Operating like outlaws in the old west gold rush days, has been the order of the day for most residential mortgage loan originators the last several years as everybody now finally sees, and can no longer avoid acknowledging. An epidemic of greed and fraud prevailed nationwide for several years, with our industry got flooded by unethical and unbelievably poorly educated, trained and supervised personnel who were the industry's front-line, exploiting the public – a virtually frenzied wild-west gold-rush mentality. Those heady days of this last cycle have at last ended.

From an industry high of over 500 thousand employed, which grew since the last correction in 1998; recently we have lost only 100,000 people so far. 200+ thousand of the half million people, rushed into our business during that period, incorrectly thinking they were going to be in a "sales industry." When both you and I know, the customers believed they were speaking with a professional mortgage expert who would look out for their best interest and treat them with the utmost good faith, and not compromise their rights or interests in favor of another's, including a right or interest of the loan officer/mortgage broker. But instead borrowers more often were talking with a ‘used car sales Big Commissioned closer type' individual – that fact of life cannot be seriously denied at this point, by any industry observer. There's a major conflict as between big commissions/greed on the one hand, and ethical behavior on the other, an issue I have written about several times in the past. Because, for example, certain foul-hearty loan products ‘could' be originated doesn't mean they ‘should' be.

I think everybody who survives this correction crisis, and particularly the various industry discussion boards, need to STOP enabling substandard, mediocre, and ethically challenged originators, they need to be given the boot so they don't infect the business for everybody else this next go around, wherever they are found. You know what I mean, those with weak values, little integrity, and poor or on-existent ethical standards – the ones where the commission check and how much money the make, is their focus. On these boards we all can see a post that says "which wholesalers are easy to get approved with, or which ones don't pull broker's credit or how about ‘what subprime lenders are left that do high LTV's with 580 FICO stated wage earners?' or lenders who don't do appraisal reviews? or who disregards co borrower's scores? Or who does lowest score for stated income on foreclosure bailout? There are literally thousands of examples I have seen, and if you frequent these boards so have you. They basically say ‘what is the path of least resistance so I can make a big score (commission) and what can I do to ensure I do the least amount of work possible ….'

And, not just those questions, but all the ones that reveal they don't belong in the biz. I see questions like those on all the boards I read. ENABLERS then jump up and say "Hey I can help!" and then direct those brain-dead clowns to the answer ... and the cycle continues ... we all need to stop Enabling those that do not belong in our industry! People that ask these sort of questions are the ones that stuff loans into wholesalers, which then move upstream, become part of securitizations, which then become downgraded, and at a final point hurt all of us! People's retirement funds, and many money fund investments buy MBS's (many recently loaded up with crap loans). These people are easy to spot and it's up to YOU to protect the industry from them. Just look what they did to us this last cycle! I've written about this before, you ARE your brother's keeper in this industry! They've been a major contributing factor in tanking 150+ lenders, closing down countless brokerages, and putting homeowners in situations where their families must face possibly living in a tent!

I think another terrible example, are some in the industry training sector as well. Especially the podium pitch-man types, who mostly work to pump up your ego – you know the ones that say they will ‘reveal the secrets of how to predictably, reliably, and repeatedly get $10,000, $20,000, and even $25,000 checks on every mortgage – month in and month out, while only working part-time!' Or how about this one ‘Discover How You Can Quickly And Easily Make An ADDITIONAL $100,000/Yr. Even in this Down Market – GUARANTEED!' Or even those that promote (RESPA violation) paying kickbacks to friends, for referrals etc. When recommending that other originators access these types, or you even speaking positively about them, tends to help contaminate the industry with more problematical originators dealing with the public.

If you're one of them and you say "the wholesalers did it with their reckless programs!" In small measure you are right, many of them were indeed tempting – but the bottom line there, is that the guidelines didn't read "ignore USC 1001 and section IX of the 1003 ...." Fraud is fraud and bad loans are bad loans ... if you ever put income on an application that was not your borrower´s (solely) and/or if you wrote an option arm for someone who was on salary or fixed income then indeed YOU were the problem and I hope you change your ways and join with me and be an ethical partner in our industry.

