Will Real Estate Agents Embrace a Loan Originator with Fiduciary Duties?

I’m beginning to wonder. I’ve always put the clients best interest first…it’s just something I naturally have to do in order to bevalentinescandy able to sleep at night. There has been a time or two when a real estate agent has told me that my job is solely to provide mortgages and not worry if the mortgage made sense or if someone is capable of making the payment in my opinion. This is one reason why I’m glad that I (and others designated as mortgage brokers) will have official fiduciary duties to their clients. Here’s a scenario for you to chew on that has me wondering if Real Estate Agents will be as accepting of this new responsibility…

Susie and Sammy want to buy a home. They know their credit is lousy and Susie actually giggles about it. However, their friends were able to buy homes over the last few years and so they should be able to as well. Susie and Sammy were referred to me from an agent I’ve worked with for many years. And if it weren’t for bad credit, they’d have none at all. Susie has no credit scores and more collections than you can shake a stick at. Sammy is a fluke of the credit scoring system and has managed a mid-score of 621 although the last time he used credit was three years ago…no one will issue him any new credit due to his proven track record of not paying for any account he opens. Sammy, if the scoring system were perfect and 100% accurate, would be credit scoreless as well. To top it off, they have no savings and would like a zero down loan.

As a “Mortgage Professional”, I review this information with them and I let Sammy & Susie know that they do not currently qualify for a mortgage (because they don’t). If they want to work on their credit and develop a plan, such as practicing making a mortgage payment by paying the difference between the mortgage and their rent into a savings account, perhaps we can develop a long term strategy. In no way is this couple ready for a mortgage. I’m not sure that I could (or would) have provided them a subprime mortgage had they met with me this time last year. As someone who is looking out for their clients best interest, I believe I did the right thing. In fact, even with “subprime” clients of yesteryear, I would let them know of their options: you currently qualify for a subprime mortgage with a rate of X; or you can wait a few months and work on your [what ever is causing you to be subprime] situation and then qualify for a better rate with FHA/VA or conventional. Why encourage people buy “right now” if their finances are a wreck? The choice on what borrowers do with their finances is really their own. Really, it’s not for me as a Loan Originator to determine whether or not they are worthy: we have underwriting and guideline criteria for that. With Sammy and Susie, they really have no options but to work on re-establishing credit and change their spending habits…and they seemed eager to do so. I set them up with a company to help them work on repairing their credit (because it was beyond what I could do) and they were happy (they never followed through with the credit repair).

A few weeks later, I get a voice mail from the agent. He’s upset and wants me to know that Susie and Sammy have found another lender who has referred them to another agent and they’re buying a home. I’ve been checking the county records and Susie and Sammy’s real names are not showing up–I’ll really be surprised if they qualified for anything except the hardest money loan available with a double digit interest rate or seller financing. Regardless, the agent is obviously not very happy with me since I did not “approve” them for a loan and someone else says they did (at who knows what terms). My subprime shoe-horn is gone and I would not have used it here anyhow…this couple is not ready for a mortgage.

Fiduciary duties for Washington State loan originators who don’t work for a bank-mortgage company will be here this summer (effective June 12, 2008). Are you ready? How will you feel if a loan originator with fiduciary duties believes that a home buyer should take six months to a year to improve their credit and have at least 3-6 months of reserves? When this legislation first came out and Jillayne wrote about it. I thought it was an advantage for brokers. Yes, once again it’s more legislation on brokers (excluding mortgage bankers) for the sins of ALL loan originators regardless of institution. Wouldn’t everyone want to work with a loan originator who has a legal responsibility to look out for their best interest (mortgage broker) verses one who has no legal responsibility (mortgage bank)? Perhaps some agents would rather their clients not work with someone who has fiduciary responsibilities. Consumers…you may want to ask your loan originator whether or not they owe you any fiduciary duties.

88 thoughts on “Will Real Estate Agents Embrace a Loan Originator with Fiduciary Duties?

