Syndicated Columnist Kenneth Harney will report in his column tomorrow morning that the new chairman of the House Financial Services Committee, U.S. Representative Barney Frank, a Democrat from Massachusetts, has made it clear that his top priority will be enacting nationwide mortgage lending standards to protect consumers from predatory lending.
I was recently asked by a national housing coalition to sign an endorsement letter for the purpose of showing Congress that there is broad support for federal anti-predatory lending standards which do not preempt state laws. These ideas will be included and give to Rep. Barney Frank:
As Congress begins a new session, we respectfully ask that any new anti-predatory lending legislation be based on the following principles:
- Considering a borrower’s ability to repay in lending
- Eliminating the incentives for steering borrowers into predatory loans
- Ensuring that loans are serviced fairly
- Protecting the right to go after predatory lenders
- Preserving states’ rights to protect against predatory lending
- Preventing foreclosures
[photopress:bankersbrokers_1.jpg,thumb,alignleft]Let the wild debate between banks/mortgage brokers and consumer advocate groups begin! This is one area where the banks and brokers will more than likely combine their lobbying dollars together.
The biggest concern I have for any new federal law is: How are we going to regulate this? Is the money going to come out of my tax dollars? I don’t think so. IMHO the money can come from the profits of bank, credit unions, lenders, and brokers. If you don’t want to self-regulate your own industry, then please don’t make the rest of us pay for it.
[photopress:predator_1_2.jpg,thumb,alignright]We can always ask Chris Hansen from Dateline NBC for help. “You’re naked, holding a container of cool whip and you’re trying to sell an adjustable rate, interest only, pay option ARM to the cute 18 year old mortgage lending prospect in the next room. Is that accurate?
Jillayne,
Okay, I’m disgusted. Comparing unsavory loan originators to sex offenders? How about the teachers who have taken prey upon students…such as our own local Mary Kay?
Can we agree we have unsavory individuals in every walks of life?
Yes we can agree on that. 🙂 There are also incredible people in all walks of life, and there is everyone else in the middle. Then there are the folks who show us a surface level of virtue, but their actions show something else.
I am offering a humorous idea of how our federal government might plan to regulate any new federal predatory lending law.
I guess I am immune to the disgust and now just try to laugh because it’s so sad. Open up your spam bin and see, right next to the viagra and porn spam, your daily dose of refi spam.
Rhonda, how do you think any new law that might pass could be regulated? I think it would be very difficult without a LOT of money set aside.
Maybe we should go straight to firing squad 🙂
Firing Squad? No way!
Maybe it’s because I love learning and spend a great deal of time helping people grow, but I have a foundational belief that most all people want to develop themselves and grow in this area.
Almost all loan originators and loan officers I meet tell me that they want to do the right thing by their client but sometimes they just don’t know what the “right thing” is. If a loan originator finds himself or herself in an environment where what’s rewarded is making as much money as you can off the consumer, then this is what the loan originator learns.
Much of what we may see in any new legislation might come directly from the Ameriquest court settlement in which they promised to stop paying their loan originators this way.
http://www.atg.wa.gov/releases/2006/rel_Ameriquest_012306.html
My view of human nature is that we are all able to learn and grow…as long as a person’s environmental conditions support this.
I’m for the firing squad. But let’s include real estate agents, appraisers, and escrow officers who are predatory or unethical.
Mortgag brokers seem to be the target de jour.
I love mortgage brokers! They keep me busy! They are a constant source of entertainment in my classes and they ask the most interesting questions. I am fascinated by the demise of their reputation with consumers and would love to see the group catapult out of where they are now. It can happen; it is a choice the industry will need to make as a collective group.
The mortgage industry, escrow, appraisals and real estate is a GREAT PLACE to start a career. Glass ceiling? Heck, women (and men) can run their own businesses if they don’t like working for a corporation.
The burden of regulation within all industries that parallel real estate is done by federal and state regulators. With a new federal predatory lending law, which branch of the federal government might be put in charge of regulating this law?
Let’s take a look at RESPA. Signed into law in 1974, when asked how HUD planned on enforcing it, HUD told the industry that they anticipated voluntary compliance and set aside no money to regulate it. Now only recently has HUD stepped up RESPA enforcement.
I think an argument could be made that if HUD just enforced the existing laws now on the books, we might not need any new laws.
So Jillayne, where do Correspondent Lenders fit into this scenario?
Well, where would you place correspondent lenders?
Jillayne, it’s not fair to lump all mortgage brokers with sexual predators. Kind of a cheap…like I was trying to do with Mary K.
Rhonda,
But I’m not doing this.
I posted the reference to Chris Hansen’s TV show as way to show how absurd it would be to try and federally regulate a predatory lending law.
