How to Think About Ethics
What do you remember from your last Ethics class?
When I ask this question, the room falls silent. Then maybe a lone person might shout, “honesty.” Someone else might say “The Golden Rule.” It’s easier to talk about ethics in smaller groups rather than one large group so when the classroom is divided up into smaller working groups and I charge students to come up with a list of 10 things they learned, or to come up with a list of 10 character traits they admire in people (like honesty, courage, etc.) the task is easier because we have each other to talk with.
The SAFE Act now requires licensed LOs to take an ethics class every single year. Along with that, course providers like NAMF have to insert additional topic categories inside our ethics class: Consumer protection, fraud, and fair housing. So you’ll be taking an ethics class….every….single…year. It might seem irritating that the government is mandating this every year but if you think about it, ethical dilemmas change from year to year and course providers are charged with making sure our courses are current each year.
But the mortgage lending industry doesn’t have a required, mandatory code of ethics which all members must subscribe to. The codes that do exist are pretty lame and are only voluntary.
So we should ask the NMLS, if we are suppose to think about ethics, whose ethics are we suppose to be learning? Without direction from NMLS, it would be pretty presumptive to assume that we’re suppose to teach/learn the NAMB, NAMPW, NAMF, MBAA codes of ethics.
So where does an industry begin to learn how to use ethics to solve their professional ethical dilemmas? For example, if we were to sit down and write a brand new code of ethics for the industry (don’t worry, there’s not enough time to do that for the purpose of this article) we would have to start somewhere and here’s where it is: We’d look to normative moral theory. (Read a very brief paragraph on descriptive, normative, and analytical ethics here.) Normative moral theory can be applied to any profession such as law, medicine, and even the emerging profession of mortgage loan origination. If we were to sit down and write a code, we would create that code from elements of Aristotle’s virtue ethics, Kant’s duty-based ethics, and J.S.Mill’s Utilitarianism and apply these theories to ethical dilemmas faced by loan originators.
Someday the industry will be ready for mandatory, prescriptive code. If you’d like to take a look at an industry that’s created a prescriptive code, we can look at the Realtor Code of Ethics. Make all the Realtor jokes you want to; their code has been around for over 100 years. To me, this means the Realtor association is 100 years ahead of mortgage lending in terms of promoting the moral development of their profession.
Ethical subjectivism is one of the many reasons that lead to the subprime meltdown. The industry is still in need of an objective, prescriptive code. An argument against that position is that as long as we follow state and federal law, we don’t really need anything else to guide us. That may be true, but then that person is arguing to keep himself/herself about as morally developed as a teenager.
Assignment:
Consider an ethical dilemma you’ve faced during your time originating loans. If you are a new or newer LO, think about an ethical dilemma you’ve faced in another job position.
Q: What was the dilemma?
Q: How did you solve it?
Q: Do you identify more with Aristotle’s ideas, Kant’s duty-based ethics, or J.S. Mill’s Utilitarianism? Or maybe your ethical style is a combination of each.
Remember, it’s okay to use intuition, emotion, and religion to start your thinking process but we can’t stop there. For example, our intuitions might be wrong. Emotions (example of fear-based thinking “if I can’t sleep at night I know it’s unethical) are a pretty self-serving way of solving problems, and there are literally thousands of different religions in the world so although it’s fine to reach back and think about the ideals you learn from your religion, once you become a professional, your code of ethics becomes your bible. Since our industry doesn’t have that mandatory code of ethics just yet, we definitely CAN use normative moral theory to get us started.
I agree with you about moving towards a more professional acceptance of the fiduciary responsibility - it will make more ...
The protection for the consumer from goverment is welcome, of couse, the time consumed would be a function of direct ...
Comment by Mila Usher on 26 November 2009:
In my business I train and develop people to do what I do (as long as they have the appropriate license) in training there is money to be made by both myself and the trainee ,(again, as long as they have the appropriate license). I am not the only field trainer in my office, there are handful of us. My broker was just recently promoted and we moved to a new office. I want to make it clear that this issue happened in my previous office not my currant one. Due to the fact that we are training individuals who have no idea what they are doing or in turn what the field trainer is capable of doing I noticed that some were being taken advantage of. Business was going into a certain field trainers name that could have been put in the trainees name so he could get paid. Was it breaking a rule or law?… No.. the trainer does not have to allow the trainee to submit business in his name, however we are working in their market so to me it’s only fair they get to make some kind of income. There wasn’t anything I could do about it because no actual rule was broke.
