expected mortgage brokers to obtain the amount of market share they did. And now is the perfect opportunity to dump them…while shaking their fingers at them. It’s sick.
I work for a correspondent lender and we’ve dodged many of the bullets aimed at my broker brothers and sisters.
Congress has no clue and receive way more lobby dollars from banks than they ever will from mortgage brokers.
Gene, it’s a sick joke. No competion is never good for the consumer.
Banks used mortgage brokers to be the sales men for the products they created, underwrote and funded… they were a part of the whole transaction… they never expected mortgage brokers to obtain the amount of market share they did. And now is the perfect opportunity to dump them…while shaking their fingers at them. It’s sick.
I work for a correspondent lender and we’ve dodged many of the bullets aimed at my broker brothers and sisters.
Congress has no clue and receive way more lobby dollars from banks than they ever will from mortgage brokers.
I hope this is not allowed to happen and I really don’t think it will. It would be totally absurd to imply mortgage brokers as a group are the problem. Who is the idiot that came up with this idea?
Here’s the direct link to the PDF:
http://www.pmi-us.com/guidelinechanges/media/GuidelineChanges.pdf
There are a whole host of changes and newly ineligible guidelines, not just the “no broker” announcement.
Does this spell the death of the broker? No.
Brokers can still become approved to originate FHA loans, they can originate with other MI companies, they can become *the* source for private and hard money.
PMI doesn’t really offer much in the way of an explanation as to why third party originations are now ineligible.
I would assume that broker originated deals had a higher risk of default.
The brokerage industry should expect the blame to be placed right on them instead of the bankers. Why not? Everyone is blaming everyone else.
The banks and MI companies blame the brokers.
The brokers blame the bankers by saying: the banks are the ones who gave us those underwriting guidelines; it’s the banks fault.
At some point there will be no one left to blame and I hold out hope that the industry will realize that we are all to blame.
Here’s the direct link to the PDF:
http://www.pmi-us.com/guidelinechanges/media/GuidelineChanges.pdf
There are a whole host of changes and newly ineligible guidelines, not just the “no broker” announcement.
Does this spell the death of the broker? No.
Brokers can still become approved to originate FHA loans, they can originate with other MI companies, they can become *the* source for private and hard money.
PMI doesn’t really offer much in the way of an explanation as to why third party originations are now ineligible.
I would assume that broker originated deals had a higher risk of default.
The brokerage industry should expect the blame to be placed right on them instead of the bankers. Why not? Everyone is blaming everyone else.
The banks and MI companies blame the brokers.
The brokers blame the bankers by saying: the banks are the ones who gave us those underwriting guidelines; it’s the banks fault.
At some point there will be no one left to blame and I hold out hope that the industry will realize that we are all to blame.
Jillayne, banks are doing all they can to eliminate brokers right now. It’s that simple. They’ve used them as their sales people when times were good and now, they don’t need them anymore. They can’t support broker business because of lack of staffing, they don’t need them to push mortgages because they’ve merged with other failing banks in order to give them more locations.
Here’s an article from CNN yesterday which discusses banks cutting out brokers.
It’s not that easy for mortgage brokers to become FHA approved from what I understand. They either need an approved lender to sponsor them–and most are not in a position to do that during these times. And there is a significant cost involved if they want to become approved directly. If they’re not FHA approved yet, unless they have significant reserves, FHA is probably out of the question.
I’m not totally sure…I’m wondering…if a mortgage broker in Washington State were to specialize in hard money loans, wouldn’t they have to drop their MBPA and become CLA? CLA has significant financial requirements as well with bonding.
The blame issue is beat up…but as someone in the mortgage industry, I’m sick and tired of the misuse of the word “mortgage broker” when it should be “mortgage originator” and I would say that mortgage brokers have received the brunt of the blame.
Did you watch House of Cards last night on CNBC?
