Comments on: Informed Consent for Mortgage Lending

By: amanda kirilenko

amanda kirilenko — Mon, 31 May 2010 05:09:58 +0000

Oh my goodness, no third party input! I try to fully inform my client, ” the whole big picture” mentality. Everyone sees things from a different prespective bringing another opinion into the mix would be even more difficult. I like the surgeon comparison

By: Kathleen Manford

Kathleen Manford — Thu, 27 May 2010 21:48:39 +0000

I do my best to make sure my clients know what they are signing. I like to watch peoples eyes and see when I am loosing them so I start to ask questions of them at that point. I know they are overwhelmed at all the paperwork but I really try to make sure they understand all the important things and go over the high points again after we are all done. The page they really want to know about is the GFE anyway. I really try to make them an active part of their own home loan. As I have said before, I like to educate people and make them comfortable, this buisness is all about referals. If at the end of the day they feel things changed or they did not understand, they do not trust you with their friends. Referal line stops.

By: Angie Williams

Angie Williams — Thu, 27 May 2010 00:18:59 +0000

Instead of comparing LO’s to doctos and lawyers.. why not comapre to a profession which is a more related component such as a financial planner. I meet annually with my financial planner and am asked to complete a questionairre about risk/investment tolerance. The series of questions is based on today and future needs. She then supplies me with options so I can make an informed choice. Matter of fact.. so does my Cpa. This topic goes back to my last post on fiduciary duties. As a professional, I can run the math equations.. as a human/consumer.. what’s not a benefit to my specific scenario may be a benefit to my clients.

By: Jillayne Schlicke

Jillayne Schlicke — Tue, 25 May 2010 03:06:06 +0000

Hi Shawn,

“how in the world do you propose to enforce the ” fiduciary duty” you talk about in the article? It’s impossible. It can’t be done and it shouldn’t be done”

It’s already being done right now.

Broker LOs in Wa State owe fiduciary duties to their clients. Senate Bill 6381 was passed in Wa State in 2008. It’s already being done.

The way it is done with traditional professional groups is through a professional association. For example doctors have the American Medical Association and Lawyers have their Bar Association. CPAs, engineers, nurses, and so forth, all have professional associations helping guide their member’s ethical conduct.

Shawn, LOs know more than the average random consumer as to all the different moving parts in a mortgage loan. Yes, they sign forms that indicate they’ve received the forms but I’m not so sure that every single form they’re signing, they’re indicating they UNDERSTAND what’s in the form. Take a look at the 4 to 6 main documents. Where does it say, “I understand what I’m consenting to?”

By: Shawn Lynch

Shawn Lynch — Mon, 24 May 2010 20:45:33 +0000

The article is treading on some very shakey ground in a number of places. Do I feel there needs to be a fiduciary responsiblity from the LO to the buyer. No, and I don’t beleive one will ever exsist as at that point you’re not talking about being an Loan Originator any longer, you’re talking about being a Loan Conselor. And that is not what we do.

I feel we disclose more than enough at this point for a person of average inteligence to grasp what is being done AT THEIR REQUEST. I do not feel that we need to dislcose more. At this point in time, the new 2010 GFE is doing what should have been done long ago, it’s requiring us to stand by our quotes. No argument from me there.

However, when you start to say the standard needs to be higher, that’s where you lose me. We already have several forms that require the borrow to sign as proof they have read and understand the material before them and further, that they are authorizing us to proceed. Short of placing a blanket requirement for everyone’s loan to be passed thru a Moral Loan Tester on a national level, how in the world do you propose to enforce the ” fiduciary duty” you talk about in the article? It’s impossible. It can’t be done and it shouldn’t be done.

By: Virginia Miller

Virginia Miller — Mon, 24 May 2010 05:13:45 +0000

You can never over dislcose in my opinion. Every applicant is different and may not need for one who is purchase a few homes may not need special attention to evey form but there are those that these forms are the first time they are seeing them so I feel giving extra attention to these first time applicants keeps every one on the same page and the communciation open with a clear understanding of fee’s and expectatations of the loan process.

By: Bryce Zimmerman

Bryce Zimmerman — Fri, 21 May 2010 23:31:04 +0000

We do have an informed consent form that notifies borrowers itemized, of loan amount, rate, lender and 3rd party fees, and lock period that is signed by me and the consumer so thier really isn’t any grey area. The one thing that continues to come up later is potentially changing of fees based on appraised value with Fannie and Freddies risk based pricing on conventional loans, but these types of necessary disclosures eleviate and confusion last minute and is the responsibility of the originating lender.

