In this mortgage ethics article about allegiance to rule-following, I will compare the mortgage industry crisis with a classic business ethics case study.
The space shuttle Challenger accident has frequently been used as a case study in the study of engineering safety, the ethics of whistleblowing, communications, and group decision-making. With Challenger, an O-ring eroded on earlier shuttle launches. Morton Thiokol (MT) managers believed that because it had not previously eroded by more than 30%, that this was not a hazard. During a pre-launch conference call with NASA, the MT engineer most experienced with the O-rings, Roger Boisjoly, pleaded with management repeatedly to cancel or reschedule the launch. He raised concerns that the unusually cold temperatures would stiffen the O-rings, preventing a complete seal. MT senior managers overruled him and allowed the launch to proceed. Challenger’s O-rings eroded completely as predicted by Boisjoly resulting in the disintegration of Challenger and the loss of all seven astronauts. Boisjoly concluded that the caucus called by managers who decided to launch, was an unethical decision-making forum which came about because of intense customer intimidation. “Roger Boisjoly and the Challenger Disaster: The Ethical Dimensions” from the Journal of Business Ethics 8 (April 1989). Everyone followed the rules, and the ensuing investigation determined the accident was nobody’s fault. Boisjoly concludes that the Challenger accident occurred because of the existing institutional system and allegiance to the rules of protocol.
In real estate and mortgage lending, we all follow state and federal laws (rules), yet some consumers ended up with a mortgage loan they did not understand and were not qualified to pay back. Pressure was applied to many people all up and down the line in mortgage lending. For example, appraisers being strong-armed to hit a value or else risk losing referrals. Some real estate agents and mortgage brokers still apply pressure to banks and lenders to approve loans fast, now and immediately, or else risk losing referral business, and a mortgage company’s culture has a remarkable influence over corporate workers.
Let’s follow the origination of a random mortgage loan and see if we can spot all the possibilities for system failure.
Lead generation companies such as NextTag, Lending Tree, and lowermybills.com scoop leads off of their deceptive banner ads and sell them to hungry mortgage retail salespeople. Leads are also generated and sold by using deceptive mortgage spam, direct mail, direct home fax, deceptive radio ads, and so forth.
A real estate agent or Realtor is not suppose to become involved in the mortgage side of the transaction because it means the agent has stepped outside his or her area of expertise. Attorneys advise real estate agents that an agent increases liability when this line is crossed. Some agents are comfortable taking on this liability, others are not. Many let the homebuyer’s chosen lender take the lead on explaining the structure, consequences, and results of loan products.
Homebuyers and refinancing homeowners on average know very little about mortgage lending and spend little time reading required disclosures. Mortgage retail salespeople have no mandatory ethical duties to the homebuyer or refinancing homeowner to put the client’s interests above his or her own interests to make as much money as possible off a trusting consumer. Obviously there are some mortgage retail salespeople who do look after the best interests of their clients. But how is a consumer supposed to know where to find these folks? Relying on the referrals of trusted friends and family shifts the responsibility off the self and on to another person.
Government disclosure forms such as the Good Faith Estimate and the Truth in Lending Reg Z forms are confusing to the consumer. Predatory lenders use these forms to deceive a refinancing homeowner or homebuyer. This is well documented in both Household Finance and Ameriquest settlements. There never has been nor will there ever be enough government resources to police every single transaction written by every single retail mortgage salesperson.
When a loan is brokered to a bank, the bank owes no duty to the consumer to make sure that the loan was not originated using deceptive or predatory lending sales tactics, or generated by advertising that did not comply with federal Truth-in-Lending laws. A bank’s duties are to its shareholders (to follow mortgage lending laws and to make a profit.) Wholesale lenders and banks underwrite loans to guidelines set down by investors. Profits are made by pooling loans and selling them as mortgage backed securities. Hypercompetition to be the biggest and best wholesale lender led to paying higher and higher incentives to mortgage brokers to sell higher and higher yield (and now morally out-of-fashion) interest only, pay option, negative-am, adjustable rate mortgage loan with and without prepayment penalties to consumers, regardless of if the consumer understood how the loan product worked. The selling point from wholesale lender to broker was: “when the rate adjusts, you can solicit them to refinance and earn another 4 points for yourself.” An entire breed of retail mortgage salespeople knows nothing but this business model.