  1. I don’t see a problem with it. I’d rather lose a client, than have a client end up in foreclosure two years down the road because they got a bad loan. And waiting for a credit score to improve is SOP.

  2. I think agents should be elevated to Fidcuiary Duties in WA and until that happens it doesn’t make sense for lenders to be elevated and not agents. I know some say there is “not much” difference between statutory and fiduciary, but I think there is.

    That said, it depends on what the issues are with the credit score and not just the score. I abhor the scoring system and always have. If the true fundamentals are off, that’s one thing. But some random scoring system is like putting a number on people’s forehead and judging them accordingly. I don’t know how that system ever took hold in this Country.

    It’s absurd to say someone with one credit card at max should be looked on as lesser than someone with 8 credit cards each at 30% of max.

    When everyone looks back at what happened in this Country over the last 10 years or so, I hope credit scoring gets whacked.

  3. Agents are fiduciaries.

    “Fiduciary” is just a short cut solution that the legislature uses try to do something, without actually thinking it out and saying what they mean. It’s sort of like criticizing something as being “politically correct.” It’s s shortcut that means you haven’t thought about it enough to say what you really mean.

  4. Yeah, OK.
    I’m touring Real Estate blogs right now. I’ve been referred a couple of very bad short sales, one from an agent, we closed it, and one from an attorney. The one from the attorney is the worst case of fraud I have ever seen. The other was also a case of fraud and misrepresentation by a builder.
    You can’t go to court. There’s no money for these people to get justice in court. I talked with my Real Estate attorney, the litigator, not the escrow guy. We agree there’s a lawsuit with a fat judgement in both cases, but that’s a risk for everybody.
    OK you’re a fiduciary. I need a loan because I can buy this place today and sell it for a profit. I can buy it for sixty six cents on the dollar. I can rent it out for more than the mortgage. I can have up to nine unrelated people live in the house with me and collect rent. I have a hundred gold bars in the truck of my car and have pictures to prove it (only for effect, just kidding, please leave my trunk alone).
    You’re my fiduciary, you’re supposed to work in my best interest, you have to make me a loan, What do you do?

  5. Kary,

    Russ Cofano has made it clear, and he apparently was part of the change, that WA agents have statutory duties and not fidiciary duties. If you find something in WA agency law that contradicts that, please post it here. Thanks.

    Fiduciary a short cut? You lost me there. Seems like the longest road to me, not a short cut.

  6. I noticed that INGDirect.com has a mortage area now. We have used them for our CD’s, savings account and most recently checking account and have always been very happy with them. When we have called, which we have rarely had the need to do since everything we need is on their website, we have always been greeted by a very friendly and helpful person who solved whatever our problem was without having to transfer us or “ask a manager”.

    My question is in regards to the loans they are offering. I am a mortage virgin and am not really sure how that whole process works but it seems like a good deal.

    At first I saw the 5/1 and 7/1 and was affraid. Everything I have heard recently is that these ARM loans are bad bad bad. After reading your post thought I looked into exactly what the terms are.

    Right now the terms on the 5/1 are 4.534% APR and a total of 5.25% (after compounding of the interest and costs I am assuming).

    There are 0 points to pay at closing and they claim these fees:

    Administration Fee $0
    Application Fee $0
    Funding Fee $0
    Processing Fee $0
    Tax Service $0
    Underwriting Fee $0

    After the 5 years they follow the LIBOR rate and add on a margin (the example they give is 1.5% but I am guessing this changes based on your credit score).

    The max cap for a per year increase is 2% with a total max cap of 6% from the starting loan over the life of the loan.

    Does this seem like a good deal with what others are seeing in ARM 5/1 and 7/1 mortages?

  7. We discussed the fiduciary thing somewhere else, but as I recall there are cases that say agents are fiduciaries. It’s a result of common law (case law) not statutory law. Believe me, you’re much better off acting as if you’re a fiduciary because if a dispute arises with a client the court is likely to judge you as being one.

