You are correct that the option Arms paid the highest commissions. What you may not know is that when option Arms first came out, you had to put down 30 percent and they were for second homes or investment properties. Those were excellent instruments for the people that understood them, which were not many. The option Arm was good when you may not have been able to make the whole mortgage payment (renter was gone) and would pay less than the interest only for that month and catch up later. When the greed exploded, the banks were asking the mortgage brokers to get them clients and put them in option Arms in primary residences with 10% down or less. The problem is that the banks created and funded these loans, not the brokers. If we sold an option Arm, the four possible payments were discussed, not just the less than interest payment. There were too many people in the business in retail and wholesale that could barely do arithmetic selling “sophisticated” mortgages.

Another issue is that the whole “subprime” debacle is a ruse. Fannie Mae and Freddie Mac bought a ton of stated income, no doc loans. They blamed subprime, but they are holding so many loans that if the interest rate rises, there will be another flood of foreclosures. The reason subprime exploded is because many realtors forced mortgage brokers to put prime borrowers in subprime loans so that the loan could close in 7 days. The realtor is usually the first point of contact in a house purchase. If a mortgage broker did not close a loan fast enough, the realtor would take the client and send him/her elsewhere. It did not matter to the realtor that the prime client could have gotten a better rate (takes longer), it needed to close asap. No one has blamed the realtors and they have no sanctions put on them at all for this mess. Only the mortgage broker has paid the price.

I don’t think you understand what is happening. As a loan originator at mortgage brokerage company, I am at a disadvantage than a loan originator at a bank. That is what they are talking about. The mortgage brokerage company is in an unfair competition with the banks that write and break the rules. What you don’t see is that the banks want to take the mortgage brokerage out of business. We have access to many lenders and can provide a better program and rate than if you went directly to the bank where you only have their programs. That is why now if you shop for a rate, the banks make you buy an appraisal everytime you go to a different bank. Before that rule, the mortgage brokerage could use the same appraisal with 20 lenders and the consumer only bought it one time.

The loan originators at banks do not have to be licensed. The whole licensing outrage was supposed to end this, but like always, the banks exempted themselves. So you will go to a bank and deal with a loan originator that knows very little compared to a loan originator at a mortgage brokerage that must be licensed and has access to many lenders. We keep the banks competitive, which is what they don’t like. Most of the fraud in loan origination comes directly from retail (banks) not wholesale (mortgage brokers).

That the industry claims the “unfair or deceptive trade practices” are “well-established” and “until recently, legal policies and procedures”. That being unfair or deceptive was legal, in that it was not strictly outlawed, does not make it reasonable. We don’t care how long you have been doing it wrong, now they should straighten up and fly right, or get shot down in flames.