There is definitely a concerted effort to squeeze brokers out. I see it all the time. Banks never intended for brokers to get the market share they got and the only way banks can compete is through unfair legislation and smear tactics.
What doesn’t make sense to me is that the PMI companies underwrite the loans to their guidelines so how is it that broker loans are more risky? The loans either meet guidelines or they don’t. The MI company and the banks are the one doing the underwriting, not the broker.
Then again, the more I think about it, the more I can see how broker loans don’t perform as well. It is probably because brokers on average tend to be more efficient and knowledgeable originators. Basically, brokers are better at originating the borderline loans and getting them past underwriters whereas bank employees usually don’t know the ins and outs of guidelines and figuring out how to get the deal done.
I get deals all the time where a retail bank turns it down because Fannie’s DU doesn’t like the file, but I get a clean approval from Freddie’s LP. Easy deal and just a matter of knowing how to make the loans work. I wonder if this type of gaming the system is why it appears broker loans don’t perform as well, particularly if brokers can make some of the higher risk loans legit approvals within the guidelines put forth by the banks.
There is definitely a concerted effort to squeeze brokers out. I see it all the time. Banks never intended for brokers to get the market share they got and the only way banks can compete is through unfair legislation and smear tactics.
What doesn’t make sense to me is that the PMI companies underwrite the loans to their guidelines so how is it that broker loans are more risky? The loans either meet guidelines or they don’t. The MI company and the banks are the one doing the underwriting, not the broker.
Then again, the more I think about it, the more I can see how broker loans don’t perform as well. It is probably because brokers on average tend to be more efficient and knowledgeable originators. Basically, brokers are better at originating the borderline loans and getting them past underwriters whereas bank employees usually don’t know the ins and outs of guidelines and figuring out how to get the deal done.
I get deals all the time where a retail bank turns it down because Fannie’s DU doesn’t like the file, but I get a clean approval from Freddie’s LP. Easy deal and just a matter of knowing how to make the loans work. I wonder if this type of gaming the system is why it appears broker loans don’t perform as well, particularly if brokers can make some of the higher risk loans legit approvals within the guidelines put forth by the banks.
Perhaps there were more broker-originated loan defaults because brokers originated more loans.
Russ, your points are well taken. It has been my experience, too, that a lot of bank loan officers don’t really know what they are doing. They really do think “inside the box” of their own bank’s philosophies.
Jillayne, I have no interest in becoming a “hard money” or private money lending source. Those loans are often times predatory and not in the consumers best interest in terms of the fees and terms.
The biggest mistake we made as mortgage broker industry was not setting high enough professional standards, education and licensing requirements years ago that might have kept some of the bad apples out of the industry.
Now we all may pay including the consumer. Sad….
Perhaps there were more broker-originated loan defaults because brokers originated more loans.
Russ, your points are well taken. It has been my experience, too, that a lot of bank loan officers don’t really know what they are doing. They really do think “inside the box” of their own bank’s philosophies.
Jillayne, I have no interest in becoming a “hard money” or private money lending source. Those loans are often times predatory and not in the consumers best interest in terms of the fees and terms.
The biggest mistake we made as mortgage broker industry was not setting high enough professional standards, education and licensing requirements years ago that might have kept some of the bad apples out of the industry.
Now we all may pay including the consumer. Sad….
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I’m going to guess it is based on fraud. I’m mostly basing this on the confession/manifesto from that mortgage fraud guy that was posted a few days ago. Maybe it is too difficult to separate the wheat from the chaff in broker originated loans, but they figure banks putting up their own money directly are less likely to let fraud slip by.
Why didn’t PMI just end relationships with those mortgage brokers that did not perform well?
Brokers who are out to commit fraud will do their best to look like honest brokers. They know how to make a bad risk look good. By the time they realize it is a bad broker, it is too late and they have lose millions of dollars. Maybe PMI has decided it is just too difficult and risky to distinguish between the two.