Consumers are given standard state and federal disclosures to read, explaining how the loan product works, and some people argue that if a consumer signs documents he or she does not understand, then it is the consumer’s fault. Mortgage lending is complex. Here is an analogy: A person had to undergo surgery and the doctor hands the patient a set of medical books and tells the patient to read the books and make a decision.
Appraisers owe duties of good faith to mortgage banks and lenders. Problems with the relationship between the appraiser and the retail mortgage sales people were one of the first signs of O-ring failure in the space shuttle organizational structure called mortgage lending. To their credit, the appraisal industry made a full frontal assault against pressures levied by retail mortgage salespeople, and they are now the first to once again work on solutions.
Escrow closers are at the end of the line. When a homebuyer or a refinancing homeowner is feeling uncomfortable about rates, fees, or terms of a loan, an escrow closer must remain neutral. Escrow closers are in a perfect position to see blatant and ongoing abusive lending practices. However, if they file a formal, public complaint, the business consequences are grave. Most state and federal agencies will not take anonymous complaints.
When wholesale lenders sell loans to Wall Street securities dealers, the dealer’s concern begins and ends with the contract: were state and federal laws followed, and what’s the rate of return on investment. Pension fund managers, insurance companies and other institutional investors have no way of knowing if loans in a pool of mortgage-backed securities were originated using deceptive and abusive lending practices.
The institutional and structural systems of mortgage lending are broken in many places. The subprime problems and the resulting defaults are a major O-ring failure. Now the system failure has spread to Alt-A loans and prime ARMs. Nobody wants to look up in the sky and admit that the shuttle is disintegrating. Well, perhaps if YOUR customers aren’t defaulting, then I guess there’s not a problem.
In the Challenger case, everyone followed proper institutional protocol and adhered to existing laws. Engineers like Roger Boisjoly work inside all our institutions. They are the loan processors, escrow closers, fellow mortgage retail salespeople, and others who know exactly what’s going on but believed they were powerless to make a difference, or chose not to make an anonymous complaint due to possible grave personal and/or professional consequences.
We’re going to have more state and federal laws before this entire mortgage industry crisis is behind us. The question then becomes, will those in the trenches stay silent again?
Thank you for not blaming appraisers for this mess. Some appraisers are not above pushing numbers beyond realistic values, but i don’t really think most of us, (I’m one) will fudge, but it is an estimate, appraisals are not exact number.
As an appraiser, I’m putting all of this on the mortgage industry, since the states where adjustable rates, interest only, and large number of unqualified buyers were not part of the market have had little or no impact. For the most part, six or seven states make up the lions share of the losses. At least that’s the info that I keep hearing.
I just hope that the Cuomo deal doesn’t pass as written, or they probably won’t be any appraisers in the not to distant future.
Hi Dean,
Thanks for stopping by NAMF. What impresses me about the appraisal industry is that they came up with the Appraisal Institute and began self-regulating their own industry as far back as 1932, and now once again they are trying to work WITH Cuomo to put together something that will work for their industry. I’ve read the entire proposal and commented on it at length with Shane Leady over at his blog, table talk. There are some good things in the Cuomo proposal and then there are some things that could be revised.
Because the appraisers are now at the forefront of the solution, they have a chance to really shape the future.
I think that with lending guidelines tightening up things will eventually stablize but it is going to take a lot of clean up work to refinance consumers out of their high risk loans. I do believe that the mortgage industry had taken such a hard swing in softening lending guidelines that we now have to take a hard swing back the other direction before we will see stabilization.