Comment by Teresa Gallaher on 2 December 2009:
I had a situation where I was overpaid for a transaction. In fact I was paid twice for the same deal. I pondered what to do, I even kept the check for about a week without cashing it waiting to see if someone else would notice and notify me. That never happened. It appeared to have slipped through the crack of hr/payroll.
I must admit that I did have a moral struggle with the right thing to do. My family could really use the money, and it appeared as no one would be the wiser. However, I just couldn’t live with the feeling of guilt and dishonesty that would have accompanied the decision to keep the money. I went to my manager with my prior commission dispursement showing I had already been paid on that transaction and returned the check I had received. He was very relieved in my honesty, and maybe a bit surprised.
I guess I identify more with the Aristotle’s virtue ethics with a bit of utilitarianism thrown in. My virtue or what I deemed to be correct drove my decision, but the result of my taking money from my own company also played a big part. The result of my decision would have negatively impacted my firm.
Comment by richard martin on 4 December 2009:
Does ethics mean just plain ” doing the right thing ” do you not think that government officials the people who make the rules for the rest of us are in need of manditory ethics classes themselves, lately it seems that maybe we should be writing the ethics rules for them helpimg them to set an example, not a chance of it as long as lobbyists are paying out the big bucks and influencing the decisions. For the rest of us everyday we all make “Ethical Decisions” I work a lot with the Senior community and unfortunatly it is not hard not to see the opportunities for manipulative and selfish actions possible with a group of people who are on the whole trusting and honest. The fact is you do not have to study Kohlbergs six stages of moral development to understand what constitutes basic honesty it is something we all know and understand.just do it!
Comment by Jillayne Schlicke on 5 December 2009:
Hi Richard,
Regarding “doing the right thing,” who gets to say what’s right?
Regarding Kohlberg’s work, when a little baby is born, does that baby understand basic honesty? I don’t think so. Kohlberg’s work took off where Piaget’s work with children stopped. Kohlberg shows us that humans can develop morally beyond what we learn when we’re kids and far into adulthood.
Honesty is a value and values live inside a culture. Different cultures manifest the value of honesty in different ways. “Just doing it” could mean being honest in a hundred different ways depending on whose version of honesty we’re talking about.
Loan originators are not a professional group with a code of ethics that would prescribe how to be honest in discharging our duties.
Subsequently, we are left with subjectivism. What we need in the profession of loan origination is an OBJECTIVE and prescriptive set of principles that support this value of honesty (that we all admire and want for ourselves) that will help guide the LO when there is no clear statement of the law as to what to do.
Comment by Ken Ritter on 10 December 2009:
Being a broker, about a year ago I had a LO submit a file to me which had some obvious holes in it. Maybe what was obvious to me would have slipped through and gotten funded but after careful review of the file I decided to ask the LO about the submitted file. I was told that it was an error and that it was overlooked. I reluctantly agreed but it was obvious that it was not an over site, the LO chose to tell me that they thought it would slip through and that it was just being done to “help” the borrower.
I believe I subscribed to Kants duty-based ethics in this situation.
Comment by Launce Macomber on 15 December 2009:
How to think about Ethics. What an interesting topic. Until our profession has a prescribed Code of Conduct, we are all influenced from infancy through childhood and into adult life by our family values, our cultural upbringing, our religious teachings (if any) and it is the conglomerative affect which combined with our life’s experiences that dictates our moral behavior and beliefs. I believe in the basic honesty of individuals who really want to do the right thing. Although I must agree with Richard’s comments on the opportunity for abuses (and they can be small but nevertheless real)within the senior community. It’s up to everyone to be watchful of their own ethical, moral and legal behavior as well as occasionally looking over your neighbor’s shoulder.
Comment by Jan Mundt (Henriksen) on 17 December 2009:
In my underwriting days, I was instructed by the Branch Manager to approve a specific loan transaction. Ok; so this raises a little red flag…. Upon my review of the transaction, the loan did not meet guidelines with no compensating factor to justify an approval. I went over the file with the Branch Manager to advise of my decision to decline the transaction. The Branch Manager said; “you WILL approve the transaction” So, I noted all the strengths(zero)and weaknesses of the loan on the Transmittal Summary and “approved under duress by Branch Manager” Good thing I had another job opportunity the following week
I think I’m the utilitarianism type with a back up plan.
