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Broker Vs Banker

WSJ/Harris polls 2300 adults

September 26, 2005


Mortgage brokers have an edge over mortgage bankers within one particular age group, according to a recent poll which also found regional concentration of some riskier products.

A recent Wall Street Journal Online/Harris Interactive Personal Finance Poll found that while just 39% of adults used brokers to obtain a mortgage, borrowers between the ages of 18 to 34 were most likely to use them.

About a third, mostly older borrowers, used direct lenders, according to the poll conducted on 2,300 U.S. adults between Aug. 19 and 23, while less than one-tenth used another type of lender. The rest said they didn't need a mortgage to purchase a home.

Fixed-rate mortgages reportedly comprised a larger portion of all loans in each of the four regions, but the West, where adjustable-rate mortgages made up 38% of borrowers' loans, was the only area in which the percentage was well over a quarter.

Another finding was that just over a third of borrowers surveyed used either an interest-only, piggyback, payment option, or miss-a-payment.

A higher percentage of Westerners used interest-only loans, while Northeasterners held the largest portion of piggyback mortgages and miss-payment mortgages and Midwesterners held the highest percentage of payment option mortgages, according to the newsletter.

"Non-traditional methods of funding a primary residence are becoming more commonplace and acceptable, especially in areas of the country that have seen housing prices skyrocket," said Anne Aldrich, senior vice president of Financial Services Research Practice at Harris Interactive, in the newsletter. "It is important that consumers be aware of all of the options available to them, as well as the possible risks that they may take on with 'creative' mortgage options."

The findings come on the heels of Fitch Ratings and Standard & Poor's warnings that the proliferation of option ARMs raise the probability of default and losses on residential mortgage-backed securities.

Fitch says option ARM borrowers often are unaware of the payment-shock risk associated with the loans when these recast and the resulting negative amortization.

S&P noted that negative amortization will likely result because in "a rising interest rate environment, most option ARM borrowers will choose to make only the minimum payment. Additionally, the borrower's monthly payment will increase sharply within three to five years, once the negative amortization limit has been reached."

And increased defaults are likely to ensue as borrowers will experience a "significant increase in debt to income ratio over the next eight years," S&P added.

But concern from the ratings agencies is tempered by recent comments from the Mortgage Bankers Association dismissing the overriding belief that borrowers place too much focus on finding a mortgage with an initial payment that will get them into a property, while ignoring potential payment shocks.

"There are risks, but they are far less than the hyperbole of recent months," MBA Chief Economist Doug Duncan said in a recent conference call. "House price growth will slow, there will be a flattening in the decline in delinquency and this may have a modest slowing effect on the U.S. economy."

Duncan noted that just 15% of U.S. homeowners in ARMs -- and of these only 7% are interest-rate sensitive -- "where we're not clear of how they're going to react in a rising interest rate environment."

Just under 20% of adults who purchased their home within the last three years reportedly exceeded their suggested price range, with the "skyrocketing" price of real estate in the western part of the country being the likely reason more people in the West (29%) exceeded the range. Other regions fared better, including the South (22%), Midwest (12%) and Northeast (8%), according to the report.

Among other findings of the WSJ poll, 81% of respondents viewed the process of obtaining a mortgage as easy, compared to 17% who found it difficult.

Coco Salazar is an assistant editor and staff writer for MortgageDaily.com.

E-mail: [email protected]

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