It seems like to me, if regulators really want to get a hold on predatory lending, and completely control it, they may need to reform the entire industry. What I mean by this is not give Loan Officers so much freedom. Maybe just pay them a salary, like Processors and other mortgage employees get. When people see $$ signs flash before their eyes, it turns them into money hungary predators. They think, “If I just put this client on this other program, I can make $3000 more on this loan”. And it’s as simple as that. If LO’s got a salary along with maybe an extra bonus for bringing in a loan, the industry wouldn’t be half the mess that it is today.
Here is my opinion on this whole mess. It is not only the loan officer who has been the predator.It is the entire industry. The banks too… How come they can lend without these license requirements? like the U.S. Constitution says when it no longer works destroy it and start over…. the only problem is where does special interest fit into that?
I agree with all of you, it’s not just the LO’s it’s the banks, we couldn’t do anything with out the lenders blessings. I like what Susan said ” maybe LO’s should just get a salary with a bonus” In some banks, probable all I think that is what they do, maybe mortgage brokers should do that as well. The probable is it effects all of us, the lenders, rel estate, appraiser, LO’s it’s a crazy circle that effects all of us
I hope that everyone in the mortgage business has learned something from this mess. Who can you blame? Should I have made that young couple just starting a family the 100% loan that I did? Should the company I worked for have let me make that loan. Was FNMA wrong to have allowed such a thing as an 80/20 loan. Was the company who funded my 20% 2nd wrong to have taken on such a risk?
Once again we are in a correction cycle. Most of the bad companies are gone, most of the programs that got these homebuyers in trouble are gone and we are back to actually underwriting loans. This will work itself out but we need the state regulators help to keep the really bad guys from opening up shop again in our state.
It is not so much that the persons on the inside are slient. Rather they are silenced. Having audited rejected bulks from the CDO’s and Wall Street I know what was addressed. I know how my findings were reviewed by management. I know what the OTS required of its reviews and the poor legislation that made it required.
Are we condemned to repeat….sadly I feel that we are. The fact that the typical internal employee of a mortgage company feels that they are another unimportant cog in the wheel is of issure. No one has to be licensed or tested to become an underwriter or a processor, yet they are at the helm when reviewing a loan for accuracy. The education levels and number of files that need to be reviewed to understand how loans can and cannot be done is truly astounding. The creation of automated underwriting engines eliminates the true review of a loan on its own merits and reduces the experience level needed by the reviewing parties.
State regulators can deal with brokers on a case by case level but only when it is flagrant and brought to there attention. They tend to understand law….not life or the natural course of a loan.
I disagree that we are back actually underwriting loans…we have elimintated the high debt ratios and loan to value’s previously granted, however true underwriting takes place when a person can take an individual loan and review it against the guidelines. Guidelines have never nor should they ever be a hard fast rule. If there should be a level or rule set…then there are no exceptions. If it is a guideline it needs to be tempered with documenation, and critical analysis and objectivity. The industry is looking for speed and reduced cost, it is not looking for accuracy and solid decisions. It will take a tremendous amount of time to meld the two.
I believe and I think it has been proven that arrogance, complacency and denial are the key factors that caused the Challenger disaster, the same could be stated as reasons for the current mortgage crisis. had proper oversight and ethical guidelines been in place it is possible that this financial mess could have been avoided
Being in a position to turn in companies who are making wrongful decisions about certain loans is a tough one. Coming from a company who does not put consumers in any hard situations I don’t see any of it first-hand. One of the things I have come to find out is who really wants to be the bad guy and point fingers? In any situation, not just in the lending field. No one wants to be the person to get others in trouble, it is easier to just sit back and let things happen whether they are right or wrong. Most people go with what’s is “convenient” because that is all they have ever known. If people could break out of their shells, and do what is right for everyone involved, things would be better. The key is to remember not everything is about you, you do not always have to put yourself first, and go for the “help others approach”.
The system needs correction. Why are we allowed to make up to 6 points on one loan? What is it we do that gives us the right to make that much money? A high percentage of the people in this industry do not even have a college degree and yet in the last 7 years have made incomes way in excess of doctors and engineers and attorneys and CPAs. What the banks and the regulators have done is like putting the cookie jar in front of a kid and tell them to take as many as they want and then to blame them for taking too many. Except in this case the parents made two or three coocies for every one coocie the child took all the way up the ladder.
