As I stated before, I was taught to use budget letters, this is one borrower I would have used this on. I know you can gross up income but if he was already 1 X 30 and 2X60 it already shows he has a tough time making the original payments and now we are going to increase the mortgage. I would be worried for him and again over document and explain this loan. Credit wise he may have been marginal but I would consider him a marginal borrower and taken great care with him.

I believe the client accomplished what he wanted but in this case the only winner was the broker. He got a paycheck and an inflated check in my opinion. If this man was clearly a little lacking, to take advantage and add extra points was incredibly wrong. I do not think he understood what he signed. Truely an unethical broker in my opinion. Legally, they followed guidelines except no making sure he got the GFE. I do not believe a refinance adding in closing costes etc into the loan, increasing his payment was the best option for this man. I would have suggested increasing his credit card limit and putting tools on a short term loan and leaving his home alone.

I would have voted guilty for the broker. I bet they asked questions of the investor to figure how to structure the loan and get past the soft spots in the loan. They may have been fine “on paper” but I believe they mislead and abused the client. They did not suggest other options to him such as a credit card. These are the types of people who have damaged our industry and helped people to lose their home. I say guilty!

Letter of explanation on late pays. Would have looked for clues such as were the late pays related to seasonal work of his employment? Is the income inconsistent. Was the explanation satisfactory? Were there overdrafts in the bank statements? Were bank statements requested and anayliszed?

What were the goals and objectives of the refinance. How much money was needed for tools. Were the cost of tools justified by the increased payment on the mortgage for 30 years. How much was the payment increasing.. the case study says likely to be higher. Did the same refinance scenario still make sense after adding in additional debt ( especially one with no monthly payment and extra costs of loan) could that DPA been subordinated?

I would find only the investory guilty. The Broker didn’t do anything wrong with stating guidelines of how to handle the grossing up of income. Until a underwriter looks at a loan and approves, is the loan actaully approved.

2. Documentation. Are there any inquiries you would have made or any additional documents/exhibits you would have required before continuing to process and submit this case for approval? Explain what and why you would order more documentation.
A:That’s a fine line. I couldn’t ask for any documenation on mental illness but I think that would have entered my conversation with him in a very round about way. I wouldn’t want to offend him, but simply begin to assertain his true mental capacity. I might also ask for a budget from him to see if he felt he could afford it. That might reveal his true ability to enter legally into the new contract. Finally, I might have taken the time to explore other options with the borrower. Maybe he could have secured the tools another way, without using equity from the home. Maybe he didn’t even need the tools. This is where our moral compass would come into play. Is this loan really what the borrower needs? Should I even write it?

3. Customer Service. Consider the position of the borrower before and after dealing with KMC Mortgage Company. Did the broker help the borrower achieve what he wanted? Was the borrower well served?
A: Obviously, the borrower was not well served and maybe the best proof of that is the response from the two companies invloved who wrote the loan. It’s not about the borrower in their eyes, it’s about covering their own tracks and culpability. When thigs go wrong, as they sometimes do, you can usually tell the guilty party by who they react to the issue. In this case, everybody is pointing fingers and nobody seems especially worried this old gentleman is out of his home . . .

4. Verdict. If you were on the jury would you find in favor of Carnell or the broker/lender?
A: This is a gray area and very much the reason underwriting guidelines are beings tighten across the board. Who is right and who is wrong? I don’t know. I can honestly say I would have more than likely walked away from this one. But the fact that the loan was written and defaulted upon doens’t make who is right and who is worng an easy choice. I think I would need more information on just what was disclosed and how it was disclosed before I could make a decision. But I would be leaning toward the buyer in this case . . .

Carnell appears to be a marginal qualifying borrower on paper if he’s has a 1×30 and 2×60 as well as needing to gross up his income.
I do not believe that his demeanor is relevant, especially in a refinance transaction since he is already obligated on this home, especially if the final outcome of the refinance was more favorable such as reducing his monthly obligations.

2. Documentation. Are there any inquiries you would have made or any additional documents/exhibits you would have required before continuing to process and submit this case for approval? Explain what and why you would order more documentation.

I would have wanted to clairify his total monthly deposits from bank statements to ensure his cash flow was sufficient to make his future house payment.

3. Customer Service. Consider the position of the borrower before and after dealing with KMC Mortgage Company. Did the broker help the borrower achieve what he wanted? Was the borrower well served?

Absolutely not, the borrowers house payment increased substancially, because he paid off a 4% loan that had deferred payments while only taking out about %1500 in cash. The loan officer should have encouraged the borrower not to refinance his house and seek consumer credit for the $1,500 needed for tools.