By: LINDA COFFMAN

LINDA COFFMAN — Fri, 27 Feb 2009 22:47:16 +0000

Every client has a different level of learning, it is our responsibility to teach to each level what they are looking at whether it be a TIL or GFE or any other paperwork. It is a challenge which makes this business fun and exciting.

By: Scott

Scott — Tue, 27 Jan 2009 00:48:30 +0000

Informed consent of all borrowers is instrumental in achieving that fiduciary relationship with the trust all our clients deserve. If we are holding our services out to consumers as professional mortgage brokers the consumer deserves a true advocate.

By: Kirsta Lopes

Kirsta Lopes — Wed, 31 Dec 2008 20:17:56 +0000

I agree with this article, and that we should disclose, disclose and disclose again. What I have noticed with borrowers is that most of the times they wholeheartedly trust in the lender they’re working with, they may not like them, but they trust them. Offering for them to get a 2nd opinion often doesn’t yield any results, they typically stay where they’re at for whatever reason, i.e they don’t want to start the process over again, and think they will get the same thing from a different lender. Some of your more savvy borrowrs know that this is not true, and will seek out multiple lenders, always angling for a better rate, better fee, etc. Your average borrower does not understand most of the forms in a loan package. The TIL is a joke. Disclosures need to be made more user friendly.

By: shelley safronek

shelley safronek — Wed, 31 Dec 2008 02:20:00 +0000

Oops….sorry, I didn’t fully finish my second sentence from the previous post….What I was referring to is a better disclosure to explain the rates in comparison to the fee i.e. a higher rate can lower your fees using the YSP. The TIL really tends to send the consumer into confusion!

By: shelley safronek

shelley safronek — Wed, 31 Dec 2008 02:17:35 +0000

It’s amazing to me that we have had disclosures for the Equal Credit Opportunity, Fair Credit Reporting Act, Privacy Act etc…… but have not been able to adequately formulate a disclosure that is easily understandable to the average consumer. By the time they get to the point of signing the loan application and disclosures, their patience is running out. Before setting appointments to finalize the 1003, I will send over the general disclosures to my clients ahead of time so that we can concentrate on the details of their loan during our meeting. I can talk until I am blue in the face about the details of the multiple disclosures, but 9 times out of 10, they are half-heartedly listening and waiting for me to get to the numbers.

By: Jillayne Schlicke

Jillayne Schlicke — Tue, 30 Dec 2008 05:19:46 +0000

@ William, “I believe the borrower is ultimately responsible for making a educated decision as to what loan terms work based upon their specific needs.”

That’s fair, as long as the borrower is given all the possible consequences for each loan product. In the predatory lending days, this did not always happen.

“We are not doctors who get paid at the time of service from either the consumer or insurance provider. We are not attorney’s who charge on a hourly basis or take a case on contingency in hopes of making more money than thier customer.”

Actually as of June 2008, Mortgage Brokers and LOs are fiduciaries. You do have the ability to charge an hourly fee similar to a doctor or a lawyer. See Senate Bill 6381.

By: Jillayne Schlicke

Jillayne Schlicke — Tue, 30 Dec 2008 05:16:05 +0000

Hi David,

Informed consent is not a checklist but a process. Surely we could come up with a checklist for housekeeping sake but a check mark in a box does not mean the LO has delivered full informed consent.

By: Jillayne Schlicke

Jillayne Schlicke — Tue, 30 Dec 2008 05:15:15 +0000

Hi Roger,

Have you considered referring homeowners who don’t understand you or who you’ve determined to have limited intelligence to an attorney instead of to a family or church member who may not be able to explain mortgage lending documents and laws?

By: David Nelson

David Nelson — Tue, 30 Dec 2008 05:12:24 +0000

The more knowledgeable the borrower is the cleaner the loan. I’m for a set check list that must be asked of the borrowed verbally to clear the communication lines. What is safety for the borrower is also safety for the originator!!

By: Roger Ingalls

Roger Ingalls — Tue, 30 Dec 2008 01:00:42 +0000

Again, true fiduciaries should be able to charge a fee for counseling.

Can they? The jury is still out.

Most clients I deal with are very intelligent, and understand quite well what they are doing.

If I believed I was dealing with someone of seriously limited intelligence, I would request a 3rd party (family member, someone from their church) to be present, and review the loan together.

Most loans today are not too difficult to understand. It’s too bad that option arms didn’t have a requirement like reverse mortgages have, where the borrower HAS to review the loan with a completely independent counselor.