I think that putting reasonable and practical guidlines to underwriting and limits to compensation could possibly help reduce the problems of fraud although laws will always be broken or ignored by unethical underwriters, brokers and loan officers. Profits always seem to be the norm.
In this industry there is still so many things that needs to happen before we can start seeing real moral and ethical change in the system. And for it to happen, EVERYONE must play their part, this is the hard part.
I disagree about putting LO on salary, maybe for their first 2 or 3 years of training, but not for the rest of their career. Otherwise, they would go into Banking and be a teller, or someone who clock in and out. This is a type of industry that allows them to build their own client and create their own business. The reason why LO fail is because there is a lacks of priority in continuous Education and Experience for new LO from the Broker/Lender and the industry itself.
This loan industry have so much potential to be better than they are now. We just all have to start taking care of each other. Making sure that we are always looking out for the main interest, our borrower.
OK. The mortgage rules and regulations were pushed aside often ignored, but is your question…If we appear to follow the rules etc. submit GFEs etc.are we doing our job when we suspect /know that the borrower does not read or understand the disclosures and information we provide for the borrowers own protection, NO WAY!
Professionalism demands that we do everything possible to ensure that the client usderstands and grasps the important issues about their money and the debt responsibility they are about to assume.
I think every effort should be made to confirm this critical aspect of the loan proceedure.
If we could approach the whole mortgage process with the attitude that we are the buyers best friend (as I think we are) and they are our friend whom we want to serve with appreciation, a lot of seeming mistrust and mistakes can be eliminated. As we build these feelings of trust, providing a valuable service for a clearly stated cost, accomplished under clear professional guidelines and strict ground rules for compensations, there should be no reason for mistrust or complaint.
This is the most remarkable information of the truth … Primerica we do a lot of training on our own product but what you have stated here is the truth of all the failure. When my husband and I were looking for a house they qualified us for a house that was too high we knew we would be living for the house payment and had to have everything go right to have the payment made on a monthly basis … that was done by an “expert” and our agent was trying to talk us into homes in the qualified amount … yet we didn’t do it because we didn’t want to live that way … what about the people that don’t understand any of that because they are in the moment of buying the most fantastic home … wow you are so awesome with the information you are providing.
I built my entire book of business on referrals made by what I hope was good service and follow-up. I looked at every client as the lead to my next client. Leading someone astray never entered my mind. I did very little business with demanding real estate agents. Yet I can see the pressure which could be applied in keeping your referral base and allowing the O ring to be left unchecked. This is the toughest article yet to comment on. Keeping check and balances in place are difficult. I think because of the new swing which has suddenly awakened everyone to change. The impression left will not recede easily. Many are very careful to make sure they operate ethically and understand that self-preservation will be kept by upholding these industry standards.
Yes they will stay silent unless mecanisims are in place to do otherwise. In medicine doctors give us pills to take away the symtoms, mask the real problem. Until we stop masking the real problems nothing changes. In selling to wall street or using securitization for our loans we fit all these loans into a box. If they firt in the box it goes. Change the box. change the parameters to measure more or different things that will show the exposure level of risk. MAnadatory licensing with oversight on loss ratios and quality control will help. Put an emphasis on putting the clients interests firt, and build infrastructure and policy that supports that structure.
In the securities industry, they have a rule called “Know Your Customer.” That is, you cannot sell a widow on a fixed income a speculative stock more suitable to a person in his/her 20’s with income growth potential. The same checks and balances could be legislated into the mortgage industry overnight. Further, certain types of risk factors should not be blended in one loan product. For example, a stated income loan should not be married to an ARM; only a FRM. Other combinations of risk factors are (or were) equally nonsensical.