4. Verdict. If you were on the jury would you find in favor of Carnell or the broker/lender?

Carnell for certain. I think the questionable redisclosing of increased fees for a borrower of questionable intelect should have been done face to face with wet signatures, but more importantly this is a classic example of the lender putting thier needs first. To recast a new loan for a higher payment while only liquidating $1,500 was not in the customers best interest.

2. Documentation. Are there any inquiries you would have made or any additional documents/exhibits you would have required before continuing to process and submit this case for approval? Explain what and why you would order more documentation.
A: I would have probably requested a budget letter from the borrower asking how he would account for the higher payment and misc expenditures througout the month. Making him put thought into the budgetary aspects of this would probalby have had clearly shown he lacked the mental capacity to understand the full extent of what he was about to do.

3. Customer Service. Consider the position of the borrower before and after dealing with KMC Mortgage Company. Did the broker help the borrower achieve what he wanted? Was the borrower well served?
A: Clearly the borrower was hurt by this. As the lender on this or any similar circumstance, I have a fiduciary duty to do what is best for the client regardless of their wants or demands. Had most other loan officers practiced this in the recent past, we would likely not be in the mess we currently are in now. Option Arms would have never been sold sub-prime loans would be issued at a minimum.

4. Verdict. If you were on the jury would you find in favor of Carnell or the broker/lender?
A: unfortunatley, I would side with buyer here. This loan was a stretch financially with the grossing up of his income (which happen to be a fixed SS income as well). He showed signs of incompetance at the application by talking out loud to himself and kept his home in a cluttered mess. I just don’t think that the lender did enough to prove that the borrower truly understood what he was getting into even though there were clear signs that he may not be able to.

Here’s a link to ECOA:

http://www.justice.gov/crt/housing/documents/ecoafulltext_5-1-06.php
See section 701 Prohibited Discrimination.

Here’s a link to Fair Housing’s protected classes:
http://portal.hud.gov/portal/page/portal/HUD/topics/fair_lending
read the first paragraph.

So we are to make sure we treat people the same when making credit decisions and grant the loan based on their ability to repay and not on one of these classes of people.

Many folks assume that we must ignore Carnell’s dishevelled appearance but adding these facts to the other facts from the case would lead us to believe that Carnell may have had limited capacity to understand the documents he signed.

you’re right it’s difficult not to use a demographic mode of thinking, that is why we have dilligence of course.

so if the comment I made wasn’t specific enough to address that point then fine, but “protected class”???? not sure I understand that but in any event whether dirty, or talking to yourself, I’d still do the the same tasks in an effort to guarantee both good customer service and good financial service.

I hope this helps clarify my earlier response.

Thanks!

Really? I think it’s very, very difficult to NOT come to some stereotypical conclusion when we meet people for the first time, face to face. Humans do this naturally without even knowing it.

I think what you meant was that after we take everything in, we are suppose to ignore certain characteristics about a person when making a credit decision (the protected classes listed in the Fair Housing laws and the Equal Credit Opportunity Act.)

So is dressing in a disheveled way a protected class? Is not taking a shower a protected class? Is talking to yourself a protected class?

No.

An average, random person would likely NOT ignore these things. Same with a loan originator.

Once the lender raised the loan another point this should have raised a red flag for the broker who should had the borrowers best interest in mind. This was a deal killer and should have been relayed to the borrower immediately.

At some point it looks like the mortgage professional was only looking out for himself.

Finally, regardless if all disclosures where sent out in a timely manner. There was a apparent lack of fiduciary resposiblity or care for the clients economic state.

Based on the information received the loan should have not been made under the new laon terms. A increase in loan means a increase in payment. With past payment history this loan should not have been made. With all this the client had very little or no reserves.

Verdict: Hung Jury

The documentation portion would be hard to prove given that a new GFE was sent out but never received according to the borrower. I would have that examined as well. The lien for King County would have caused me to want to see a copy of the note and so forth. This way I can accurately determine DTI.

The Customer service question is hard, you can’t always protect someone from themselves and in this case I believe the borrower was NOT well served. As soon as the statement of “needed the money” was made I would have wanted to know for what, and then determined the overall chances of this loan performing and preserving his chances of continued payments.

As a Juror I would reluctantly rule in favor for Carnell only because the red flags of receiving disability income while being self employed and the lower average monthly income weren’t a consideration. So in the end he didn’t “need the money” as badly as he thought.

Did the borrow get what he wanted? Hmm he got his money but lost his home.