This event will likely have an enormous effect on the landscape of the wholesale mortgage lending business. This decision was announced after several reports found that loans originated by brokers are much more risky than loans from consumer banks. Bank of America's withdrawal leaves Wells Fargo as the only remaining major consumer bank to do business with mortgage brokers. From the perspective of the brokers, this deal serves threatens the sustainability of the entire broker system. Brokers will be forced to do business with Wells Fargo, which severely limits their options. This could slash revenue and broker business. Also, Wells Fargo could also decide to drop its business with mortgage brokers, which could kill the industry.
This event is so important to consumers because their mortgage choices will be more limited by Bank of America's withdrawal. With Wells Fargo being the only major bank to buy loans from mortgage brokers, consumers are essentially forced to turn to one of the major consumer banks for mortgage assistance. This limits consumer choices, and could prevent consumers from receiving the best deals. Also, the consolidation of the mortgage lending market means that interest rates could rise for future mortgages. (The decrease in supply of mortgages means the equilibrium interest rate will rise.) While Bank of America claims that the move allows the bank to focus on consumers, in reality, consumers will be limited by lack of choice and lack of product differentiation.
-Justin Schaffer
On the flip side, the fact that Bank of American will now deal directly with the consumers means that their risk will probably fall. Sure, this could kill the mortgage industry, but they disserve it. It was in part the fault of the predatory lending activities of the mortgage industry which caused this recession. It is just makes sense that they are negatively impacted by changes on the economy given that they have done a bad job on the past.
ReplyDeletethe idea though now is to get out of this recession. although bank of america may "deserve it", we can't allow their mortgage industry to fail. At the same time, this won't be an entirely bad thing. I mean, now it seems wells fargo has a monoplopy on buying loans from mortgage brokers
ReplyDeleteYou may want to consider the impact of mortgage brokers on the system. One of the causes of the recent financial crisis was the irresponsible lending practices of the mortgage brokers. They don't worry about how risky a mortgage lender is because they do not take on the risk.
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