Caitlyn, let’s be more specific. The securities industry is best viewed as two very different industries. (1) In the securities SALES industry (that’s the world of the Securities Broker-Dealer and its Registered Representatives) they have a “know your customer” rule which establishes a suitability standard on product sales. The securities SALES industry is not held to a fiduciary standard of care. The “know your customer” rule is a minimal standard of care for sales people intended to protect clients from those who might otherwise sell their clients anything that they could. (2) In contrast the securities ADVISORY industry is held to a fiduciary standard. This provides the consumer a much higher standard of care than is provided by the “know your customer” rule applicable to securities sales people. Fiduciaries are required to act only in the best interests of their clients.
There are interesting and significant parallels in the mortgage industry. In the mortgage industry is also best viewed as two very different industries. We have the product SALES channel – that is the banker/lender. And we have the ADVISORY channel – the mortgage broker. I absolutely agree that something like the “know your customer” rule ought to be in place in the product sales channel. But that is an inappropriately low standard of care for the advisory channel. Now, in the state of Washington, the advisory channel – the mortgage broker – is held to a fiduciary standard just as the advisory channel in the securities industry is held to a fiduciary standard. Any call for a “know your customer” type of rule for mortgage brokers fails to recognize that a much higher standard of care is already in place. Though the mortgage broker community has yet to fully recognize and embrace the impact of the law changes enacted this past year, it is nonetheless a matter of the law that mortgage brokers (and their LO’s) now owe a fiduciary standard of care to borrowers. Mortgage brokers and their LO’s cannot simply avoid recommending a bad loan to their customers – they must recommend loans and loan parameters that serve their client’s best interests. And they must price their services and disclose that price in a manner that serves their client’s best interests.
I like this description of the mortgage industry causes and effects except for a one very disturbing point. Jillayne reports the mortgage industry party line when she says that the “wholesale lender [pays] higher and higher incentives to mortgage brokers to sell higher and higher yield [loans]”. It is a misconception that has been perpetrated and perpetuated by many parts of the industry that wholesale lenders pay brokers. Lenders do not pay brokers. I have yet to read a lender-broker agreement where the lender indicates that it will pay brokers for anything. And here is why. If such an agreement existed, then it would reasonably have to spell out what services the broker is providing for which the lender will pay. And such an agreement would have to spell out how much the lender would pay for those services. This is basic contract structure. Most in the broker industry will tell you that YSP is a fee paid by the lender to the broker. If this is true, then there must be a contractual arrangement whereby the broker provides certain specified services to the lender in expectation of compensation. And the compensation agreement in this contract would say that the lender will pay the broker NOTHING if the interest rate on the borrower’s note is less than the par rate in effect but will pay an increasing amount to the broker for those same services to the extent that the interest rate on the note exceeds the par rate in effect. Two problems arise: (1) why would the lender not pay for the broker’s services just because the interest rate on the note was below some arbitrary interest rate? How would that make any sense? (2) Any agreement for compensation that varies on the basis of interest rate would be a clear violation of RESPA.
The usual answer to these questions is that the lender pays more for higher interest rate loans because these loans are more profitable to the lender. This is an unsatisfactory answer for two reasons. First, it does not explain why the lender will pay the broker nothing for services rendered just because the interest rate on the note is less than par. If such a loan is unprofitable to the lender, then the lender would not make it. Lenders do make loans at rates less than par so they must be profitable. So why would the lender not pay the broker for the services rendered in originating such a loan? Second, the suggestion that lender profitability is improved as the interest rate on the note is increased beyond the par rate is simply not true. While common sense seems to support the notion that the lender makes more money if the note interest rate is higher, the reality of bond price structure defies such “common sense”. The lender makes essentially the same profit for a given type of loan at all interest rates. It does so by defining the price for all interest rates on the basis of essentially a common expected yield. By paying a lower price (discounted price) for below par rate loans the lender derives the same yield as it does by paying a higher price (premium price) for above par rate loans. There simply is no truth to the claim that lenders pay more for above par rate loans because they are more profitable. The argument that lenders pay brokers an incentive for more profitable higher interest rate loans is a false argument.