Do PMI companies ever form close relationships with brokers? The best hope for continuing would be for a PMI company to trust individual brokers who they have done a lot of good business with in the past. But maybe the processes to enable that are too difficult or easy to subvert.
I wonder if private mortgage insurance companies will last through this economy considering they must be paying out some serious coin for the mortgages they underwrote and insured.
As much as I hate to see the end of the broker, I personally just made the switch to a big national lender due to the recent changes, the ridiculous turntimes and, in my opinion, the inevitable writing on the wall.
Jonathan,
One big reason why I don’t broker loans is because of the lack of control with underwriting-turn times.
Will your new employer allow you to continue blogging?
Jonathan,
One big reason why I don’t broker loans is because of the lack of control with underwriting-turn times.
Will your new employer allow you to continue blogging?
Rhonda,
Can you tell me what the max limit is for a HELOC? If someone buys a house for $800,000 with 20% down, can they get a $506,000 and a $134,000 HELOC? How about a $417,000 and a $223,000 HELOC. At what point would the only option for $800,000 minus 20% be a Jumbo Loan at $640,000 vs. a conforming or a conforming jumbo and a HELOC.
Ardell,
85% is the max total loan to value with “second mortgage” lenders that I work with. So your 20% down scenarios would work.
Thanks Rhonda. This conversation is a bit off topic here. Can you give me a call when you get a chance? Thanks.
done 🙂
Just received a memo from Flagstar. They are stating this applies to correspondents too 🙁
It’s rare that I have a mortgage with private mortgage insurance these days….but this is still very upsetting.
Just received a memo from Flagstar. They are stating this applies to correspondents too 🙁
It’s rare that I have a mortgage with private mortgage insurance these days….but this is still very upsetting.
I just got that announcement too. I bet a steak dinner that PMI goes out of business in 6 months. If they won’t even do insurance on correspondents they must be getting ready to go down big time.
Russ, I just emailed our PMI mortgage insurance rep to see what she has to say. When I visit PMI’s website, it appears that correspondent lenders are still approved and brokers are not.
I’ll pass on the bet…
PMI’s closed at $1.56; MGIC @ $3.45; Radian @ $3.12.
…still haven’t heard from my PMI rep.
I just heard from my PMI rep and Mortgage Master is fine closing with Flagstar. As long as the correspondent lender originates, underwrites and closes in their name (and not Flagstars) they do not consider “third party originated”. It’s the TPO definition that’s going to get hairy for brokers.
I find it interesting that there is such a bad vibe between direct lenders and mortgage brokers. I’ve found excellent and inept people in each type of organization and it really seems to me that it just takes seeking out the best people in either scenario to get the service and knowledge you might be seeking. Why the discord?
Reba, I have plenty of mortgage banker friends…and I have no issues with the individuals…I think it’s more the institutions and the tricks they’re up to.
IMO mortgage banks did not expect mortgage brokers to be able to obtain so much business. When I kid with my mortgage banker buddies, they’re a wee bit envious that not only can I use their products/programs (sometimes w/better pricing)–but I can use bank a, b or c too. Mortgage bankers can also often “broker out” but they’re typically paid a smaller split or it’s frowned upon by management.
Mortgage brokers are just tired of getting the middle finger by the banks with the blame for this mess. Especially considering they’ve had reps from the banks pushing their products to the brokers…explaining how to get the loans approved… the banks then underwrite the loans (for brokers) and then blame the brokers for the products they often created, pushed, underwrote and bought.
It’s worn out…it’s old.
Tomorrow I’ll be going to a WAMP (WAMB) meeting in Bellevue about the appraisal issue… once again, this happened because of Cuomo suing WaMU for controlling appraisals…but who is getting punished? The brokers.
It boils down to who has the lobby dollars. NAMB has far weaker lobby dollars than all the big daddy banks… it will be interesting to see what happens after they’re nationalized.
