Starting April 1, a federal law will change the way mortgage brokers earn their pay. Advocates say the rule prevents needless mark-ups on loans that pad brokers' incomes. However, critics argue the law hurts consumers by narrowing the marketplace and funnels more customers to fewer lenders.

Don Hagan, vice president of Arizona-based mortgage bank Wallick & Volk and 30-year veteran of the industry, says that the spirit of the law, which is aimed at protecting consumers, is sound.

"If it works out perfectly it won't change the average, but it will stop the abuses at both ends," says Hagan. "It neutralizes compensation as it relates to loan terms."

But Hagan adds that the law could reduce market competition as smaller mortgage-broker operations are forced to revise their business models. The law means brokers face increased regulatory expenses, and it limits sources of commission revenue.

"The big lenders will enjoy more advantages with this," he says.

A Changing Industry

The broker industry has experienced a major contraction in the wake of the housing crisis and tightened regulations. In the past five years, the number of loans originating with brokers rather than banks has dropped from around 60% in 2004-2005 to between 30% and 15%, according to Michael D'Alonzo, president of the National Association of Mortgage Brokers.

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In Iowa, the Des Moines Register recently reported a small exodus taking place among brokers in the state. The number of licensed mortgage loan originators has dropped from 3,874 in 2008 to 1,175 this year.

"It's good to have choices in the marketplace," says Thomas Martin, president of America's Watchdog, a consumer-protection advocacy group based in Washington, D.C. "You can't really shop the big banks.

A Better Deal With a Mortgage Broker or Bank?

For most consumers, getting a home loan happens only two or three times in a lifetime. Brokers argue that the value they add to the process is not only financial -- helping home buyers shop and compare a wider set of loan options -- but also psychological.

However, prices at banks and online mortgage sites are increasingly competitive. According to a recent report by, 21% of consumers use the Web to shop for their home loans.

Hagan says it's critical to find a lender who is an advocate for buyers, and will help them to reach their home-ownership goals.

"You want an expert. Someone who is experienced and knowledgeable," he says. "That is the most important thing, no matter what size of institution."

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Reverse Mortgages are designed for seniors over age 62 who are house-rich but cash-poor and desire to remain in their home. Seniors having substantial home equity and wanting to remain in their home should consider a reverse mortgage to be used to supplement retirement income or structured to provide funds for unexpected needs.

July 17 2013 at 3:40 PM Report abuse rate up rate down Reply
Rockett Singh

How will the affect mortgage rates oregon? Some insight would be appreciated!

May 24 2011 at 3:05 PM Report abuse rate up rate down Reply
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April 13 2011 at 10:41 PM Report abuse rate up rate down Reply

Get the government involved and watch the stupidity factor jump through the roof.
Lest you think I doth protest too much without reason, as God is my witness the following is true. I have been approved for a home equity line of credit in order to pay for some work I am having done on my home. My home is about 2000 square feet and is located on 35 acres. I am mailing my next to last mortgage payment today. The loan amount is twenty five thousand dollars. A fair assumption is that my equity should exceed my mortgage balance( one payment left remember) by a very large amount. Now back to the stupidity factor. Because of new federal government regulations I am going to have to pay for a full blown appraisal of my property. Where the hell is any common sense in this process? Do these clowns in Washington think the we the people can flush money down the toilet for no reason just like they do? And they sit up there and wonder why we the people are mad as hell.

April 01 2011 at 7:39 AM Report abuse +1 rate up rate down Reply
Hello Darling

The system is correcting itself. Not everyone can be rich in a Capitalist System. The next step in the system's efforts to correct itself is to investigate the Real Estate Brokers. Inflated and over pricing is rampant in certain parts of the country. There is very little oversight of the sales-people who have no other skills as a fall-back in a depressed market. So, to compensate, the sales persons, with broker approval, over inflate the sales prices to insure large commissions and mislead sellers into believing that it is still possible for everybody to make a profit on the sale of their home. Why should someone who has lived in a home for 20 years expect to get twice the money they paid for the home? That game and day should be over. If the home depreciates according to IRS, this should be a factor when selling the home as well unless there have been significant improvements to the home with receipts provided. Capitalism provides for the brothel where many con-artists screw every hole in sight.

March 31 2011 at 8:21 PM Report abuse rate up rate down Reply

Silly law...reduces the consumers choices. Brokers have had to disclose their compensation, in DETAIL, UPFRONT since 1.1.2010. They have had to disclose their compensation for years at signing. Left people plenty of time to back out if they were unhappy.