The reality is that lenders do not pay brokers for services rendered because brokers are not providing compensable services to the lender. In reality, lenders buy notes from borrowers. If the note rate is less than the par rate, the lender pays a price that is lower than the note face amount (loan amount) and the borrower must make up the difference (in our vernacular, we say the borrower pays discount points, but the significance of this payment has become distorted over time). If the note rate is higher than the par rate, the lender pays an amount that is higher than the note face amount (in the bond world such a price is said to be a premium). To whom is the lender paying this premium? The truth is that whatever price the lender pays, it pays this to the seller of the note – the borrower. In practice, the lender sends its purchase payment to escrow. And escrow disburses all moneys in accordance with instructions from the broker. Where the price is a premium, brokers have historically simply directed escrow to pay any such premium, after disbursing the “loan amount”, to the broker, and escrow complies. But whose money is this premium? It is, in fact, borrower’s money – it is the price the lender has paid the borrower for his note. As fiduciaries, bound now by law to serve the borrower’s best interests, what must we do with these premium dollars?
Jillayne’s argument is that lenders paid incentives to brokers to sell higher risk loans to borrowers. The reality is that, because of the longstanding practice of brokers to claim borrower’s YSP as part of the broker’s compensation, there exists a business model whereby the broker can make more money selling products with terms that result in higher YSP. The problem was not incentives paid by lenders; the problem was and is the unfettered access that brokers have to YSP – money that rightfully belongs to the borrower. Regulation to better disclose YSP does little to help. The answer is for brokers to fulfill their legal obligation to act as fiduciaries and give borrowers the YSP since it is the borrower’s money in the first place. Had we required brokers to credit all YSP to borrower’s there never would have been the “incentive” for brokers to push higher risk loans. Had we imposed fiduciary responsibility on brokers, rather than push high risk loans, most brokers would have had to dissuade borrowers from these ill advised loan programs.
Hi Brad,
Thanks for your well-researched and well thought out comments. I always enjoy reading your perspective.
Question: What do you think about the new Good Faith Estimate? It appears that all of the left over YSP, after the homeowner uses it to pay for his/her closing costs, will NOT be going to the broker.
In the predatory lending days, brokers took the remaining YSP as income.
This is a very complex issue because there are so many entities involved. I have a question. If a Realtor is allowed to charge 3% on each side of the purchase price and the client can not make an offer on a property through a different Realtor once it was showed by another Realtor they previously were working with. Why not implement the same law for us. Many times I had clients who were working with multiple lenders or LOs without anyone’s knowlege until the last week of closing. In this case if the loan of closed in the same loan program that was previously discussed with the other LO the client should hold account for their actions. So far, there isn’t a law to protect the LOs and more importley, we have been working for free more offen than not if you are Ethical like myself.
Like the Challenger, in the mortgage industry, we thus have multiple people involve to complete the loan. However, up to to now, with minimal regulations, every player including the LOs were getting away with unrealistic loan programs for their clients. But now I believe we have taken the first step to change this mortgage crisis. Each player learn to listen and try to comprehend each others job and respect each other. Though we have multiple people involved in each loan transaction, I believe it will take longer for this industry to come to order.
Everybody should be held accountable and concerned with the mortgage process. If everyone would do their job in a professional manner, loans would developed, processed, underwritten, funded and sold as intended years ago. This should include realtors, appraisers, closing and title companies as well as bankers and loan officers.
510-LO-44600
I think deep down inside we all knew that the “O ring: would fail and the indstry would go bust. Every thing was out of constrol. Greed and egos were the driving force behind this disaster.
It is true that our industry needs on overhaul but we do not need to create a new system. Career and professional people continue to look for new ways to improve their business, service, value. The licensing and education requirement are not a burden to those of us who take our fiduciary responsiblity serious. It only helps to eliminate those people who do not understand the industry or care about the public at large. I believe this to be true in all aspects of our industry whether it be apprasiers, title officiers, LPO’s; there is intergrity in all arena’s, if you look for it. No one wants to be known as a whisle blower but on there other hand, integrity that can not be compromised is always admired and sought after. The choice is really yours. I hope Roger Boisjoly did everything in his power to communicate something as simply as an O-ring. If he did not, I would not want to live in his dreams. I did enjoy reading Brad’s comments about YSP. I am not sure I agree with him but do appreicate the other side of the coin.