To make the leap that I am calling all mortgage brokers sex predators is not accurate. You’re making too big of a leap. Please slow down and join us in helping RCG readers try to figure out how our government could possibly regulate a new law like this.
Did you read Ken Harney’s article? It would mean massive compliance changes for brokers, bankers and correspondent lenders alike.
Rhonda,
Correspondent lenders are often licensed as mortgage brokers, unless they have received an exemption from state licensing. Since you have just received your new loan originator license, I take it that your employer is both a correspondent and a broker.
To have any teeth, any new national law would also have to include CONSUMER LOAN COMPANIES. At the state level, our company testified that we believe consumer loan companies should not have the ability to call themselves “mortgage companies.” Ameriquest was licensed as a consumer lender.
Jillayne,
When I clicked on the links…that’s what I found…perverts. That’s where I’m coming from tonight. Maybe I didn’t follow your post correctly?
I was actually posting (before I read #10):
My previous post will prove my husband right…never blog and wine in the same night! I wish I would have used Word before posting tonight after seeing my typos…. Anyhow, concerning a correspondent lender, Jillayne…I was asking YOU.… are you answering the question with a question?
The visual I get from this blog is that a Correspondent Lender is the cream in the banker/broker cookie.
I have only worked for one lender so I’m probably not the best person to answer your question of where a correspondent lender fits in this scenario. And where I work, we pass the benefits of being correspondent onto the consumer. I cannot speak for all.
PS: am I a little sensitive? You bet. AR and RCG…recently YSP, SRP and Correspondent? Where’s the Piñata? Jillayane…look at your title of this post? I can’t blame you… I would probably do the same thing and I applaud any efforts to rid ALL unsavory lenders from Washington.
Good Morning Rhonda,
I’m really glad that you had a strong reaction. It is a good sign.
What this tells me is that there are strong feelings not only in you
but in perhaps many, many others in mortgage lending that the
predatory stuff has to stop.
Even someone as honorable as you are with your clients is going to
feel the effects if a new federal law comes to pass. There will be
greater restrictions on what you do every day, the disclosures you
will have to make to your clients, and it will affect profitability
of businesses. The consumer will feel it initially in the form of higher rates and fees because corporations will not just absorb the additional costs, BUT ultimately, the capitalist market will prevail and the companies that can offer the world ethical lending at a fair price will prevail. Indeed there are many companies out there who ALREADY DO what Barney Frank would like to enact as law.
Can mortgage lenders be fair to consumers and still earn a profit?
My answer is YES.
This morning, I realized what a great post this is BECAUSE of the reaction I had. You really got me! I linked this post to the blog interview of you at http://www.mortgageporter.com/reportingfromseattle/2007/01/my_interview_wi.html
Great job, Jillayne!
I agree, this issue has to come to light, and if it takes whip cream to get the mainstream press on board then maybe that is what it will take as sad as that may be. Some of the points that you listed are already being addressed in a proposed bill known as H.R. 1295. The Appraisal Institute and the NAHREP (The National Association of Hispanic Real Estate Professionals) have taken a position on this bill, you may like to check it out because it does make for a good read both the bills and stances.
Even still, while the press really is missing the wave on this one, there have been some press items coming from local reporters in the major metropolitan areas, one report that is interesting was reported on a blog Denver Real Estate News as reported by the Denver Post where the Denver City Council as compiled a task force investigating the amount of foreclosures.
Consumers must be made aware because the only thing that can counter the money of the lending industry in Washington D.C. is votes. But on the up side, at least the milk industry now has in-program advertising.
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Jillayne, will you be watching Chris Hansen on Dateline tonight? I think he read this post! Tonights episode reports on Countrywide’s stated income loans. This will be a 3 part series.
Thanks for the heads up. Sure I’ll watch it!
The episode shown really focused on Countrywide and people who did stated income loans. What I don’t “get” is why anyone would want to make mortgage payments more than their monthly income? They also showed a lady who owned several investment properties, yet now that she’s losing them, she feels like she’s a victimized by CW.
Right. I think that was the same woman who claimed a net loss to the IRS on her daycare business but then stated an income of $15,000 per month to her lender. When asked who is to blame, she said that she wasn’t to blame at all and that it was all the lender’s fault.
What did you think about the interview with the underwriter who, when bringing the problems to the attention of management was told to approve the loans anyways and faced workplace retaliation if she blew the whistle.
Interesting program. It strikes me a little skeptical that these folks were not aware of what they were doing. That one lady had 4 condos? At what point did she not understand—-when she bought #4?
