During and after the Great Recession of 2008-09, many mortgage brokers, most not well capitalized, disappeared. But a few hung in there, and a decade later, in the midst of the ongoing COVID-19 crisis, brokers including the professionals at An Opportune, Inc., are still here to serve homebuyers.
Prior to the Great Recession, brokers accounted for about 56 percent of all residential mortgage lending in the country. Most sub-prime lending, a key factor in this recession, was originated by brokers who are no longer in business. But overall, brokers were blamed in media-driven public opinion as being responsible for the demise of our Great Economy.
In reality, however, mortgage brokers had nothing to do with inventing sub-prime products, which along with collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs) were created by the wizards of Wall Street. Brokers did not sell mortgage-backed securities to investors in order to make astronomical profits; the big Wall Street investment houses did. Brokers were just too loud, too showy, too much in your face, unlike the quiet Wall Street types who were working behind the scenes, virtually unseen by the public.
Another, and perhaps the most important, link in this chain were politicians, the same ones who will do anything to get re-elected. And they did, by encouraging Wall Street to invent high-risk, unregulated mortgage products that allowed virtually everyone in the country who could apply for a loan to own a home, whether or not they were qualified to pay back the loan.
The animated video I created about this, “Requiem for Greed,” is posted on YouTube. For all Americans to be able to own a home is a wonderful idea, but financially it’s a utopian one that does not pan out in reality. It does sound good when you need a vote, though.
Brokers became the lending industry’s scapegoats, and they began to vanish, with The National Association of Mortgage Brokers estimating about 5,000 members in 2013 versus 25,000 members in 2006. This drastic decrease was attributed to the real estate downturn that followed the recession. Many predicted the demise of mortgage brokers altogether, but these forecasts were proved wrong.
Today in 2020, at the six-month mark of the COVID pandemic in the United States, mortgage brokers account for about 20 percent of all residential mortgage-lending business – and the number is growing. Mortgage lending originated by brokers is projected to reach 25 percent of total lending for residential properties by the end of this year.
Brokers have very little representation by lobbyists and in the media, but they play a very important role in our society and economy. There are over 12,000 brokers in the U.S., and they employ over 46,000 people. More importantly, brokers are instrumental in finding financing for potential home buyers, who when they become homeowners bolster the economy in turn by making repairs (purchasing material, equipment, and labor), buying appliances and furniture, and hiring movers and landscapers.
In addition, with the current availability of lower interest rates, brokers find borrowing rates that enable their clients to save more money and to afford additional purchases, both of which also add to the growth of the economy. For example, according to the consumer credit reporting company Experian, in 2019 the average mortgage loan in the U.S. totaled $202,000. Assuming the rate on such a loan was 4.5 percent, then the monthly payment was $1,024. But if the borrower were to refinance this loan today at 3 percent, the payment would be $852 a month, a savings of $172 per month. Imagine what you could do with this extra monthly cash!
With 12.5 million new mortgage loan applications in 2019, according to Experian, the total potential savings would be over $2 billion as interest rates have fallen. With brokers projected to originate 25 percent of this total by the end of 2020, their contribution to this potential savings could reach $500 million. And this is only for a single year. Borrowers can use these savings to add to retirement accounts and/or to buy additional goods and services that add to the GDP of our country.
As the bridge to homeownership, brokers play an important role in the U.S. economy we’re all a part of. Not only do they generate employment and rent office space and equipment. They also help their clients save money, finding the lowest interest rates by working with a network of banks – a service for which brokers are usually compensated by the lending institution, not the client.
The ongoing pandemic has slowed the economy but has not vanquished peoples’ desire to own their own homes. Yesterday, today, and tomorrow, we at An Opportune, Inc., are still here – and we remain committed to working with you to achieve this goal.