As I stated in an earlier blog, it comes down to one person in charge of the whole process. As originators we have to see the road ahead in a very clear manner. At the end of the day it is not what went wrong but who was guiding the ship.
Recent improvements in licensing and in the education format are clearly steps in the right direction.
As far as the YSP thing goes, I’m all for it if everyone has to disclose.
This article kind of reiterates what I had mentioned about mortgage fraud. You have a duty to say something when you see something wrong going on. If you don’t, you aren’t at fault, but you are doing yourself and your industry an injustice. If you say something and you are stifled, at least you can sleep at night!
I believe Underwriting guidelines are the gatekeepers of our industry, like the Bill of Rights is to the Constitution. Guidelines hold us accountable to originate sound loans. Guidelines are the “O” ring. I remember when it was a joke for account reps to come in and a loan officer would ask if they had any stated, non-owner products…the joke became a realty.
FHA has the four C’s of loan approval: Character (Credit), Collateral(Appraisal), Capital(Reserves) and Capability (Income); Consider that the lion share of loan defaults come from the Subprime sector where a loan could close even if it only had one of the four C’s, Credit. That’s craziness!
I like Denise S. comment regarding UW: “If it is a guideline it needs to be tempered with documenation, and critical analysis and objectivity.”
I also appreciate Susan L. comments about proper incentives and more emphasis on salary based originators with bonus potential for service and perhaps loans that have no late mortgage payments in a 3-5 year period…a delayed bonus structure.
I’m not sure whistle blowing should be what saves our industry? I would defer to Jillayns earlier comment about Kant regarding the univeral imperative, “is it good for all involved”? Sound underwriting guidelines with an emphasis on character is sustainable.
Great analogy.I have often thought of each of these pressures that every one in the mortgage process experiences at one time or another.It gets back to the final question in the article “Will those in the trenches please speak up?” We had it can we get it back?
It’s my opinion that the majority will stay silent again. It’s human nature to look out for number one, themselves. If they can find an easy way to line their pockets they will. This is unfortunate but true.
What an interesting analogy, but right to the point.
I don’t believe paying originators like a processor will solve anything. The reason Brokers/Mortgage Banks are different from the brick and mortar banks is that we have the ability to hire the most efficient person for the job. Along with the best vendor’s to ensure the clients file is closed in a timely manner. Most of us are not paid unless the transaction closes, so why not surround your self with the best and give the best service possible?
Again it all comes down to personal ethics – do right by your customers and they will return to you and their referrals will come also.
I enjoyed the analogy and I can see the comparison to what happened in the mortgage industry. I am ready to move forward with solutions and stop revisiting over and over who caused the fall. Let’s focus on the future and be responsible professionals who will always act in the best interest of our clients.
I defenetly see the analogy, but I think the whole system needs to be re-invented. The LO needs to be proffesional, and always act in the best intrest of the client. But there is a also a good point that a client needs to be resposible for their own actions also. I think there should right balance between LO being responsible, informative, and acting in the best intrest of a client, and consumer doing their own due deligence. For us to come out strong from this, we all need to be resposible, LO’s, Banks, the consumers.
Great comparison. I got into this industry right in the middle of the boom. At that time, I asked many times how in the world could we lend so much to people that had so little. I was told to not worry about it, just get the deal done.There were quotas to meet. I am thankful for the changes coming and hopeful for a profession that will truly benefit all of us. As an industry we have had to fall and learn some tough lessons but hopefully we will get up and become stronger because of it.
