1. The housing boom is turning out to be quite a bust right now. There were a lot of people that got rich very fast and now there are some people that are in the poor house. What is interesting is that you would never think that the person who probably did three refinance loans for you on your house is probably in worst financial shape than you are in right now.
2. It does not take that much to be a mortgage broker, loan officer, mortgage banker, etc.. You do not need any type of training or certifications. Some states make you take open books tests that you do online and its more like you pick an answer, it says your wrong, you keep guessing until you get the right one and then you move on. Not that hard. All it really takes to be a successful mortgage person is good salesmanship and a will to push. I’m not saying this is an easy job at all. The turnover at most mortgage companies is around 70% in the first 3 months. Be prepared to work long hours staring at a computer and being on the phone.
3. When mortgage rates were so low during the 2002-2006 time period everybody and their mother was either refinancing their mortgage, buying a second home or picking up multiple rental homes. All of this cheap money had never been heard of and you know what it…it made sense to do this. In a matter of time from the year 2000-2003 the 30 year fixed mortgage rate went from 8.5% to 5.25%. That is a huge drop. As an example lets say you have a 30 year loan of $150k at 8.5% your monthly payment would be $1153. The same $150k 30 year fixed loan at 5.25% monthly payment is $828 giving you a monthly difference of $1153 – $828 = $325. This a huge difference. That is a car payment. Over 1 year that is a saving of $325 x 12 = $3900.
4. With so many people looking to refinance their homes somebody had to be there to do the loans. Mortgage brokers were popping up every where. In most states all you had to do was contact a bank that would actually lend you the money and you had to get some license saying that you were an official business. It was so crazy that there are even stories of people writing mortgages from the back seats of their cars. With the influx of customers mortgage lenders were growing at a very rapid rate. They were hiring left and right and if you worked at a smart mortgage company, with just the right amount of advertising you could sit at your desk and the phone calls would roll in asking for somebody to redo their loan. So here is a new mortgage officer with little training saying “we have a rate at 5.5% and that is better than your 8% do you want it?” Of course they want it.
5. So now the mortgage person is starting to get better at their trade and is learning the programs and their sales skills are going up to. They are finding an angle for every person they talk to to do a loan. What does this mean to the mortgage banker. One easy answer…money. Talk about huge commission checks. It was not uncommon for average mortgage brokers to be making over $25k a month. All that they would do is sit at a desk, pick up the phone, say this is what it is, send out some application documents, get you to sign them and as long as you W2’s, bank statements, pay-stubs, etc matched up and the appraisal came in (every appraisal was great from 2003-2006) then the loan would close.
6. Since there was no training involved in becoming a mortgage banker/loan officer anybody could do the job as long as they had the right attitude. There were people working at mortgage companies that had PhD’s and some that had not finished high school. Its hard to believe but knowing that you could possibly make $50k in two months, who would not want to do it even if you had to work a bunch of hours.
7. The mortgage broker is so happy and is on track to make $200k in their first year. This new found money is starting to get to their head and instead of saving the money they go out and buy a $400k home in some suburbia town which has a new housing development going on. They feel like the gravy train is going to keep on coming so its ok because next year they know that they are going to make $300k. Why wouldn’t they feel this way, the majority of the people they did loans for took out adjustable rate mortgages and are going to refinance them soon and hopefully they did such a great job that the referrals are rolling in.
8. Here you have a person making ridiculous amounts of money doing a job that anybody can do. Its kind of like one of things that “sounds to good to be true” and you find out it is years later the hard way. Some Doctors do not even make $200k a year and here is somebody selling mortgages making serious loot. The home has been bought and you know what, that Cadillac Escalde is looking pretty good too. Let’s not forget the boat. The money is still rolling in and interest rates are still low so you finance all of it anyways. You can make the payments so who cares.
9. The gravy train starts slowing down and you notice that some of your clients are calling you back to do another cash out refinance. You say no problem, and send the appraiser out to the home. The appraisal comes in at the same or just a little less than what it did 8 months ago when your clients took out money to buy some crap they didn’t need. This baffles you because every time you sent your appraiser out there the home went up 25% in value. You can’t do the mortgage for them. Another one of your past clients calls in to do the same cash out refinance. Appraisal comes in low again. This process repeats itself for two months straight and you commission check drops in half. Oh poop!!
10. The mortgage broker cannot close a loan because now all of his clients owe more than what their houses are worth. The bank you go through said none of the loans you send to them to process meet any of their guidelines anymore. This is even happening to some of the larger mortgage companies like Countrywide, Chade, Quicken Loans, etc. Nobody can do a loan for anybody anymore. Here sits the mortgage banker/mortgage broker at their desk waiting for the phone calls or new mortgage leads to come rolling in that day and they don’t. Well, they still come in, but a lot of these people you talk to are in desparation mode and you can’t help them. Guess what, the mortgge broker is next to where they can’t be helped. Most mortgage brokers get paid a small salary, but 80% of their income is commission. Good bye commsions. How are they going to be able to pay for the Escalade, the boat, and most importantly the $400k house that they did not put a $1 down on it themselves without being able to close any loans. The answer is that they can’t. Many. many people in the mortgage business over the past coupleof years made some very easy and quick money. Too much money for a job that requires little real talent or skill. This includes the owners of the companies too. Many thought the money train would roll on forever because real estate has always been such a safe investment. If any of them had ever of taken a Finance or Economics course they would have read about supply and demand for one and would have realized that there had to be a tipping point where the market was going to push back. Nobody thought it would come and it did quickly. So the mortgage broker who probably kept telling you to take more cash out of the equity on your home and who probably did three new mortgages for you over 2.5 years time has no money coming in and can’t pay his bills. You will probably see a for sale sign from the real estate company that is working for the actually lender that bought the loan he wrote for himself in the front yard saying “foreclosed home for sale” on it. Its really sad because they could have said this money and lived the same lifestyle they had been before the money and could have just lost their job but had $150k in the bank. Now they have nothing.