Will mortgage brokers disappear in the US?

New rules will be applied to mortgage brokers starting next year, which, according to experts, could make many of them to shot down their businesses. New rules, issued by the Consumer Financial Protection Bureau, prohibit brokers from charging more for placing borrowers in more expensive mortgages; as well as from getting paid by both parties of the mortgage transaction. Despite the fact these rules will ensure more safety to the borrowers, they may also make more brokers leave their jobs.

As a result, borrowers might find that the choice of a mortgage has become more difficult. Because brokers have access to a vast number of lenders, they tend to be able to define the optimal programs really fast. Without brokers, borrowers will have to find rates and conditions themselves by going from one bank to another until they can compare mortgage products they qualify for.

Obviously, using brokerage services imposed risks. A part of experts blame the housing crash on the mortgage brokers, who were financially motivated to put many of their borrowers into high risk mortgages they couldn’t pay off. This is the major reason why the new rules were drafted.

Due to the fact many players have already left the field or will do it after the rules become effective, risks associated with using brokerage services will drop, thus challenging the borrowers to find brokers with access to many lenders. A couple years before some of the major banks like Bank of America and Wells Fargo announced they stop working with independent mortgage brokerages.

The share of loans generated by mortgage brokerages has drastically decreased and amounted to 10% of total mortgage originations in the past two years, as compared to 20% in 2008 and over 30% in 2006.

That being said, customers will now less likely be steered into a higher interest mortgage or the one that can’t be paid off in advance without having to pay a penalty.

Brokers will have a year to change their practices on order to comply with the new rules.

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