The Effect of Subprime Mortgage Lending on Mortgage Brokers

The effect of subprime mortgage lending on mortgage broker has been profound. As can be expected, the subprime mortgage meltdown has hit mortgage brokers hard. In a way, this is justified, as they are part of the problem.

The effect of subprime mortgage lending on mortgage brokers is profound. These industries are closely tied together so it makes sense that if something affects one it affects the other. This is definitely the case with subprime mortgage lending and mortgage brokers.

How are these industries tied together? A mortgage broker does not make loans. They have a number of banks and lending institutions that they work with. When they submit a loan from a consumer to one of the lenders, and the loan is approved, the mortgage broker gets a commission. This is how they make their money. A mortgage broker's income depends on submitting loan applications that get approved. Many got greedy and started promoting loans that borderlined on predatory lending. Therein lies part of the problem.

A subprime mortgage lender is in the business of making loans to qualified higher risk borrowers. Sometimes these borrowers go directly to the lender. Other times the borrower uses mortgage broker to help them locate a lender who is most likely to get them approved.

With the current meltdown of the subprime mortgage industry, borrowers with less than stellar credit are having a very difficult time getting financing. As subprime mortgage lenders are tightening up their standards, they are approving far fewer applications. To a mortgage broker this is bad news. Fewer loan approvals means less income for the mortgage broker.

In a number of ways, this is a good thing. For a while there, money was too easy to borrow. People who never should have been approved for a loan were able to get financing through special programs like interest only loans, liar loans, and other gimmicks. This opened up the door to fraud in some instances and hence the mortgage problems we have now were created. It is not entirely the fault of the mortgage broker. If the subprime mortgage companies were not offering these loans, the mortgage broker would not have been able to offer them.

Once again, we see a ripple effect that impacts the economy and further contributes to the real estate problems we see today. 5 years ago, mortgage brokers were making money hand over fist. Money was easy to borrow and many people were taking advantage of the real estate boom markets in many areas. A lot of people made a lot of money. Many of those people ended up losing a lot of money because they did not know when to get out of the market. Others, like the mortgage brokers started to feel the pinch as the housing markets started to slow down.

At first, it was minor but as prices in some areas came crashing down, so did the mortgage broker's ability to earn a living. As a result, they have become part of those who have seen a reduction in income due to this subprime problem. As income decreases, disposable income becomes non-existent and only necessities are being purchased. Many people are losing their homes, not because they made irresponsible money choices but because their income is tied to the housing market.

Mortgage brokers are in this category. Many were making a six figure income a year ago, now they are making half that. It is very difficult to maintain the lifestyle six figures makes when the income disappears. This is the effect of subprime mortgage lending on mortgage brokers.