baltimoresun.com

« Can't get enough of foreclosure maps? | Main | Million-dollar listings »

April 8, 2008

Paying more for the loan

The Center for Responsible Lending, which predicted in 2006 that 2.2 million subprime borrowers were eventually headed for foreclosure, says in a report today that Americans are paying more for their subprime loans if they got them through a mortgage broker rather than the lender.

Subprime borrowers pay about $5,200 more in the first four years for broker-originated mortgages than loans direct from the lender, said the center. "Near-prime" borrowers pay a $1,300 premium. Prime borrowers, on the other hand, see a small savings. The center said it based its conclusions on an analysis of 1.7 million mortgages issued between 2004 and 2006.

From the report, which you can read HERE:

People with weaker credit scores naturally pay more for mortgages than people with strong scores. However, it is very difficult for borrowers with weaker credit or less experience in financial matters to know precisely how much more is appropriate, especially since, unlike prime rates, subprime rates are not generally publicly available. In addition, subprime loans tend to be much more complex than the fixed-rate mortgages that have long dominated the prime market, making their costs more difficult for borrowers to compare.

Accordingly, we hypothesize that brokers have been able to take advantage of this situation by emphasizing maximum revenues per loan for subprime borrowers. While retail lenders are probably not immune from these dynamics, we believe the effects on the costs of retail loans are less pronounced due to more regulation, better internal controls, and concerns about reputational risk.

UPDATE: Late Tuesday evening, the National Association of Mortgage Brokers issued a press release decrying the study.

The trade group's president, George Hanzimanolis, said in a statement that "we are greatly concerned by its misrepresentations of the broker compensation structure, the competitive nature of the mortgage business, and the over simplification of this complex industry. The researchers’ use of conjecture regarding broker behavior is ill-founded and unsupported, and raises questions about the methodology they employed to arrive at their conclusions."

Posted by Jamie Smith Hopkins at 1:26 PM | | Comments (2)
        

Comments

Jamie,

This might be off interest to you...

http://calculatedrisk.blogspot.com/2008/04/crl-brokered-loans-cost-some-people.html

Thanks, Kevin -- a very interesting post.

Post a comment

All comments must be approved by the blog author. Name-calling aimed at other commenters is not welcome here. Please do not resubmit comments if they do not immediately appear. You are not required to use your full name when posting, but you should use a real e-mail address. Comments may be republished in print, but we will not publish your e-mail address. Our full Terms of Service are available here.

Verification (needed to reduce spam):

About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie
-- ADVERTISEMENT --

Most Recent Comments
Baltimore Sun coverage
Baltimore Sun Real Estate section
Archive: Dream Home
Dream Home takes readers into the houses of area residents who have found their ideal home.
Sign up for FREE business alerts
Get free Sun alerts sent to your mobile phone.*
Get free Baltimore Sun mobile alerts
Sign up for Business text alerts

Returning user? Update preferences.
Sign up for more Sun text alerts
*Standard message and data rates apply. Click here for Frequently Asked Questions.
  • Sign up for the At Home newsletter
The home and garden newsletter includes design tips and trends, gardening coverage, ideas for DIY projects and more.
See a sample | Sign up

Charm City Current
Categories
Stay connected