By Eugene Salganik
President, An Opportune, Inc.
One of the more anti-mortgage broker CEOs, Jamie Dimon of J.P. Morgan Chase, told CNBC in 2009 that one of his major regrets in life was that he had not closed down the mortgage-brokerage operation at Chase sooner. I agree with him – but not on every point though.
Dimon’s expression of regret was ironic, given the fact that the likes of Chase and Goldman Sachs were instrumental in causing the Great Recession, having engineered financial products so complex that very few people in this world could truly understand them. Investment banks sold these same products – derivatives that were highly speculative and largely unregulated by the government – knowing that they had the potential to bite investors in the butt while increasing the fortunes of those who invented and sold them. When the mighty dollar speaks, investment banks listen. But I digress.
By 2004 the number of mortgage-brokerage firms had risen to about 54,000, the highest on record. The mortgage-brokerage industry was employing over 400,000 people and originating about 68 percent of all mortgage business in the United States. Mortgages had become a kind of common currency; many families had their own mortgage broker. People who cleaned mortgage-brokerage offices went on to open their own mortgage companies.
In 2007 a Florida mortgage broker who had worked in the business for only two and a half weeks laughed in my face after I told him how much money I made off each transaction. “We are making $20,000 off each loan,” he boasted. From 1994 to 2008 I had averaged 1.25 percent on average loans of about $175,000. You do the math. And I hated the sub-prime business with a passion because I knew it was not sustainable. Too bad I was not as smart as people from “The Big Short.” Or Jamie Dimon. By the way, that Florida broker is now driving for Uber – not that there’s anything wrong with that!
In the prevailing climate at that time, politicians were insisting that all Americans should aspire to owning their own homes – and Wall Street followed up, vowing to deliver the products that would vastly expand opportunities so that even under-qualified – and worse, unqualified – borrowers could do so. Investment bankers filled their pockets with profits from the products that enabled the mortgage gold rush – products based on no-income no-asset mortgage loans for, sometimes, half-burnt properties. And when the metaphorical house caved in, many, if not most, big players in the financial industry didn’t suffer major hits because their firms received government bailouts financed by American taxpayers.
But we mortgage brokers without much representation were left holding the bag. Some survived; some waited out the recession by grinding their teeth and consoling themselves that things would get better while gulping down yet another glass of wine; and some just gave up and migrated to the gig economy.
But today, at the dawn of 2019, we are back. Those of us who run mortgage-brokerage companies are still standing, and we are good at what we do. We are very good. We watch our overhead. We employ the best people we can find, pay them well and tell them often how much we appreciate their talents while not running kindergartens.
The “new normal” in our business, to use a sports metaphor, is if mortgage brokering in the ’90s was a golf ball, then today it is a golf ball inside a basketball. The golf ball is the business of making mortgage loans, and everything else in between is regulations. These regulations have been designed to protect consumers from the kind of chicanery engineered by the financial industry in its wildly speculative derivative products that sparked the crash of 2007-08 and resulted in the Great Recession that followed. To illustrate, in 2006 my company’s average closing costs were $1,300 – but due to the regulatory climate that has ensued, costs have ballooned.
Most important, though, is that today, our clients love us, even if some are a little cautious due to a decade of bad rap from the scapegoating of mortgage brokers that came with the market crash and recession. But I can assure you that we brokers who are holding the fort are the best of our breed. We represent our clients well and do everything possible, within the law, to enable them to become deserving homeowners.
And we love the businesses that we have built. We will never be Jamie Dimon, but we don’t regret it.