Final answer:
A substantial disadvantage to using a mortgage broker is the risk of being guided towards subprime loans, a byproduct of banks selling the loans as securities, leading to less scrutiny of borrowers. These high-risk loans can lead to financial instability for both borrowers and the larger economy.
Step-by-step explanation:
A substantial disadvantage to using a mortgage broker could be related to the potential for a broker to facilitate subprime loans. This arises from the practice of securitization where banks may plan to sell the mortgage loan rather than holding it as an asset. In such cases, banks might not scrutinize borrowers thoroughly. Mortgage loans with low or no down payments, little verification of income, and initially low payments that spike later on were prevalent in the mid-2000s and were often termed as NINJA loans, indicating loans made to borrowers with No Income, No Job, or Assets. The issue with these kinds of loans is that they are high risk, and they contributed to the financial crisis when borrowers were unable to repay.
This system of securitization separates the financial interests of the lender from the borrower's ability to repay, thus encouraging riskier lending practices. Banks could afford to make bad loans because they didn't face the financial consequences when borrowers failed to repay, as these loans were sold off as securities.