By: William Schornack

William Schornack — Mon, 29 Dec 2008 21:40:34 +0000

I believe the borrower is ultimately responsible for making a educated decision as to what loan terms work based upon their specific needs. We are not doctors who get paid at the time of service from either the consumer or insurance provider. We are not attorney’s who charge on a hourly basis or take a case on contingency in hopes of making more money than thier customer.

By: Scott E

Scott E — Sun, 28 Dec 2008 21:16:25 +0000

I worked for a lender “x” for a few years. A lender that prided itself on ethics, loyalty, responsibility, do the right thing, etc. We presented options to the homeowner and had a matrix for benefit to borrower. Options were presented to the borrower and the matrix determined the best ‘option’ for the borrower. Sometimes the borrower would pick the option that the matrix would determine less benfit then others and all the borrower was looking for was the lowest interest rate. I agree with Pam, ‘that the lowest rate is not always the best rate’, but most borrowers that I worked with did not care, they just wanted the lowest rate. In my experience, regardless of how much I educated ‘most’ borrowers, they are all about rate, not benfit or loan program per se. Most borrowers after a year forgot what loan program they got, but they do remember that rate! TO protect ourselves from future legal ramifications, a loan benfit statement from the borrower or “Attestation to Benifits” should be signed.

By: pam grant

pam grant — Sun, 28 Dec 2008 01:23:08 +0000

I have provided an “Attestation to Benefits” form to all refinance customers for a few years now. My use of this form has been more of a checklist so the borrower understands the terms of refinancing and the benefits of doing so. A borrower must understand why they are refinancing and be informed of the benefits of doing so. FHA has required the generic comparison of FHA vs. Conv. what is the difficulty of using the borrowers actual figures so they can make an informed decision. The lowest rate is not always the best rate. Sane can be said for fees. Informed choice would put the burden of “best” decision on the borrower where it should be.

By: Yoshiho Takamoto

Yoshiho Takamoto — Fri, 26 Dec 2008 03:14:22 +0000

I definately agree with this article. I do believe that mortgage brokers and LOs job is to inform and consent to their potential clients and it is for the clients to decide which program to go with. As long as clients see the full picture and well comprehend the program presented to them, it will minimize the misunderstanding and the risk they might encounter once they accept the loan program. As I mentioned in the other article comment, I feel that mortgage brokers and LOs are considered “mortgage doctors” therefore the standard that we keep should be as high as doctors, lawyers and other professionals.

By: David Nelson

David Nelson — Wed, 24 Dec 2008 17:06:46 +0000

Why does the borrower want the loan.
Can they afford the payments.
Do the understand the cost in relation to the benefits.
Is there a better solution for them other than a full refi to fulfill their needs.
We need to be prepared to help them think their actions though as if it were our decision about our loan.
We need to be responsible for our actions since we are in a positions tom do great financial harm.

By: Bradley Allen

Bradley Allen — Sat, 06 Dec 2008 19:44:59 +0000

I couldn’t disagree more with the Mortgage Professor. The net economic benefit of a refinance is generally readily ascertainable. This ought to be a matter of core competency for anyone who is acting in the borrower’s best interests. Certainly there may be benefits that the borrower perceives that are not reducible to economic benefits, but these too can be understood. And the notion that the information necessary to make this kind of determination is not available to the LO is absurd. All the LO need do is ask. The only instances where the decision is the borrower’s alone to make is one in which the borrower has chosen to make the decision alone (or where he didn’t know he had a choice). The borrower is on his own to make a decision in any arm’s length transaction, not just a mortgage transaction. If a borrower does not feel the need for assistance and advice, he can choose to deal directly with a lender. Borrower-lender transactions are arm’s length and the lender has no duty to assist the borrower beyond the provision of regulatorily required disclosures and information, honesty, and fairness. Moreover, any “assistance” provided by the lender, well meaning as it may seem, must be presumed to be tainted by the lender’s undisclosed conflicts of interest. The wary borrower, knowing himself to be in an arm’s length transaction must either independently validate what the lender may be recommending or accept his fate. The importance of the mortgage broker industry, after SB 6381, is precisely that this is where a borrower may turn when he wants something more than an arm’s length transaction. In other words, when a borrower is looking for help that will be provided solely in the service of the borrower’s interests, the broker is his only alternative. As anyone inside the industry knows, the average borrower does not know or understand much about what is going on in the loan origination process or the loan pricing business. Furthermore, the details are often not independently verifiable by the borrower, even if he could understand and make use of them. Contrary to what the Mortgage Professor says, brokers not only can second guess the borrower, they have a duty to second guess the borrower in the interest of doing what is in the borrower’s best interest. This is all the more reason why a borrower stands to benefit from working with a broker – but only if that broker is truly functioning out of loyalty and good faith with regard to the borrower’s interests. Borrowers are highly likely to be dependent on the practitioner they have chosen to work with in obtaining their loan. They should be able to confidently rely on the broker as an agent of the borrower to be dedicated to serving the borrower’s interests. The same cannot be said of a lender.

