Guest Commentary: Tired of the Blame Game, This Mortgage Insider Says, “Lay Off The Brokers”

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Blogger’s Note: Lou Barnes, a Colorado-based mortgage banker who writes a Fed-watching column for Inman.com, sent us email decrying the ‘intra-industry mudslinging’ in which mortgage brokers are being blamed for the subprime meltdown. His thoughts follow.

‘Everyone in the mortgage business today is effectively a broker. Mortgage ‘Lenders’ died with the S&Ls and the birth of the modern mortgage-backed securities market, sometime around 1983.

‘Wells Fargo brokers its mortgage loans out the back just the same as a broker working from home does. Countrywide fancies itself a bank and a lender, but is just an immense mortgage bank, operationally indistinguishable from the 1960s pioneers.

‘Brokers are blamed for vast misbehavior, but that’s just intra-industry mudslinging. Wells was the largest sub-prime originator in 2006 by a mile, roughly $85 billion; as that position became embarrassing, it admitted this spring that it only kept $24 billion, and had ‘no credit risk’ in that portfolio (it had sold the risk into the nouveau ‘credit derivative’ market, born around 2000, which spawned all of this horrifying product). So, who did more harm with subprime 2/28 resets and suicidal underwrting, the brokers down the block, or the big guys?

‘It doesn’t matter! Today, mortgage ‘retailers’ all do the same things, selling to wholesale, which in turn sells to Wall Street, which in turn derivatizes, selling both interest-rate risk and credit risk.’

So speaks Lou Barnes. Thoughts? Comments? Fire away.
Photo Credit: LATimes