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Small percentage of brokers account for most early payment defaults

National Mortgage Professional
Feb 26, 2007

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 universities. 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.
Published
Feb 26, 2007
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