Reba, I have plenty of mortgage banker friends…and I have no issues with the individuals…I think it’s more the institutions and the tricks they’re up to.
IMO mortgage banks did not expect mortgage brokers to be able to obtain so much business. When I kid with my mortgage banker buddies, they’re a wee bit envious that not only can I use their products/programs (sometimes w/better pricing)–but I can use bank a, b or c too. Mortgage bankers can also often “broker out” but they’re typically paid a smaller split or it’s frowned upon by management.
Mortgage brokers are just tired of getting the middle finger by the banks with the blame for this mess. Especially considering they’ve had reps from the banks pushing their products to the brokers…explaining how to get the loans approved… the banks then underwrite the loans (for brokers) and then blame the brokers for the products they often created, pushed, underwrote and bought.
It’s worn out…it’s old.
Tomorrow I’ll be going to a WAMP (WAMB) meeting in Bellevue about the appraisal issue… once again, this happened because of Cuomo suing WaMU for controlling appraisals…but who is getting punished? The brokers.
It boils down to who has the lobby dollars. NAMB has far weaker lobby dollars than all the big daddy banks… it will be interesting to see what happens after they’re nationalized.
Rhonda:
Great post.
Re Cathy in Sequim…”our biggest mistake”
“The biggest mistake we made as mortgage broker industry was not setting high enough professional standards, education and licensing requirements years ago that might have kept some of the bad apples out of the industry.”
Maybe, but I think the bigger mistake was not banding together professionally, and paying the big bucks for public relations, and to lobby politicians and regulators, to ensure the survival of the broker model, and the benefits that model brings to the consumer.
In times like these, you can bet the bigger players are POURING money into government to influence outcomes, with an eye to throwing less well “connected” players into the wood chipper.
Sad….but it is the reality.
Worse, it is the consumer who loses the most in the process.
The Bank of America….funny…it it weren’t so likely!
Roger, it was great to see you at the WAMP meeting this morning. I’m afraid it could be too late for many mortgage brokers…especially with PMI making this move and banks cutting out some mortgage brokers AND the appraisal issues (HVCC)…post to follow! 😉
I suspect PMI companies are doing whatever they can to save their falling stock prices.
If that were the motivation, an analysis of who underwrote bad loans (brokers vs correspondent vs banks, or selected organizations within those categories) isn’t necessary. It is only important what investors think regarding the announcements!
If that means noisily throwing brokers under the bus to push the stock up a quarter (PMI is at $0.78/share today, down from almost $50/share in mid 2007), so be it.
I suspect PMI companies are doing whatever they can to save their falling stock prices.
If that were the motivation, an analysis of who underwrote bad loans (brokers vs correspondent vs banks, or selected organizations within those categories) isn’t necessary. It is only important what investors think regarding the announcements!
If that means noisily throwing brokers under the bus to push the stock up a quarter (PMI is at $0.78/share today, down from almost $50/share in mid 2007), so be it.
Roger, the mortgage broker industry actively and publicly worked AGAINST higher standards for licensing, ethics, and education, mostly because it would take profits away from their members, the broker/owners.
Cathy is right, and so are you. Your two ideas go hand in hand.
Only when government can see that an industry is effectively self-regulating will government work WITH that industry for its survival.
The industry did it to itself. There is no one on the outside to blame.
When I read about blaming the banks….LOL. Such shirking of responsibility is laughable.
Jillayne, I don’t even know what to say about this: “Such shirking of responsibility is laughable.”
I don’t understand why you don’t “get it” except for that you’ve never worked for a mortgage broker or correspondent lender. If my memory serves, you’ve only worked on the bank side.
Shirking of responsibility?
How many times do I need to repeat this (or have you all ready tuned this out):
~Banks created the many of the mortgage products/programs
~Banks hire Account Executives/Reps to call on mortgage brokers. They train brokers on the products and tell them how to “make them work” for the consumer so that mortgage brokers send more loans back to the bank.
