Study reveals brokers are less costly option for sub-prime borrowersMortgagePress.comSub-prime mortgage brokers
Brokers are a cost-effective option for consumers in the
sub-prime home loan market, according to a joint study released by
economists at George Washington and Oklahoma State
The study compared sub-prime loans originated by brokers and
traditional lenders, such as banks, between 1995 and 2003. Its
findings revealed that the reason brokers originate more than 50
percent of all residential loans is because they are a more
efficient and cost-effective option for consumers.
"Brokers are small businessmen and women who have to be
competitive to remain in business," said National Association of
Mortgage Brokers President Harry H. Dinham, CMC. "The hard data in
this report is a clear sign that this competition is benefiting
consumers in the sub-prime market."
Dinham said that it was unfortunate that some groups have tried
to use anecdotal evidence to accuse brokers of encouraging
consumers to choose loans that are more profitable for the
originator. Such a practice is commonly called "steering."
The study notes that, "The evidence does not support the
hypothesis that customers of brokers generally pay higher prices
than customers of lenders because of steering ... One can conclude
only that in the sub-prime market, brokers' customers generally
paid less than lenders' customers."
"Unlike many of the largest lending institutions, most brokers
are members of their community who help originate loans for the
same people we spend time with at Kiwanis Club meetings and Little
League games," said Dinham. "Our reputation is the heart of our
business, and it only makes sense that we would do everything in
our power to make sure our customers are treated fairly."
The report used data from 10 large sub-prime mortgage lenders
and was conducted by the George Washington University School of
Business and its Financial Services Research Program.
For more information, visit www.namb.org.