MORTGAGE BROKER HELL….What’s the deal with all those low-income families who took out subprime loans they now find themselves unable to repay? Did they knowingly take foolish risks that they’re now (deservedly) paying the price for, or were they bamboozled by predatory lenders on the lookout for suckers to fleece?
Some of both, of course. But the majority of subprime loans in recent years were originated by mortgage brokers, not retail banks and credit unions, and because subprime rates aren’t generally publicly available and the loans themselves tend to be fairly complex, they’re ripe for abuse. And abused they were. The Center for Responsible Lending compared 1.7 million “matched pairs” of loans from 2004 through 2006 and found that for loans with similar risk profiles, brokers — the very people who are supposed to help you find the best loan deal available — charged substantially more than retail lenders. Here’s the chart:
Bottom line: if you were a high-income borrower getting a prime loan, the kind of borrower with plenty of options, brokers didn’t rip you off. In fact, they helped you. But if you were a poor borrower getting a subprime loan — precisely the most vulnerable type of borrower, the one who most needed real help — mortgage brokers screwed you. Over the course of 30 years, the average subprime borrower getting a loan from a broker “would pay $35,874 more in interest payments, equivalent to an interest rate approximately 1.3 percentage points higher than a similar borrower with a retail loan.” Such sweethearts.
The full report is here. They’ve got some recommendations to go with their findings.