~Banks underwrite the transactions. They’re not underwritten by the broker. The bank can reject any loan the broker sends their way….
~Banks fund the loan from the mortgage broker.
Mortgage brokers were just the sales force for the bank/lenders.
Jillayne, I don’t even know what to say about this: “Such shirking of responsibility is laughable.”
I don’t understand why you don’t “get it” except for that you’ve never worked for a mortgage broker or correspondent lender. If my memory serves, you’ve only worked on the bank side.
Shirking of responsibility?
How many times do I need to repeat this (or have you all ready tuned this out):
~Banks created the many of the mortgage products/programs
~Banks hire Account Executives/Reps to call on mortgage brokers. They train brokers on the products and tell them how to “make them work” for the consumer so that mortgage brokers send more loans back to the bank.
~Banks underwrite the transactions. They’re not underwritten by the broker. The bank can reject any loan the broker sends their way….
~Banks fund the loan from the mortgage broker.
Mortgage brokers were just the sales force for the bank/lenders.
Jillayne:
I should have been clearer.
I entirely agree with you and Cathy, that higher standards in the mortgage broker industry were, and are, necessary. I have supported those efforts with letters and phone calls to elected representatives, and countless hours of typing at RCG, and anywhere else I think intelligent, compassionate people will listen.
However, if the large competitors of small businesses (again, banks vs brokers) succeed in eliminating, or marginalizing the small businesses, by outspending them in PR and lobbying efforts, all the efforts to raise the professional standards for mortgage brokers will be for nothing, as the brokers will be gone, or only left to fight over table scraps.
I do not doubt that NAMB wasted a lot of time and money picking the wrong battles to fight. My recollection is that they DID support a national registration, licensing and continuing education system, and I’m sure I could find evidence of that, just as I am equally sure that you could find earlier evidence that they opposed it.
I am also fairly sure that banks opposed requiring that their loan originators participate in such, as they are NOT currently required to.
The frustrating thing for me is how little I can effect the outcome of these battles, and worse, how few of my peers are aware of these battles, and choose to join in the the fight for survival. Many switch sides, depending which way the battle turns, or as their awareness of the issues at hand grows.
I’m doing all I can do to survive, and continue serving those who have placed their trust in me. I believe I owe that effort to my clients, my family and myself.
Surely, you must understand how politics and busniess work together, and it is NOT pretty, nor just.
Brokers and other small businesses are woefully outmanned and outspent by large businesses in these battles.
THAT was my point.
Jillayne:
I should have been clearer.
I entirely agree with you and Cathy, that higher standards in the mortgage broker industry were, and are, necessary. I have supported those efforts with letters and phone calls to elected representatives, and countless hours of typing at RCG, and anywhere else I think intelligent, compassionate people will listen.
However, if the large competitors of small businesses (again, banks vs brokers) succeed in eliminating, or marginalizing the small businesses, by outspending them in PR and lobbying efforts, all the efforts to raise the professional standards for mortgage brokers will be for nothing, as the brokers will be gone, or only left to fight over table scraps.
I do not doubt that NAMB wasted a lot of time and money picking the wrong battles to fight. My recollection is that they DID support a national registration, licensing and continuing education system, and I’m sure I could find evidence of that, just as I am equally sure that you could find earlier evidence that they opposed it.
I am also fairly sure that banks opposed requiring that their loan originators participate in such, as they are NOT currently required to.
The frustrating thing for me is how little I can effect the outcome of these battles, and worse, how few of my peers are aware of these battles, and choose to join in the the fight for survival. Many switch sides, depending which way the battle turns, or as their awareness of the issues at hand grows.
I’m doing all I can do to survive, and continue serving those who have placed their trust in me. I believe I owe that effort to my clients, my family and myself.
Surely, you must understand how politics and busniess work together, and it is NOT pretty, nor just.
Brokers and other small businesses are woefully outmanned and outspent by large businesses in these battles.
THAT was my point.