Borrowers sign the final 1003 (loan application stating income and other assets) right in front of me which states their income. Today, because of the blatant fraud, some lenders have borrowers sign income affidavits, IRS Form 4506 allowing the review of tax returns, and some even have them sign their recent 1040’s. At signing they are told explicitly what the terms are (sometimes I call them prior to making an signing appointment to make sure the terms are what they expect so as not not waste escrow’s time or their’s if the loan docs are wrong—which they are over half the time for one reason or another).
Borrowers know. They may not know if they obtained the very lowest interest rate and fees or favorable loan program (as we all know, many were shoehorned into programs that were not ideal), but they know if they can afford the payments.
Tim, that was a big beef w/me last night watching the show… the payment. It doesn’t matter if your housing payment is rent or mortgage–you KNOW what you can afford and you KNOW if the payment is more than you’re bringing home.
The potential borrower will see the payment several times on many documents during the transaction; including the loan application and good faith estimate in preliminary stages and then it’s reviewed again at escrow.
Assuming the LO is a bad actor and has committed total fraud on the preliminary documents, the borrower would have a chance to review the actual docs at escrow (unless they’re dealing w/a Lisa Baustica–sp… who had escrow companies involved w/fraud too).
Your “average” consumer is not going to double check math and amoritiztion schedules to make sure things are adding up… but you’d think they would smell somthing stinky somewhere.
Jillayne, the undewriter really bothered me. I don’t understand how she can speak so boldly now and do nothing then.
What did you think about her?
It’s all so foreign to me. Our underwriters would be the first to say “are you nuts, a xyz making $20k a month?”
I watched the show being thankful for all the loans I never did.
Right, Rhonda. That’s why the 4 condo woman’s story doesn’t add up for me. What appears to be logical is that….she DID think she could afford all 4 condo payments, assuming she could put renters in three of them. In addition, I believe that there are MANY more borrowers like her from the stated income era who told the IRS one thing and who took home substantially way more than that under the table.
Now she plays the “it’s not my fault….I’m not to blame” card.
I would have liked to have seen Chris interview the LO who gave her each mortgage, and each Realtor.
With that woman, it’s like something is not connecting with her train of thought… it’s okay to state income on a loan application high enough to buy what ever she wants and then claim a loss on her taxes to avoid paying Uncle Sam (BTW I wonder if the IRS was watching the show…) and then to cry “boo hoo”.
As a loan originator from that era, I can tell you I had many people just like her who would contact me. I knew that if I didn’t do the loan, someone else would and you know what they could have it! I always had an issue with lying about income on a loan application–I just couldn’t understand how this was acceptable. With that said, consumers could opt for “no income” on an application with a slightly higher rate if they had better credit. When it made sense, if that’s what the consumer was after, I would suggest that product… at least they weren’t lying and then it was up to the underwriter to determine whether or not it was an acceptable loan. I probably did a small handful of NIV loans. Even if you were going full doc, Fannie or Freddie may have provided an “automated response” stating only a VOE was necessary…maybe a paytub and maybe an appraisal.
By that underwriter not speaking up during those times, she enabled the process to continue…and she’s just one of many.
I’m probably a bit niave about this because in my 9 years of mortgage origination, I’ve only worked for one company–and so “correspondent lending” is all I know and we probably lean towards the conservative side.
I would have loved to seen Chris Hansen contact Account Executives from the various banks who “pushed” the “toxic” loan programs to mortgage brokers and correspondent lenders.
Rhonda, I heard a while back that Michael Moore was going to do a documentary film on our industry. Maybe you can get in touch with him and give him some of your excellent ideas.
http://www.michaelmoore.com/
Look to the left, under “Mike’s Letter.”
Rhonda,
Your comment is cracking me up.
I had an agent approach me once with this question: “Can you tell me what my buyer can afford, because I don’t want to help him get in over his head”. I said what did the lender say? she said, he said he can do it, no problem, but I want to make sure the buyer isn’t getting in over his head because he is a friend of mine.
I said OK, and took out my mortgage calculator. I said, “What does your friend make?”
Her answer: “Nothing, he has no job.”
I swear we were living in a comedy routine 🙂
LOL! I’ve done loans for people with no jobs. Before the predatory lending/subprime bubble run-up, there was and still is a legitimate way to qualify with no job.
Sometimes people are receiving government assistance for whatever reason. ECOA (Equal Credit Opportunity Act) says a lender cannot discriminate based on income from public assistance…If the homebuyer qualifies to repay the mortgage, we make the loan. I’ve done loans for people from wealthy families who had no job but DID receive a monthly check from the family estate. I’ve done loans for people with just investment income and no job.
BUT I do understand where you’re coming from. There was a time of insanity back during the bubble run up.