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Your Mortgage Broker May Now Have Fewer Options Than a Mortgage Banker.

At one point in the mid-2000s, subprime and alternative lending accounted for around 40 percent of all loans originated in the United States. When those loans went away, the available loan choices went away right along with them. Now, most all of the available loans are those underwritten to Fannie Mae, Freddie Mac, VA, or FHA standards. These loans are the ones that all mortgage banks have.

Recall that one of the advantages a mortgage broker has over a mortgage banker is having various loan types and special programs available. And while that's still the case, it now is so only in limited instances.

Just as rates can't vary much from one lender to the next, neither do loan programs vary from one mortgage company to another.

I recall that in the early 2000s, when subprime and alternative loans really began to gain some significant market share, as a mortgage banker, I didn't really have access to those products. While I could also have acted as a mortgage broker and originated subprime and alternative mortgage loans, it was difficult for me to do so because I didn't have any solid relationships with the wholesale lenders that offered them. My forte was the traditional mortgage offerings from Fannie, Freddie, the FHA, and the VA. It was simply hard for me, and other conventional mortgage bankers, to compete with brokers.

But now that the subprime and alternative loans have vanished, that means that mortgage brokers and mortgage bankers essentially offer the very same products. But there's now an additional twist: Many mortgage brokers aren't able to offer the government loan programs underwritten to VA and FHA loan guidelines any longer. That leaves many mortgage brokers able to offer only conventional mortgages from Fannie and Freddie.

In order for a mortgage broker to be able to offer VA loans, the wholesale lender that issues the VA loan has to be certain the mortgage broker meets certain requirements to originate VA loans. FHA loans also require a mortgage broker to pass some relatively rigorous tests in order to send FHA loans to an FHA wholesale lender, with the biggest hurdle for most mortgage brokers being the minimum net worth requirements set by the Department of Housing and Urban Development (HUD). That minimum net worth requirement is just over $60,000. While that may not seem a lot at first glance, many mortgage broker companies are "mom-and-pop" organizations whose net worth may be as little as a couple of PCs and a printer or two. This doesn't denigrate brokers by any stretch; I started my career as a broker. It's just the simple fact that some mortgage brokers now can't offer FHA loans.

When subprime and alternative loans went away, it was primarily FHA loans that took their place.

This means that up until the late 2000s, mortgage brokers had the benefit of having more loan programs available to them than a bank could offer. That's no longer a given.

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