Roger, I recall NAMB being supportive of national licensing–their biggest beef was that they want all loan originators to be equally licensed (i.e. including banks).
I’m getting notices from several banks/lenders who are no longer working with certain private mortgage insurance companies. If you are a borrower with a transaction utilizing private mortgage insurance
1) check w/your loan originator asap to make sure the private mortgage insurance company is acceptable w/the lender they are utilizing for your mortgage.
2) make sure your loan originator works for a company that is a HUD approved FHA lender as a back up plan in case private mortgage insurance becomes an issue w/your mortgage.
It seems that any loans with private mortgage insurance these days are really very challenging. FHA has been better to work with (in general).
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PMI Mortgage Insurance Company has suspended relationships with various lenders nationwide. I could not get any details on how they made their selections on who to keep and who to “supsend”
From PMI:
“As a result of the ongoing instability in the marketplace, the mortgage insurance industry is still facing severe capacity constraints and must take continued steps to manage the volume of new insurance commitments from a risk and capital standpoint…and PMI’s current capacity limitations.”
As this post notes, they all ready reduced their client load greatly by canning mortgage brokers months ago. I cannot imagine what all the private mortgage insurance companies are going through considering all the defaults…although at the time they probably cursed the piggy-back mortgages for cutting into their pie, they must be thanking their lucky stars since that reduced some of their exposure to this current climate.
Rhonda:
Thanks for the heads up. I’ve searched their PMI’s website, but see no list of lenders that are cut off. We’ll probably receive notices from various lenders about the availability of PMI next week, or changes, as they line up new PMI coverage.
For the benefit of readers, loan originators (with brokers) do not select private mortgage insurance companies for their clients. That kind of arrangement happens at lender level. LO’s are generally aware of the guidelines for PMI companies, and costs to the borrower, available from pricing engines on their respective websites.
It’s been a while since I’ve used PMI on a loan that I have originated, mostly because it wasn’t needed, or if needed, made more sense as an FHA loan, which does not have “private” mortgage insurance, but does have FHA mortgage insurance.
Still, losing options to offer clients is never good.
The MI companies (MGIC, PMI and Radian) almost cratered on the stock market this year (losing nearly 90% of their stock value they had 2 years ago), but they have rebounded a bit since March. I don’t think I’d buy their stock right now.
Perhaps they made their decision on which banks to suspend based on who would agree to loan them money in a pinch?
Rhonda:
Thanks for the heads up. I’ve searched their PMI’s website, but see no list of lenders that are cut off. We’ll probably receive notices from various lenders about the availability of PMI next week, or changes, as they line up new PMI coverage.
For the benefit of readers, loan originators (with brokers) do not select private mortgage insurance companies for their clients. That kind of arrangement happens at lender level. LO’s are generally aware of the guidelines for PMI companies, and costs to the borrower, available from pricing engines on their respective websites.
It’s been a while since I’ve used PMI on a loan that I have originated, mostly because it wasn’t needed, or if needed, made more sense as an FHA loan, which does not have “private” mortgage insurance, but does have FHA mortgage insurance.
Still, losing options to offer clients is never good.
The MI companies (MGIC, PMI and Radian) almost cratered on the stock market this year (losing nearly 90% of their stock value they had 2 years ago), but they have rebounded a bit since March. I don’t think I’d buy their stock right now.
Perhaps they made their decision on which banks to suspend based on who would agree to loan them money in a pinch?
Roger, working for a correspondent lender, I have the choice of where I want the private mortgage insurance to go through for my clients. I usually trust this decision to my processor. Lately though, I can tell you that the underwriting with private mortgage insurance companies has been very very nit-picky.
I’ll have to see if I have the choice of PMI providers with our correspondent lines.
Might provide an alternative I’ll need someday.
When we select which pmi company we want to work with, we do have to make sure that they are on the approved list of that lender (assuming we know which lender we will be selling the loan to).