Written by Dan Cooper, CMB and Senior Consultant with     Mortgage Banking Solutions a leading management consulting firm offering a host of consulting services to the mortgage industry. 

In 2002 The Department of Housing and Urban development took on a bold initiative, that, at the time would have shook up the dynamics of how mortgage loans were originated. HUD took a direct shot at mortgage brokers and essentially tried to regulate them to a much smaller piece of the then expanding mortgage origination pie.

At the time mortgage brokers had evolved to essentially control the mortgage origination side of the business. While very hard to measure accurately, industry experts speculated that mortgage brokers originated 60% to 65% of new mortgage loans. There were 100’s of wholesale companies eager to accept the loans and they priced them with very little margin. Brokers could lock their loans with several different lenders with virtually no consequences and then refinance them over and over. It was truly the wild west of mortgage lending.

HUD considered the brokers an unregulated group but was powerless to reign in this growing sector of the business. The lack of regulation allowed inexperienced and less than honest individuals to enter the business to take advantage of the high margin, low risk and low cost business models. While states were beginning to regulate the sector, they were not experienced nor understood the risk and the ease of fraud that HUD knew and lived with every day. HUD did the only thing they had pow