Study Finds Experienced Mortgage Brokers’ Loans More Likely To Default

A recent study from UCLA found that new mortgage brokers were less likely to make bad loans than experienced brokers. Although this sounds counterintuitive, it spreads some light …

A recent study from UCLA found that new mortgage brokers were less likely to make bad loans than experienced brokers. Although this sounds counterintuitive, it spreads some light on why so many bad loans were issued before the housing collapse. See the following article from Property Wire to learn more.

The crisis in the property loan sector in the US is such that experienced mortgage brokers are actually more likely to make offers that end in default and foreclosure, according to new research.

An analysis of 23,000 mortgages processed by 2,905 brokers between 2004 and 2008 found that when they started out in business the loans they made were less likely to result in foreclosure.

Professor Mark Garmaise of the Anderson School of Management at the University of California in Los Angeles, calculated that the fifth loan made by brokers was 8% less likely to result in payment problems that the 10th loan.

Try Gemini Today! 123

The Gemini Exchange makes it simple to research crypto market, buy bitcoin and other cryptos plus earn Up to 8.05% APY!

Garmaise, an associate professor of finance, concluded that novice lenders were perhaps more diligent than more experienced brokers.

But he also pointed out that it could be that at the height of the property boom everyone was in a rush and therefore it is possible that brokers spent less time on each loan. The more work they did, the less thought that when into the process.

He also said that the speed at which the industry wanted loans processed probably led to less rigorous scrutiny. So there may have been fewer checks on a borrower’s qualifications. Also lenders tended to make exceptions to underwriting guidelines as they became more familiar with a broker.

His research also found that brokers who processed loans on behalf of distance lenders had a far higher failure rate as the relationship with the lender progressed. For example, brokers that were 150 miles from a lender’s headquarters secured deals where the 10th loan was 1% more likely to default than their fifth deal.

Professor Garmaise suggests that perhaps lenders need to monitor brokers who are some distance away more closely.

He concludes by saying that borrowers should not avoid more experienced brokers or those who make loans some distance from lenders. But borrowers with less than optimum credit scores and other financial qualifications might want to seek out better established brokers.

This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.

Share This:

In this article

gemini