NAMF’s position that all LO’s are created equal presets a problem. The LO is only a proxy for or an extension of the entity be represents. LO’s who are responsible to lenders have no more and no less duty than that of the lender they represent. LO’s responsible to brokers have no more and no less duty than that of the broker they represent. It is contrary to free market capitalism to assign fiduciary responsibility to either of the two principals to a purchase-sale transaction. The lender is one such principal. Since the lender is not a fiduciary, it is inappropriate to hold that the lender’s LO is a fiduciary.

It sounds nice when the article says that all LO’s must focus on the needs and interests of the borrower. It’s a nice idea, but it is not a legal responsibility. Again, LO’s of lenders do not have a responsibility greater than that of the lender, and the lender has no responsibility to focus on the needs and interests of the borrower. It might be good business sense for lenders to pursue such a standard, but that is not the same as legal responsibility. In the lender-borrower transaction, an arm’s length transaction, the lender only has responsibility under existing regulations to provide certain information to the borrower – he has no responsibility to ensure that the borrow understands that information or acts appropriately on it. The principle governing the lender-borrower transaction is caveat emptor – let the borrower beware.

The broker transaction is altogether different. The broker is acting as an agent of the borrower. The broker has fiduciary duties to serve the borrower’s interests. Yes the broker must make the same information available to the borrower as the lender does, but unlike the lender, the broker must (a) ensure that the borrower adequately understands that information and appropriately considers it in his decision, or (b) given that the borrow may not fully understand the information provided and potentially additional information that is not required to be provided, the broker must make use of his own knowledge and experience to act as the borrower might act if the borrower knew and understood as much. This is a radically different calling from that of the lender. While it’s true that in the end the borrower makes the decision and may even make a decision contrary to the recommendation of the broker, the broker has a duty to at least recommend that which the broker has determined to be in the borrower’s best interest.

The last paragraph in this article goes on to describe what might be higher standards to be applied to lenders. Again, I have to disagree. If the author substituted the word “broker” everywhere the word “lender” is used in this paragraph, I would be more inclined to agree. Lenders are not fiduciaries. Lenders are the other principal to an arm’s length transaction. We might hope that lenders step up to something akin to fiduciary standards of care as a matter of good business practice, but it is incorrect to suggest that they do so by way of a legal requirement. An animal trainer can train a tiger to act more like a house cat, but one cannot make laws that require a tiger to be a house cat. Opposing parties in an arm’s length transaction are just that. We can ask them to be fair, we can be pretty explicit about what is or is not fair, but we cannot demand that one party always act in the best interests of the other.

By: Jeff Hilt

Jeff Hilt — Thu, 04 Dec 2008 22:37:25 +0000

I wholeheartedly agree. It is paramount for a client to understand the product they are purchasing before the deal is done. This is true for every realm of the financial services. If a registered rep sells a variable annuity to a client and the client doesn’t fully understand everything about it, they have failed both the client and the industry. If one gets a client into a mortgage they don’t fully understand, say an ARM, they have failed that client. Could it be that some who would resist the idea of informed consent actually don’t want their clients to have complete knowledge of the transation? Maybe they don’t want an informed client. Where Jillayne says in the article “This obviously mandates a standard of truthfulness and completeness. Anything less than this opens the door to moral subjectivism and a moving standard that manipulates the hopes and dreams of borrowers”, is there anyone out there in mortgage-land who would be against a standard of truthfulness and completeness? If you are known as someone who acts in the client’s best interest, that will eventually pay dividends.

By: Cheryl Nopson

Cheryl Nopson — Tue, 02 Dec 2008 04:37:05 +0000

Once we obtain a credit report we generally get an on-line approval with several products of approval for the borrower to choose from. I always give the borrower the best choice of course and a 2nd option if it makes sence. We carefully go over all the requied disclosures and GFE to dislose the closing costs and to make sure the borrower is fully aware of the type of loan they are obtaining. I feel the disclosures are very easy to understand and not confusing at all. The borrower must take the time to read what they are signing, They are borrowing $ to re-pay. It’s our duty to inform the borrower and keep our good name. Another must is go to your clints loan doc signing at escrow and make sure again that they fully understand and are pleased with the transaction.