Comment by yvette Hobzek on 22 December 2009:
I know this is ethics on right and wrong, but since I do not have any LO’s and it is only myself I can speak of an issue I had with a two agents that were employed by me and married. I had a situation where the married couple represented a buyer and seller as dual agents. Later in the transaction an issue come up with the inspection and I was called because the agents were not acting in the best interest of the buyers. Throughout the entire transaction they were soley acting in the best interest of the seller, had they disclosed that they were working for the seller in their agency agreement it would have been totally different but they disclosed that they were working for both parties. After doing some further investigating, I found out that the sellers were the wife’s parents and that they never disclosed that they were related. I found this to be morally and ethically wrong. I jumped into the transaction and took over as the buyers agent and negotiated on their behalf. After that transaction the agents were asked to hang their license elsewhere. I think my ethical style is a little bit of everything. It depends on the situation.
Comment by Adam Neal Eifling on 22 December 2009:
First it is deeply sad that having required ethics classes should be enforced. Reason is simple! Either you obey the law with your natural instincts or get out. Very irritating when you have to clean up after someone else’s messes. Are 1 Rule when originating a loan is to protect the best interest of the BIG FOUR: 1.Client 2.Underwriter 3.Investor and 4.The Program: making it possible to obtain the loan in the first place for example FHA. All 4 have to be treated equally to protect the road to origination. Thankfully by following the 1 Rule leaves me with no specific situation to write about at this time. I learned this basic concept from FHA which taught me to think broader in seeing the whole picture as being the ultimate priority to serve and protect from unethical operations.
Comment by Jerrod Goode on 28 December 2009:
I have had dilemmas in my career but doing the right thing is the only way to go. We should not need the government to force us to get ethics training, but some of us clearly need it Twice a year. The training is only a start, the LO has to decide for himself that this going to be a way of life not just CE credits.
Comment by Jason Brock on 29 December 2009:
How to think about ethics:
As a LO and a manager I have been faced many times with crossroads of how to deal with not only clients but employees. I once had a referral from a RE Agent that was a Hispanic couple that wanted to buy a home. When they submitted their documents I had my assistant set up the file and get it underwritten and approved. I happened to look through the file and see the SS cards and ID’s for the clients… they were clearly manufactured with a little arts and crafts by them or someone helping them. I immediately turned down the file. I live my life by integrity and no amount of money will make me compromise who I am. Right is right and wrong is… you guessed it wrong. I identify with aristotle’s virtue ethics.
Comment by James Haechler on 30 December 2009:
Taking ethics classes or having a code of conduct will not make someone ethical. You either have it or you don’t. Your either honest or your not. Like every business ethics will always come down to that individual. You have bad Lo’s and Doctors and Lawyers and Business people. Look yourself in the mirror and treat people like you want to be treated. Fair and honest thats ethics. It starts with yourself. Many LO’S where out to make a quick buck and didn’t care who they hurt. Write the loan walk away. Its sad that there has to be a code of ethic in business, but thats the sign of the times.
Comment by Jillayne Schlicke on 30 December 2009:
Hi James,
Regarding the idea that “a person either has it or they don’t” consider a little tiny baby. When a baby is born, does the baby automatically know how to be moral and ethical?
No. Humans learn and grow morally all throughout life. Even into adulthood we continue to grow morally. The philosopher Kohlberg taught us this.
http://en.wikipedia.org/wiki/Kohlberg’s_stages_of_moral_development
However, there are a few exceptions. That would be your average, garden variety socipath. This is why we have DFI: to regulate the people who will always choose to break the rules. But there never will be enough money to regulate every single transaction and every single LO in every single office in every single city. Our regulators are there to find and get rid of the sociopaths in our industry. For the rest of us, we can help each other grow ethically, which is what other professional industry groups do for each other.
Comment by James Haechler on 30 December 2009:
I agree. I also feel that your upbring has alot to do with your character, morally and ethically. I’m glad DFI is weeding out the bad ones. I’ve worked with alot of them thoughout the years. Some real bad ones. Totally out of control.
Comment by Arash Fiuzi on 30 December 2009:
I guess ethics has never been an issue for me…I have a saying in my business whereby “my client doesnt pay for mistakes, even if its not mine”…usually, I will be accurate on my charges to with in $50 otherwise I paid the difference. Sometimes,if there were third party costs like resale certificates, I would just cover those for the customer. I am definately not the norm.
I think NAMB needs to put together a designation much like the Realtor and start martketing it as NAR does. The new designation would be a higher level of ethical compliance and might require the lender to take an Oath on the holy book of their choie and be sworn in much like a physican’s oath to do no harm.
Comment by Jillayne Schlicke on 30 December 2009:
Hi Arash: “might require the lender to take an Oath on the holy book of their choice”
Once an industry group becomes professionals, they join together to write such a book. Except it’s called a Code of Ethics and that’s the “book” their members turn to when faced with ethical dilemmas.
