During the next year or so that we all get to enjoy this restful industry-wide slow-down, I think it would be a great idea to work on re-building our industry from the inside; actually it's long overdue! Lawmakers in many States and on the Federal side, daily are creating new duties, requirements and regulations to help protect the public from the residential real estate mortgage lending industry – our ‘self-policing' unfortunately didn't exist much the past several years, so now they're gonna 'teach us a lesson' and make originators directly personally responsible for more! In addition to now being 'banned' in several States, there's even a Federal Ban on No Doc, Stated, etc. being considered today! In fact, these past several weeks, more than a dozen State lawmakers have been 'tightening the screws' on originators in many areas.
Broad and substantive mortgage lending requirement and laws being passed I see, are creating a 'duty of good faith and fair dealing.' One of them says mortgage originators (mortgage brokers & loan officers) 'shall act in the borrower's best interest and in the utmost good faith toward borrowers, and shall not compromise a borrower's right or interest in favor of another's right or interest, including a right or interest of the mortgage originator.' A mortgage originator shall not accept, give, or charge any undisclosed compensation or realize any undisclosed remuneration, either through direct or indirect means, that inures to the benefit of the mortgage broker on an expenditure made for the borrower – a full blown fiduciary duty like most other trusted professionals have.
This approach subjecting originators to harsh discipline & aggressive punishment, I have been in agreement with for many years myself – but I frequently see it falls far short in many cases.
Here's what I mean. The individual loan officers (where it seems much of this legislation is aimed), we all need to recognize are not mortgage experts, they are in fact the entry level position in our business. Far too many of them are not ‘career minded' but instead see themselves as 'commissioned salesmen' - a secret they keep from the public. If they were more 'career thinkers', they would take the time to improve their understanding of our business, instead of a narrow focus mostly on their commission earnings. The more career minded ones among their ranks, spend the time needed to read & learn from several regular industry trade publications. During that time invested, they frequently see articles, as I do, about the thousands of disciplinary actions taken against wrong-doers in the business.
Unfortunately they are considered as 'independent contractors' by a great many employers; they advertise and communicate with potential borrowers with virtually no training - when in fact they really have no business being out there independently, in the unsupervised wilderness.
So let's all try and work on their ethical attitudes and educate them on what's right and what's not OK. Let's start with these three (3) very basic issues which every single one of them should already know, I mean they should know all this right now; from my experience many of them don't however.
First off, let's quickly discuss the ground-breaking Federal Truth in Lending Act, which (among other things) created "APR." Be sure all the LO's YOU know, understand that they are required to provide potential borrowers with an accurate APR whenever they reply to a comment containing an Interest Rate. ie: They take a casual inbound phone call, and are asked "what's your rate?" – be sure they also quote the APR which goes with the loan ‘rate' they speak into the telephone receiver, or on paper if they write it down – in an e-mail or even on cocktail napkin! They should have been taught that on day #1 when they first started.
Second, and speaking of e-mail – there's the Gramm-Leach-Bliley Financial Modernization Act of 1999. The GLB Statute addresses customer privacy issues on a national basis. Among many different requirement of this wide sweeping law, e-mail communication with potential borrowers that contain personal information (even JUST their name), must be password protected! Translated: LO's cannot legally e-mail back and forth with a potential borrower using any old e-mail client they choose, it must be password protected (with at least 8 characters). They should have been taught that on day #1 when they first started.
Third, RESPA and it's frequently discussed ‘kick-back' section, LO's need to be 100% familiar with. They cannot give ‘anything of value' for a referral as a Thank You to the referring party when a referral customer closes … over $25, under $25 or otherwise … nothing. They should have been taught that on day #1 when they first started.
We are the most widely regulated industry in the Country – these are just part of three of them … there's dozens and dozens more. Again, we need to breed/guide a whole new crop of ethical and law abiding LO's, for when the cycle reverses again in a couple of years. And not by telling them they're going to go to jail, but by having the right and proper ethics and integrity -- is the way to go. Click Here and tell us what you think on our Discussion Board
B&C Borrowers Paying Off Credit Cards First?
Subprime borrowers are more likely to be 30 days or more late on their mortgage payments than on their unsecured credit card obligations, a "significant departure" from historical consumer behavior, according to an Experian study on the subprime lending market. Historically, consumers have paid mortgage debt over bankcard debt, so the finding "represents a significant departure from conventional behavior," the Costa Mesa, Calif.-based Experian said. Subprime borrowers were defined as those with an Experian credit score of 620 or lower. Borrowers with prime credit scores of over 680 continued to follow the traditional pattern of paying mortgage debt before credit card debt, the information services company reported. "The current marketplace debate and increased visibility on subprime lending led us to examine historical consumer payment trends to see if they have shifted," said Kerry Williams, president of Experian Information Solutions. "Interestingly, our data revealed that many consumers in the subprime segment have adjusted their payment patterns in order to better manage their personal finances." TRANSLATED: Means to me, they like them, want to keep them, and would like YOU to consolidate them so they can have them freed up for future emergencies! CLICK HERE to give us your opinion on our Discussion Board
Freddie B&C Program to Support Prepay Penalties
A new Freddie Mac subprime purchase program in development for release this summer is expected to support prepayment penalties, but in a more consumer-friendly manner than in the past, according to a presentation at the National Association of Mortgage Brokers annual convention in Seattle. The program, which Freddie has been testing with five or six lenders, will be in line with the government-sponsored enterprise's new restrictions on certain nontraditional mortgage purchases set to take effect Sept. 1, said Charles Coulter, vice president of sourcing strategies and solutions at Freddie Mac. When asked for further details, he said he could not be much more specific about the program because it is "still in development." However, when asked about prepayment penalties, he said the planned move down the credit curve is expected to support them, but would never allow them to go beyond the fixed period of the loans carrying them. CLICK HERE to give us your opinion on our Discussion Board
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