Wachovia the Latest to Axe Mortgage Brokers

by Florida's #1 Mortgage Planner on July 22, 2008

Wachovia is the latest lender to discontinue their wholesale lending division, placing mortgage brokers using their services in more turmoil, scrambling to find other lenders.

Virtually every bank that has found themselves in financial trouble, if not on the edge of oblivion themselves, has decided to cut their wholesale division to reduce costs and drive fees up.  Cutting out mortgage brokers not only allows them to cut staffing, but it also allows them to drive loan costs up to those consumers buying their products, increasing profitability.

Countrywide, Bank of American, IndyMac Bancorp, Wachovia, and others have found themselves struggling to stay afloat, if not going under.  While shrinking to profitability has never proven to be the best course of action, these companies are doing just that by eliminating their wholesale divisions.  What’s worse is they are breaking relationships with what may very well be their best sources of new business, mortgage brokers.

Mortgage brokers have come under attack from all sides lately, even being blamed almost exclusively for the entire mortgage meltdown even though cannot even underwrite a single loan.  Simply put, they are an easy target and since they are small businesses, cannot readily fight back.  However, studies have shown that mortgage brokers help keep costs down for consumers.  Even the Federal Reserve backed away from their yield spread premium (YSP) restrictions to keep mortgage brokers in the arena, providing increased competition, thus lower costs to consumers.

Sure, many mortgage brokers did do unfair practices, but they were the minority.  So, Wachovia’s move may prove more costly in the long run as mortgage brokers will seek more reliable funding sources and may never return to Wachovia (or the others) even if they do reopen their wholesale division.  As for consumers, watch out, loan costs will be rising at Wachovia.

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