We can’t use religion as a basis of solving professional ethical dilemmas because there are literally thousands of different religions out there so whose religion would we use? Religion is a nice place to start but once we become professionals we wouldn’t stop there; we would keep going and write our own Code based on values that we all agree are desired across the industry (which just happen to also cross all religions).
This is one of the reasons why Aristotle’s Virtue/Values approach works so well in a professional setting.
Comment by Kelly Fiscus on 30 December 2009:
Moral dilema for me is NNA, SISA, SINA loans, I smiply refer them on. Ethics are simply who you are and what you stand for and I believe you either have them or you don’t.
Comment by Kelly Fiscus on 30 December 2009:
Ethics is making the right choice when presented with a dilemma. The hard part is what is the right choice? Do you choose to make money at someone elses expense? Do you close your eyes and over look that small discrepancy? What is the right choice for you? Is it also the right choice for your client?
Comment by Chris Yanke on 30 December 2009:
I’ve had a dilemna where a close friend and client of mine wanted me to do the financing for a home under different circumstances than what would have met the criteria for the loan.
My only solution was to make sure I had all the facts in place and remind them that this was not an ethical scenario, this way I could be sure I knew that they understood what they were asking of me and possibly doing to themselves. But I ended up refusing once I found out they weren’t concerned for the consequences this could have on me or my career.
Maybe Kant’s “duty based ethics” was a large part of my motivation but also I have my own clear approach to my actions and it’s part of my own style, something I will not change for quick money.
Comment by Harold Burton on 31 December 2009:
Norms and mora’s single handedly should set the stage for any ethical dilemna any professional will face.
Who decide on the SISA, NINA? These loans in there mere essence presented a ethical delimena that the entire idustry is still falling from.
There was numerous times when faced with ethical issues I have just said, no I will not be involved in that deal. Only to be confronted later that someone else had done the deal.
With any time in a business and any modest amount of success most people will be faced with a ethical dilemna.
I refuse to be the most popular based on how I malipulated a deal. I work daily to be the best based on my knowledge of my trade and the effort I put forth. An attempt to be the best professional I can be.
This is a tough time for many of use it the business. More people don’t qualify because of unemployment income and the basic downturn in the economy. There is no putting a circle in a square any longer.
Thank HUD!!
Comment by Jillayne Schlicke on 31 December 2009:
Hi Kelly,
“What is the right choice for you? Is it also the right choice for your client?”
Balancing duty to self and duty to client is important for an LO and part of the failure in the predatory lending days.
However, now that LOs are fiduiaries in WA State, an LO’s client’s needs outweigh his/her own needs. That doesn’t mean LOs work for free. Instead it means LOs are duty-bound to make sure their clients understand how the LO is paid and how much the LO is paid for the work performed.
Comment by Karen Tuff on 31 December 2009:
My dilemma was a friend that came to me over a ten year period asking for a cash-out refinance more than a few times. I was happy to help the first time for solid reasons. She needed to create an addition to her home to allow for a renter. It was an honorable use of the equity she had in her home. I did 2 other cash-out refi’s after that. One for reasons that made economical sense (she seemed to always be in a financial bind even though she made 100K a year) and once where she, against my “insistence”, put some away for a safety net as a single mother. Instead, she spent the money on a trip to Italy and to invest in her dream of producing a CD in a professional recording studio (didn’t sell). I was upset and declined any future requests and she went elsewhere to get her cash and ended up with predatory, bad loans. I believe this fits into Aristotle’s Virtue Ethics coupled with Consequentialism.
Comment by Kimberly Petersn on 31 December 2009:
I have had an experience where a client was not being honest regarding his pay, I could tell the docs were not reliable so I declined to move forward with the loan. I definately fit the Aristotles Virtue Ethics. Right is right no doubt about it. At least I can sleep at night.
Comment by Daniel Mulvehill on 26 February 2010:
Think- Performing- self confidence- educational evaluatiion and as you beleive so shall you become.I like ETHICS from business to personal. Ethics, dedicate yourself to persoanally reading consistently the DFI Web Site, sign up for updated email changes and events within your territory. Ethic subjectivism is one of the many reason why certain phases of the Mortgae Profession has had a meltdown.Very simply stated we all should know if we are conducting ourself on an Ethical platform compair yourself to those are in hot water kinda feels good to know your spritual, moral ethics prevail and people customers ask for your services and can see it in your eyes along with the referrals you can offer emphasising performance.
Comment by Elisa Wu on 28 February 2010:
First of all, I think the integrity of a LO is very important, when I had situation of dilemma, especially things involved someone you know, I’d make decision which will always “do right things” to lead me solve the situation of dillema; it is just the way I should do and I won’t regret later.