    As to the short cut, what I’m saying is if the legislature wants certain groups to have certain duties to other groups, they should specifically say what those duties are. Not just make them a fiduciary and leave the duties up to the courts. There’s a piece over in P-I land where the legislature made the buyers of distressed housing the fiduciaries of the sellers in certain situations. Totally crazy (and technically I think it should make such transactions impossible because how can a buyer not act against a buyer’s interest without paying them all the money they have access to???). What the legislature really should do is specify what the buyers can and can’t do.

  8. BTW, one other concern I have about this is that it will lessen the duties of true fiduciaries over time (e.g. trustees). For example, the court decides that a mortgage broker as a fiduciary doesn’t have to do X, and then in a later case based on that case decides that a trustee doesn’t have to do X.

  9. Most agents and loan originators don’t understand the difference between agent and fiduciary responsibilities; nor do their clients. When it takes a whopping 60 hours and an easy test to get a real estate license, I don’t think we want to go down the road of elevating people that don’t understand fiduciary responsibilites to be responsible for them.

    Buyers need to be responsible for their own finances. Assigning that responsibility to lenders or agents is misplacing the responsibility.

    Lenders need to evaluate whether they want to make a loan to a given buyer for a certain price, because the lender is ultimately responsible for the lender’s financial position. Should it be a fiduciary responsibility to the Buyer? Absolutely not. If Buyers can’t figure out how much they can budget for payments, they have no business buying a home.

    The responsibility of an agent is to work with Buyers and help them execute on their intentions. It is not the Agent’s responsibility or training to create a budget for the Buyer, and tell them what they can and cannot afford. That said, I do believe that good agents (the type we want as agents) will do all they can to help their Buyers understand all of the costs involved in owning a home. But to make an agent responsible in some way for ensuring Buyers don’t over-extend themselves is clearly a misplaced responsibility.

    The problem we have now stems from lenders making loans they shouldn’t have, and because Buyers taking these loans didn’t take responsiblity for understanding their own finances. These are the two parties in a transaction that have visibility and need to know about the financial health of the buyer. The agent is definitely not party to any detailed financial information – there is no need and no value added by doing that.

    The current problem goes away all by itself when lenders make smart, profitable loans, and Buyers do their own Budgeting 101. We really don’t need legislation to shift blame around.

    There are plenty of cases where loan originators misrepresented the Buyer’s financial health to the lender, and others where the Buyer misrepresented their financial health also. There are already laws that govern this type of problem – perhaps we should add more teeth to them and enforce them more. I wonder how many Buyers that misrepresented their financial situation have actually been prosecuted? How many loan originators that were manipulating loan applications have been terminated and prosecuted?

    The system isn’t poorly designed. If we allow dishonest people to conduct dishonest business within an otherwise sound system, we all pay for it. Zero-tolerance of dishonesty is the ultimate solution.

  10. Jason, you’re a bit off topic… we don’t have a “is this a good deal” mortgage message board at RCG. I can write a post on ARMs later if you’re interested or you can send me an email.

    I don’t want this post to veer away from the original context of this post.

  11. Greg, I think the point you may be missing is this (I believe) doesn’t apply to lender employees directly, only independent mortgage brokers (Rhonda can correct me if I’m wrong).

    Thus the borrowers go to the broker to find them a good loan–they don’t pick the lender.

    So here would be an example. Last year I was in a US Bank and an old man came walking in while I was setting up an account. He asked them for a reverse mortgage, and since they didn’t do reverse mortgages they tried to sell him on a HELOC, saying it would do the same thing. While what they were trying to do to the guy (I don’t think he was buying it) was despicable, I don’t think it would violate this new act. They were acting as lender/borrower. But if he’d gone to a mortgage broker and that mortgage broker didn’t have any lenders that did reverse mortgages, doing the same thing would probably violate this act. (Again, Rhonda can correct me if I’m wrong).

