A few weeks ago Barbara Desoer, Bank Of America’s President of Mortgage Division, announced that B of A would close down their wholesale division. The wholesale division is the arm of the lenders that is dedicated to offer “wholesale” rates and service to the small/medium business owner. This primarily affects mortgage brokers, the very group of Mortgage Professionals that have often been blamed for the collapse of the banking system. In reality, and in today’s economic environment, brokers offer rates that are on average 1/4% to 1/2% better than the “retail” channels (ie. the branches of the Bank of America and Wells Fargo), and also at a fraction of the cost to borrowers! This is how I operate my shop, and I see further evidence every day: when I counsel Latino first-time home buyers for a non for profit organization in San Diego County; when educated borrowers are simply shopping around; and these consumers bring their Good Faith Estimates for me to check the legitimacy. It is astounding!
On September 25th I conducted a workshop and a Spanish speaking woman was distraught because she was being charged 2 points, (1 in origination and 1 in discount), at a rate of 4.875% for an FHA loan and she did not have the money the lender was demanding of her. I had just locked 2 loans the day before with similar characteristics at 4.25% with no points. In fact, my wholesale relationship was paying me 1.25% to get the loan done at that rate!
It has been documented that these elevated charges are the main reason of the strategic move by Bank of America to exit the wholesale business and subsidize their “retail” division. They have been losing money due to increased competition (despite the plummeting numbers of brokers in the world!). My take on this is quite simple. Bank of America wants to create a less competitive environment for their own benefit. Brokers that depended exclusively on Bank of America to fund their loans must now scramble to find an alternate lending source, or Bank of America wins and the consumer loses because , being left with no choice but to pay the higher rates and closing costs.
My advice, shop around. The lending industry has become VERY transparent for the broker. You will know EXACTLY how much money they are making on your loan. Adversely, due to regulatory red tape, the big lenders do not have to disclose their compensation. If it was me, I would rather know exactly how much I am paying the product or service I am buying.
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