Bank of America To Cut Off Mortgage Brokers
Ken Lewis, CEO of Bank of America, the nation’s second-largest bank, announced on Friday that it will shut down its consumer real estate division and its wholesale lending unit, which offers residential mortgages through over 7,000 independent brokers, at the end of the year.
The move signals a commitment to focus on direct-to-consumer lending through its banking centers and loan officers, said Floyd Robinson, Bank of America’s president of consumer real estate and insurance services. “While we are extremely proud of our strong track record in the wholesale business, we believe our long-term opportunity lies in maximizing our more competitive retail channels.”
In May, Bank of America introduced its national “no-fee” mortgage program, which eliminates the buyer, lender and third-party fees that can add several hundred to a few thousand dollars to the cost of buying a home. This loan product has created more than $50 billion in application volume in the past six months and has enabled Bank of America to “gain critical market share”, according to Robinson.
The numbers seem to bear him out. For the 3rd quarter of this year, the nation’s largest retail saw an increase of 27 percent in first mortgages funded over the 3rd quarter of 2006.
Despite the dramatic up tick in mortgage originations, Lewis was said to have been “pissed” at the disappointing drop in revenues for the quarter ending Sept. 30 and is pushing to double BofA’s current 5 percent market share of direct-to-consumer home loans in the next three years by focusing on the prime mortgage market, which are those loans offered only to borrowers with stellar credit scores, usually a FICO of 740 and above.
So what does this mean? Well, the lives of more than a few San Diego mortgage brokers just got a bit more difficult and 3,000 BofA jobs will be cut. It is all good for the consumer, though. Less fees and a lender aggressively looking for business should mean lower rates for the well qualified San Diego home buyer.
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B of A is really just sugar coating the savings to consumers. Sure some of the fees were waved but way too many times I have seen the local B of A branch quote rates higher than the brokers could quote and in the long run it actually cost the consumer more. If it didn’t represent a higher profit to B of A do you really think they would do it?
I have seen both ends of the spectrum with BofA, Mack. Sometimes they will ‘buy’ a segment of the market by dropping rates .25 to .5 points under market, and I have had clients who worked for BofA that couldn’t get loans done right or were charged way more than what they could get elsewhere. One was the sister of a branch manager.
It has historically been easier to get a BofA loan though their real estate division, which they are now closing.
B of A has a classic opportunity to continue to make the mortgage process less transparent and ultimatley more profitable for themselves and thier share holders. There is no such thing as a no fee loan at any level. The secondary market isnt going to let B of A ship loans that havent obtained an acceptable appraisal, Title guarentees and etc.
B of A and any of the large thrifts are exempt from disclosing the “secondary market transaction” income generated from delivering loans to the secondary market above par.
It is all smoke and mirrors. We are a mid size HUD certified lender that focuses on conventional and FHA purchase transactions. When the consumer understands the impact a higher rate has on thier costs and see it for what it is they are much more empowered to make an informed choice and more likley to establish a long term banking relationship when they are given the real ” Truth in Lending” they deserve. It will take B of A a few years to figure that out and when they do it will be hard to rebuild their origination business again for the loss of credibility.