Mortgage brokers who haven't fled the industry or been forced out are in survival mode.
They're coping with little or no business as the economy slows, accusations that they're to blame for the mortgage meltdown, stricter lending standards and the threat of new regulations. Efforts to persuade would-be customers that they're ethical and helpful abound.
"The general consensus is we're all holding on by our fingernails," says Melbourne, Fla.-based mortgage broker Ritch Workman, whose 21-employee company closed an estimated $35 million worth of home loans in 2007, compared with $100 million in 2005, when the market was at its peak.
Since April 2006, more than 26,000 mortgage brokers have been put out of work, reducing the number of brokers to 122,500 in November, according to the latest federal statistics. A Labor Department report due Friday is likely to show that the field's ranks continued to shrink in December.
There are still about 400,000 workers in the mortgage industry, but another 130,000 of those jobs will disappear before the mortgage industry work force is aligned with demand for its service, estimates analyst Paul Miller of Arlington, Va.-based investment bank Friedman, Billings, Ramsey & Co. in a report last month.
Job losses will continue because it'll take time for the Federal Reserve's latest flurry of interest-rate cuts to spur would-be homebuyers into action. Borrowers who are in the market remain skeptical of mortgage brokers, even if all they need is help refinancing an existing loan.
Ben Kreisher, 86, of East Goshen, Pa., is struggling to keep up with the home loan he refinanced with a local mortgage broker nearly two years ago. He says he would have been better off with a reverse mortgage, commonly used by retirees. "No one even mentioned that (option) to us," he said.
These are the kinds of complaints that have spurred state and federal officials to propose tighter regulations, some of which would restrict lucrative sources of income for brokers.
Last month, the Fed proposed regulations that would restrict yield-spread premiums, fees that brokers earn from lenders for steering customers toward what critics say are loans with higher-than-necessary rates. The Fed wants the premiums disclosed and agreed to by borrowers in advance of committing to a mortgage.
To combat a shady public image, many mortgage brokers are using promises of ethical behavior as a marketing tool through groups like the Upfront Mortgage Brokers Association, whose members pledge not to saddle borrowers with unexpected charges.
The industry's largest trade group, the 22,000-member National Association of Mortgage Brokers, is also working to improve members' business practices. It is rolling out a voluntary "seal of approval" for brokers who agree to an ethical code of conduct, continuing education and criminal background checks, which aren't required in a handful of states, including Colorado, New Mexico and Virginia. By next year, the trade group's standards will be mandatory.
Still, borrowers should remain skeptical, cautions Christopher Cruise, a Silver Spring, Md., mortgage industry veteran.
"Treat us like you would treat a car sales person," Cruise said.
Some in the industry believe they're being treated that way by banks that were a primary source of business during the housing boom.
In Workman's opinion, big banks, such as Wachovia Corp. are using ads to emphasize their credibility at the expense of mortgage brokers. He cites an online ad of Wachovia's that pokes fun at a fictional "Joe's Mortgage" business. A Wachovia spokesman says the ad wasn't intended to malign mortgage brokers but to highlight the Charlotte, N.C.-based bank's trustworthiness.
Regardless, the housing crisis has triggered a huge shift in the industry's dynamics. Big banks, such as Bank of America Corp. and National City Corp., have stopped making loans through brokers entirely, relying instead on their loan officers. National City said it was forced to do so by a continuing downturn in loan demand, while Bank of America said it saw better "long-term opportunity" in working through its own loan officers.
Brokers' share of new mortgages rose to 60 percent in the past 10 years from a 20-percent market share in the late 1980s, according to Wholesale Access, a Columbia, Md., consulting firm.
This year, the brokers' market share is likely to slide to around 40 percent as banks move toward making more loans directly, said Tom LaMalfa, managing director at Wholesale Access.
Ben Kreisher and his wife, Pati, say key details of the home loan they refinanced in 2006 were obscured by their mortgage broker, who netted more than $10,000 in fees. The retirees, who sought to lower their bills, ended up with higher monthly payments and rising debt on the four-bedroom East Goshen, Pa., home they've lived in for 35 years.
Robert Shamie, a vice president with their mortgage broker, Worldwide Financial Resources, said in an e-mail the fees charged were "not high for a loan of this type" and said borrowers receive numerous disclosures before closing.
At least until homebuying demand recovers, the Fed's actions are already spurring refinancing activity. Rates on 30-year fixed-rate mortgages dropped last week to the lowest level in nearly four years.
Ken Schreiber, a mortgage broker in Naperville, Ill., says brokers should be able to survive even thrive in the coming years. Despite the current pain, he said, "the outlook in the mortgage community should be that we are on the verge of a new boom."