If your child will go to jail if you lie, are you loyal to your child or do you tell the truth? If you lived in a country where the penalty for theft was to cut off the child’s hand, would you be loyal to your child, or tell the truth? Each is equally right, but in that instance many would pick loyalty over truth.

When sitting in front of someone who really, really wants to buy this house, choosing between disappointing the person in front of them or telling a lie to a big corporate giant, often lands squarely in helping the person in front of them succeed in their goal of buying the home.

Self interest aside, many will help the borrower lie in order to achieve the borrower’s objective.

For example, an appraiser who is finding herself threatened with black-listing from lenders due to unfavourable estimates may decide that it just doesn’t pay to be conservative. If the choice is leave the business altogether or give estimates using the most optomistic assumptions (which isn’t necessarily “lying”) then many people will choose to give in and compromise their integrity.

The same thing applies to all these investment bankers who are now viewed with such disdain for allowing their firms to rack up such massive losses. At the height of the credit bubble these investment bankers had a stark choice of either playing along with the insane game of securities alchemy (pawning off risky debt as “safe” securities to investors) or leave the banking business. Any investment banking executive would have been fired if they let some other bank get the rich fees from securitizing debt. If investors are stupid enough to want to buy toxic credit instruments, why let someone else make all the money in creating them? I am sure the board of directors at Citigroup or Merrill Lynch would have replaced their CEOs years ago if their counterparts were reaping big profits, and growing market share, while they stayed in the conservative doldrums.

In short, it is far better to follow the crowd and make a big mistake along with everyone else rather than pursue a path of your own convictions. If you fail along with everyone else, then you can always claim that “how could I have known? everyone made this mistake”. The ultimate sin is to let your peers outstrip you in performance. So long as you are doing as well (or bad) as everyone else, you will keep your job. But, if your conservative financial instincts lead you to underperform your industry peers, you will be out of a job very quickly.

When your choice is to be ethical and lose your job, or bend your ethics and stay employed then no amount of “education” is going to matter.

For real estate agents there’s a particular need for education because not all of the rules are things that are what I would call even semi-obvious. For example, rules against undisclosed variable rate listings, rules requiring new offers to be presented on pending properties, rules regulating gifts at open houses, etc.

But what you’re describing is largely human nature. I’d add a fourth group however. Those who make decisions without regard to the rules. It’s not so much that they want to break the rule, as that they’re looking for the best result, and ethics or rules never get considered. If someone points out the issue, they’ll then consider it and probably react properly. But their thought process just isn’t complete without third party intervention.

I teach the “Ethics in Lending” class to mortgage brokers and LOs.

On a very simplistic level, folks in lending can be classified (ethically) into three catagories.

1) People who will always find a way to break all the rules and laws out of maximizing self interest (this is the segment that government is designed to regulate.)

2) People who are ethically gifted and who always know how to come to an ethically reflective decision, 100% of the time.

I believe the majority of people in lending do NOT fall into the above two catagories. Instead, the majority of folks are in the third catagory:

3) People who want to do the right thing (ethically) but they just don’t know what the right thing is, short of their own subjective opinion.

There are a wide range of ethically justifiable ways of acting to any ethical dilemma.

One of the reasons why we are currently facing a national mortgage lending crisis is because the loan originators (no matter where they work) have no ethical guidance for their industry.

The folks in the industry who have the hardest time understanding this are the people in catagory number two.

We all have to help each other. This means giving up some of our own time (self interest) so that the entire group can grow.

People can’t grow ethically in a vacuum, reflecting by themselves. They need to talk to other people about their ethical dilemmas.

The other ongoing problem is the corporate environment which feeds on profit maximization at the corporate and the individual level, which, on the surface, appears to be in conflict with the needs of the consumer.

Fortunately she laughed.

It shouldn’t be but the fact that one might think it is an oxymoron should be a huge red flag to any ethical people working in the industry.

When I worked for a direct lender, we were not allowed to have any contact whatsoever with the appraisers, and ran it thru a large servicer much like the WAMU situation. I assumed it was a way for the bank to manage risk, and lower costs.

Since we had no contact, LO’s could not pressure appraisers. It’s possible the parent company did, but I have no real reason to believe they did (unlike numerous reported cases like Ameriquest, etc.).

On the wholesale side, while I have been able to select from a group of approved appraisers, I have been allowed to discuss appraisals with them. I have been repeatedly told that it is illegal to coerce any appraiser to inflate value, so I never have.

I select the appraisers that I work with based on the quality of work, the service, and the price. Seems to have worked out well so far, as I have had very few appraisal reviews from the lender. Since I respect their work (based on the above criteria), it would seem out of place to coerce them to inflate value.

I have heard anecdotally that there are appraisers that will do more to push value than others, but my sense is that they risk being put on a “non-approved” list by the lenders, which would impact their future ability to earn business.

Finally, ALL lenders have sent out notices regarding changes in guidelines (primarily LTV limits) in areas they define as “soft” or declining values.

Yesterday when I was doing a training class on how to value the property we viewed at Broker’s Opens, someone suggested that a BPO would have come up with a different result. My response was that a BPO cost is $50 to $100. That method is not why we make the big bucks.

Knowing that a special assessment is coming down the pike, raising the monthly HOA dues from $200 to $530 for 15 years, will have a significant impact on the value of those particular condos for years to come.

Valuing property is very micro.

I’m not exactly sure what you mean by that, but back in the days when I practices bankruptcy law if a client came in with a refinance appraisal that was a year old, I’d assume that such a value was inflated, and I never got bit in the butt making that assumption (no matter how strong the market was). I quit practicing about 3-4 years ago, and I did that most the 20 years I practiced, so it’s not a new phenomenon.