Let me say it a bit bluntly. More than 100,000 front-line originators made a killing (income wise) the last 7+ years. Now because of their ethical short-comings, most are gone or are on their way out. Without strong moral values and high ethical standards you cannot last in this industry for four decades like I have. Register then post your views here on our Discussion Board




FBI Agent: Most Mortgage Fraud in Apps Process
Most mortgage fraud occurs during the application process, an FBI agent told attendees Sept. 6 at the New York Association of Mortgage Brokers' annual convention in Melville, N.Y. Therefore, "we need all of you to assist us" in combating the problem, Special Agent Charles F. Butruch said, because it is the mortgage broker who sees it first. Carolyn Mitchell, the president of Magnet Portfolio, added that mortgage brokers need to take a more aggressive approach to quality control in their own business. As the market changes, she said, participants need to be more vigilant and more aware of what fraud schemes are out there. Richard Harrison, an attorney with Westerman, Ball, Ederer, Miller & Sharfstein, warned that a huge push looking at appraisers, mortgage brokers, and fraud is likely to be coming soon from New York State Attorney General Andrew M. Cuomo. CLICK HERE if you want to give us your opinion on our Discussion Board




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It could be just wishful thinking, but I am hopeful I see a trend of potential industry survivors discovering training & education will give them an edge during this business wide 'correction. If my assumption is correct, I know they happen to be right!

With that thought in mind, pleae look over it by clicking here - and ask yourself if you think YOU could be one of our Mentor/Teachers. Your addition to our faculty could just be that life saving hand a lot of good folks need, and you get to make a little extra loot on the side yourself! Please contact us HERE Thank you.

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Our Discussion Board is now 4 years old, with 1,300+ members and more than 250,000 site visits by them, and other readers this past 12 months. We would like your viewpoint and opinions on issues facing our industry! Click It!

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Loan officers typically don't like educated borrowers. Most loan officers prefer that borrowers were as dumb as rocks, blindly trusting everything their LO says and, in turn, garnering the LO the most money. The problem in the mortgage industry, as I see it, is that it is driven by greed. Borrowers try to locate the cheapest rate and LOs try to maximize their commissions using teaser ARM rates as bait. I feel mortgage lending is easier if both parties seek the right transaction… a true win / win where both parties are agreeable to the terms and more importantly where borrowers understand the product and its benefits.

Easier said than done? I don't think so. I earn a fair profit on each loan I close and to do so, I start by investing the time necessary to understand my clients' financial objectives. Here's an example showing a basic analysis on two very different loan products.

First we will need to know the length of time our clients plan on owning the property. For example let's say you plan on buying a new $500K home, will put 20% down and will own it for 5 years leaving us $400K that needs to be financed.

Let's assume that after 5 years the house is worth $600K and that when you bought the home you were considering 2 products. One was a 30 year fixed loan at 6.5% and the other was a 1 month LIBOR based loan with a "pick a payment" feature, but, to keep it simple, a "locked payment" for 5 years at 1.5%.

30 year fixed numbers are pretty easy. P&I payment of $2,528/mo, $126K in interest paid and $26K paid down in principal. You have paid ~$152K over the 5 years and at closing you get a check for $225K. The house, after 5 years essentially "earned" $1,217/mo. ($225K - $152K in payments / 60 months)

The 1 month LIBOR is a bit trickier. While you are paying only $500/mo, this payment does not cover the interest accrual on the mortgage. Considering a fully indexed rate on these loans is ~6.6%, and not factoring any increase in rate during the 5 years (highly optimistic), you have a ton of negative amortization. Over 5 years you accrue ~$150K of interest, but pay only $30K of it, thus $120K is added to the mortgage. At the closing, 5 years from purchase, you get $80K. The house, after 5 years essentially "earned" $833/mo. ($80K - $30K in payments / 60).

Clearly, if you are looking for net worth appreciation (who isn't?), the lower rate is always the best option. Certainly it is not rocket science… the lower the rate, the less interest. The part that baffles most borrowers is that payment rates are irrelevant unless the INTEREST RATE is fixed for the period of time you plan on owning the property (as in a 5/1 or 3/1 ARM). If you have a monthly, semi-annually or annually adjusting ARM, you need to look at the fully indexed rate (most time this is higher than 30 year pricing… hint, hint…)**

**Disclaimer: This analysis is for example purposes only and does not attempt to address issues like cash on cash return. Property investors and those buying non-primary residences strictly for investment purposes require a more detailed analysis and consideration. Authored by 'Random Combination' one of our readers. Tells us what you think HERE on our Discussion Board