Why your loan may be denied
Mortgage lenders as AMCs: Mortgage lenders are adept at converting regulations designed to curb their influence into a source of profit. Since AMCs were profiting from the business directed to them by lenders, why not get a piece of those profits by partnering with them -- or better yet, by establishing their own AMC? All the major mortgage lenders now have their own AMCs, and an increasing number of second-tier lenders have them as well.
A lender can't be paid by an AMC for the referral of business, because referral fees are illegal. But if the lender owns the firm to which business is referred, in whole or in part, it becomes an "affiliated business relationship" (ABA), and payments to the lender are legal. Because it is costly to establish ABAs that are legally compliant, it makes business sense only for the larger lenders.
I surmise that lenders who own or have a financial interest in AMCs have higher late-stage loan rejection rates than lenders who don't. A lender who directs all of its appraisals to its own AMC will have lower-quality appraisals. None of the four largest mortgage lenders have responded to my request to interview them on this topic.
Next week: What can be done?
The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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