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This housing boom was different in many ways, starting with how the actual mortgage loans were made. Time was you went to Jimmy Stewart and the local Building and Loan and, if the bank’s lending officer smiled upon you, you got a loan. No more. Banks decided the “overhead” of employing mortgage reps was too expensive, so they increasingly outsourced the origination to a new generation of independent mortgage brokers who were, basically, paid for “piece work”—getting a commission on each mortgage loan they brought to the bank.
It’s easy in hindsight to see the economic incentive of these independent brokers to do whatever it took to qualify a borrower and collect the commission because if they load DID go bad, odds are that wouldn’t occur for several years and the broker would be long gone down the road, selling used cars, cell phones or whatever the fad du jour was at that point. (Although the same principle applies, unfortunately, for all of the investment bankers who bundled these mortgages into securities that they sold to investors. My bonus is my successor’s headache, not mine…)
My BusinessWeek colleagues Brian Grow and Mara Der Hovanesian collaborated on a story (which can be accessed by clicking here) in the current print edition (cover story: The Future of Work”), of BusinessWeek, titled “Did Big Lenders Cross the Line?” It explores the question of whether brokers who played fast and loose—increasing an applicant’s income, or even whiting it out to put them in a “no doc” loan that carried a higher interest rate, and with it, higher commissions. And whether the big mortgage lenders either encouraged, condoned or turned a blind eye to this behavior. It’s a good read.
But I’d be remiss without noting that we have quite a number of real-estate agents and lending officers who visit and post on this blog. What do you think? What have you seen when you’re working in the trenches every day?
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.