By all accounts it seems the banking lobby will get everything they’ve been ask for from Congress over the past decade and in do so may legislate mortgage brokers out of existence.

A little history lesson is in order to understand all the political and media spin designed to sway their and public opinion away from mortgage brokers the banking industry orchestrated for the last 10 plus years.

During the 70’s and early 80’s, banks dominated originations carving out a whopping 80% of the retail loan applications. Brokers quickly picked up the slack and by the early 90’s the numbers reversed. The market, especially real estate investors, liked the idea of a personal mortgage broker who understood their goals scouring the landscape for the best products and rates.

Banks have never been know for the best customer service or pricing and the public punished them by fleeing to the broker community. During this time brokers enjoyed about 75% of all originations leaving the crumbs for the banks.

They didn’t take that lying down. The quickly got their lobbyists working on legislation that passed in 1999 to poison the market against broker by demanding brokers show their “yield spread premium” income while the banks were allowed to hide their own. The thought was the public upon seeing this often times enormous “profit” that was heretofore hidden would put brokers in a bad light with consumers and they would come running back to the banks.

It didn’t happen.

As it turns out consumer either didn’t know or didn’t care. Some critics ( myself included) would say the brokers decided one “dirty trick” deserved another and devised ways of obfuscating the YSP. After all banks were getting away with setting up an un-level playing field in the first place so they could claim they were just “evening the score”.

Undaunted in their pursuit of the killing off their competition, many believe the banks decided upon a “scorched earth” plan to rid themselves of retail mortgage competition once and for all.

The Plan was one they pulled from the S&L playbook a decade earlier. Give the mortgage brokers just enough rope to hang themselves just like the Savings and Loans did.

Remember the Savings and Loan crisis of the late 80’s?

Banks wanted the S&L’s out of the way back then too. When a few greedy large S&L’s decided they wanted “deregulation” so they could make commercial loans it was the banking lobby who helped them get it.

At the time it seemed like “strange bedfellows”, but it only took a few years to see the banking industry genius behind their “assistance. They knew the S&L’s were unprepared to thwart their own greed and would create a “banking and real estate crash” lawmakers and the public would rightfully lay at their doorstep.

All the banks had to do this time around was find an equally stupid idea, attach a lot of money to it, and let the brokers commit a little “banker-assisted” suicide.

Enter the subprime loan.

Bankers priced them, marketed them, and feed them to a stupid, greedy bunch who cobbled them down with out the knowledge they’d just been had.

It worked.

Lawmakers and the public are clearly laying the current real estate and banking debacle at the doorstep of mortgage brokers. Legislation will pass making mortgage brokers all but extinct.

It worked so well that the banks may have succeeded in taking down not only the brokers but the mechanism that put them in business in the first place…the GSEs…Fannie Mae and Freddie Mac.

On Friday there were cries to bailout the GSEs since they too got caught in the bankers web of greed. The infection of subprime losses it seems put both GSEs on tilt. With them out of the way, the broker have no hope of staging a comeback since it’s Fannie and Freddie’s pathway to the money markets that give brokers something to sell.

The banker planted subprime virus not only killed brokers and the GSEs, but will likely kill the real estate industry and economy for the next few years too.

But when the dust settles a few years from now, every one will go to a bank to get a mortgage because that is all that is left.

Mission Accomplished!

If investors thought getting a loan was hard before, just wait. You ain’t seen nothin’ yet.

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

Are Mortgage Brokers An Endangered Species?

In a previous post I had mentioned I belonged to USAA. For anyone who doesn’t know, USAA is an insurance company founded by Air Force personnel back in the days when military members found it almost impossible to get insurance.

As it turns out, I had saved an article from their USAA MAGAZINE, Spring 2007, issue. It was about mortgages. Keep in mind the date of this particular issue.

By the way, USAA has a reputation of being one of the best carriers in the country with a very stable business model. The advice in their magazine usually follows suit.

Here is one sentence from that article that stands out like a sore thumb:

“Many borrowers may not fully understand the changing payment schedules, especially the sharp monthly payment increases common in these mortgages,” says Allen Fishbein of the Consumer Federation of America.

What followed that quote are these words:

And if you put very little down and real estate prices decline, you could face a loan balance that exceeds the present value of your home. That’s downright scary.

You don’t have to be a rocket physicist to know the mortgage type being referenced. And, you don’t even have to be a nuclear pharmacist to see this bit of advice was too late.

I want to believe they just missed the ball by publishing this article when they did. Maybe they didn’t want to believe the problem would grow to the magnitude it has grown. Maybe their mortgage lending division was making very few ARM loans. After all, they are a conservative bunch down there in San Antonio.

I wonder how many other supposedly conservative lenders were of this mindset during the Spring of 2007. It is hard to believe many existed as the problem certainly had its ugly head above water level.

I am not singling out USAA for criticism or accusing them of aggravating the problem. I am merely using their published words as a highlight as to the possible thinking that may have existed that late into the burgeoning crisis.

Wouldn’t it be a kick in the pants if some of that thinking is having a residual effect? It would go something like this, “As long as we warn the consumer about the possible dangers, it is OK to keep making loans they can neither qualify for nor afford.”

After all, there is a school of thought that says you can borrow your way to riches and it is being promoted even in today’s world. I guess pay back never visits some people’s door step.

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

The Sky is Falling . . . We’re Watching and We’re Not Going to Do Anything About It