March 31 2011 at 3:42 PM Report abuse rate up rate down Reply
1 reply to resfinc's comment

you sound like a "good" broker . keep a lot of the kick backs camoflaged . I've been a broker for 40 years, and the residental end is full of crooks, as the clients are lazy and stupid

March 31 2011 at 10:28 PM Report abuse rate up rate down Reply

They should get back to basics. Home loans should go back to being a deal between a lending bank (or other reputable home lenders) and the persons taking the mortgage. The banks should then have to hold the mortgages themselves and not sell them to Wall Street "wise guys" for repackaging as CDOs. You don't need all these little guys, middle men, and wise guys making a mess of things. Also, let the borrower do some of his own homework and find a reputable lender. Brokers, in most cases don't make the loans...they arrange the loans. They place the loans with financial institutions and at best try to get the borrower a better mortgage rate than he or she might have gotten otherwise. With computers and a little intelligence, people can do this on their own. The mortgage brokers and their industry became "pigs" and just got out of control. This couldn't and wouldn't have become possible without the help of the "gamesters" on Wall Street and our Gov't (in bed with the "wise guys") which was making it easy for any schmuck to get a home loan. I'm still waiting (probably forever) for this stupid country and its dumber Government to lock up those unconscionable, greedy, arrogant, lying Wall Street "SOBS." They, with the encouagement and concurrence of our moronic Gov't ARE the perpetrators of the financial meltdown and biggest consumer fraud ever perpetrated on this planet. Its aftermath continues to affect everyone living in this country from the shortage of jobs to all the foreclosures and collapse of the housing market. And, yet not one of those Wall Street fat cat "creeps" has been incarcerated. Remarkable.

March 31 2011 at 10:06 AM Report abuse +2 rate up rate down Reply
2 replies to Artie's comment

An interesting comment with one basic flaw. If banks are going to be required to retain their home loans on their books until they're paid off ( portfolio loans) the average U.S. bank will have the portion of the loan portfolio allocated to residential mortgages "topped out" within 90 days. At that point U.S. banks will, for all intents and purposes, be out of the mortgage business. Now who's going to step up and make the loans.

March 31 2011 at 12:36 PM Report abuse +1 rate up rate down Reply

They did it 30 years ago, they used people's savings accounts. At one point in time, people actually saved money and got a great return on it -- then we all started getting tax on interest on the savings accounts and the savings account too. Double whammy

March 31 2011 at 12:48 PM Report abuse +1 rate up rate down Reply

As with any profession or business, there are good and bad. Many of the bad to average just "churned" the same way stock brokers used to do. in one way, they were doing a service by reducing the rate on the re-fi, but it kept tempting folks to pull a little more equity. the pitch was we can lower the rate x, refi your current balance plus $10,000 (for you to spend foolishly) and your payment will only go up $30 a month and we can do all this for a $350 fee. sounds good, but people forgot they were restarting a 30 year loan and pulling out equity that would later evaporate. All people would hear and see is very little cost, short term, $10,000 play money and an extra $30 a month payment, no sweat. HERE WE ARE.

March 31 2011 at 9:01 AM Report abuse +1 rate up rate down Reply
1 reply to donut999's comment

People heard what they wanted to hear.

March 31 2011 at 2:14 PM Report abuse +1 rate up rate down Reply

I am a retired banker after 30 years which by no means makes me an expert.
I can say that the worst enemy of the consumer is themselves. They never took
the time to read anything It was always sign here with very few questions after
many forms. The best thing to do is shop your rates and your companies, understand what you are signing and what you are doing. The worst problems always
come after the fact. You must educate yourself don't sign everthing throwed in
your face. As far as the protection nobody can protect you except yourself.

March 31 2011 at 7:57 AM Report abuse +2 rate up rate down Reply
1 reply to KENSUTHERLAND's comment

Gee Ken, good management practices and great customer service mean anything to the banking industry -- I must do my homework -- how about the banks dealing equitable and fairly with it's customers Yeah right

March 31 2011 at 9:55 AM Report abuse rate up rate down Reply

Of course BIG LENDERS = BIG GOVERNMENT..and who does this serve, BIG LIBERAL DEMOCRAPS.. but lets keep up the BIG lie that republicans and conservatives take care of BIG business. will we eber learn ... really???

March 30 2011 at 10:00 PM Report abuse +1 rate up rate down Reply
1 reply to midsr4kids's comment

And here we hear from the first nitwit of the day. Adding nothing to the conversation except his vitriol he is another example of whiner.

March 31 2011 at 9:21 AM Report abuse +1 rate up rate down Reply