Great analogy! Thank god we only ruin lives in our industry and don’t kill them. Washington Mutual while originating my last homeloan presured me to not only go with one of their flim-flam loan products but also harrassed me about buying less home than I qualified for. I had to raise my voice and be abrasive to get the point across that I would only originate a 30yr fixed rate mortgage. I also told them what fees I would and wouldn’t pay or I would go elsewhere. I wasn’t a LO at the time five years ago but was very knowledgeable about anything to do with money. Had I not been as knowledgeable as I was they would have totally screwed me up one side and down the other. Pathetic!!!!
So, even your local WAMU was stepping way out of bounds during this interesting time, and look where it landed them. Largest savings and loan in America gone!!!!!
Could we end up gone???? If our O-ring corrodes any further the answer I believe is yes. Not in a literal sense but rather in the sense of losing the ability to make a better than average income by working hard and being honest. I do not believe salaries are the answer, America’s strength was originally based in free enterprise. Its our ethics that are in question. As I said in my last response the answer is ethics with a bite. You work ethically and you don’t get bit by our SELF-governing body. So I believe this self-governing body with a bite is a must before we can stabilize and professionalize our work place.
Working on a commission doesn’t mean you are easily corrupted. A salary would kill this business for me. It sounds to me that the LOs were simply the “first mile” in a process that was almost like a “Ponzi” scheme that was doomed to fail when real estate prices went south. This business is too vunerable to a downturn in the market. This is the issue that must be addressed. I know my home has dropped in value $200,000-300,000 in the past year or so. I also know that building a new home hasn’t changed very much. Homes will start appreciating in the next growth cycle but that won’t help in the short term. I think LOs do beat themselves up a lot for this mess.
I feel that everyone from the beginning of the deal to the end should let the people know what they are getting into, explain what is in the paperwork and dont try to do what is wrong just to get ahead. Just do the right thing.
Just because i feel that in the past to many people were doing the wrong thing to people and thats what has made alot of the problems we are having today.
Everthing needs to be explained as they are going along so the consumer can understand instead of just telling them to read everything and not help them to understand.
In the case of the space shuttle in comparrison to the mortgage industry. The space shuttle should have never been launched due to something just not looking right. Same with qualifying for a loan. It starts with the loan originator…if something doesn’t seem right on a loan application, than it should be looked into to ensure a loan is properly qualified. If the bank or loan officer decides to go along with the red flags and proceed to lend the money, the consumer could be in real danger down the road and cause them financial devastaion.
Will those in the trenches stay silent again?
I think that it is impossible at this point. With each and every funding being tracked all the way back the originator and the processor – those days should be gone forever.
Underwriting of loans today take on a completely different process.
All loans require and executed 4506-T. Even after it is processed and the underwriters still want the tax returns.
More Fraud reports are being done at the point of sale.
No more 100% Financing – Borrower need more skin in the game.
Even low down payment loans require upfront mortgage counseling.
Today there are more checks and balances than ever before so this should be a thing of the past.
It is our job as mortgage professionals to know and to know how to explain the products available and best suited for our borrowers situation.
As the loan starts here and begins its journey with each step having an additional layer of risk added to it that continues to grow well through closing.
There are too many layers of risk and opportunities for fraud through out the process. Too many incomes relaying upon future services and fees of each transaction.
The HVCC has taken a lot of pressure from the appraisers, although this was a frustrating thing to deal with as a mortgage company, it has proven to be working. Real Estate agents are always going to try to be in the mortgage side of the transaction because they want the deal to close as bad as everyone involved. Since a year ago when this was written, I believe the industry as a whole has come a long way. The more irritating regulations the Feds come up with, the more people fall out of the business who cannot keep up. The companies who can keep up with the changes and follow the rules will be the ones who come up on top. As long as we stay educated, while keeping the cosumers educated, this will all turn around.
I agree with Sam that there must have a change or some sort of regulation to the whole system; it seems for from Bank all the way to the LO, there are too many “opportunities” to damage consumers and satisfy all those greedy’s pockets; their goal is to get the more money out of consumers legally and do not care the consequeny and at the end, lead their own loss, look WAMU is the perfect example.