  12. Kary, that’s in interesting example. You’re correct that this applies to lenders that are classified in Washington State as a mortgage broker. So walking into a bank, that scenario could legally happen.

    In reality, the banker should have informed the old man they do not have reverse mortgages. Reverse mortgages and HELOCs are two completely different animals: one has a payment due and the old man could potentially lose his home if he does not make the HELOC payment; the reverse mortgage–which could come in the form of a HELOC does not have ANY payments due. The old man would receive payments with the reverse mortgage.

    A fault with the law (that I see) is that had the old man visited with a mortgage broker who does not have reverse mortgages available, they can legally offer him a HELOC too.

    “The fiduciary duty in this section does not require a mortgage broker to offer or obtain access to loan products and services other than those that are available to the mortgage broker at the time of the transaction.”

  13. The problem I have with fiduciary responsibility is that loan officers do not have the power to approve or deny loans. I believe that if we are to be true fiduciaries, we should also have the authority to underwrite our own loans and be held accountable for them when they go bad too.

    Many of us do act as fiduciaries for our clients whether we are legally obligated to or not. I think most successful LOs do this on a daily basis. I have absolutely no problem telling borrowers not to buy a home and I could careless what a Realtor thinks about it. I have plenty of business and turning down loans doesn’t make dent in my pocket book. I rather sleep at night.

    One of the issues that arises is can we legally tell someone getting a loan isn’t in their best interest when a lender is willing to make the loan? Does this open us up to discrimination lawsuits? Who are we to say if someone qualifies or not if there is a bank willing to risk their capital? I may have personal opinions about the quality of the borrower, but ultimately I am not the one making the decision, nor is it my money.

    Also, how do we determine what is in the best interest of the borrower. For example, I might recommend that a borrower go with 100% financing to conserve their liquid assets in case of an emergency. Another lender might suggest they put 5% down to get a better rate. Which is the right answer. If the loan goes bad, who determines if the LO acted in their borrower’s best interest?

  14. The system isn’t poorly designed. If we allow dishonest people to conduct dishonest business within an otherwise sound system, we all pay for it. Zero-tolerance of dishonesty is the ultimate solution.

    I agree, Real Estate agents and Loan Originators who engage in or have engaged in fraud should be prosecuted, fined, or jailed. Yes the Loan person should be a fiduciary, because as you Greg Lins ponted out, I’m a Real Estate agent. I send my buyer to a Mortgage Person for the loan they want. I don’t know and don’t want to know about the loan. It’s not what I do. I can barely keep track of the Real Estate market place on a day to day basis let alone the sixty two plus mortgage products on the market.

    However, the loan originator, after due diligence, needs to produce a loan that can work for me or my client. If they can’t, or won’t, make options available for my adult clients, who are over twenty one, then I find another mortgage person. It should be the Mortgage persons job to discuss options for the buyer to decide.

  15. Rhonda, that exception is incredible! Maybe it would be interpreted to not require them to obtain something they can’t get, but to at least tell them about it.

    Yes the bank should have told the man they didn’t do reverse mortgages and not try to sell him something completely different and much more risky.

  16. Kary, it stinks doesn’t it. Picture a borrower who is perfect for FHA financing and the mortgage broker does not have access to FHA loans…instead of acting as a “fiduciary” and telling the borrower they don’t have FHA, they can squeeze them into a subprime or hard money program instead…and still be considered “fiduciary”.

    To me this is the opposite of what the intent must have been when creating this law. It permits loan originators to continue the same business practices that many did over the past few years with subprime since many brokers do not have access to FHA/VA programs.

    NOTE to consumers and agents: ask your LO if they are an FHA/VA lender BEFORE you start working with them.

  17. It’s yet another problem of their throwing around the term fiduciary. Rather obviously, they’re not fiduciaries if they can do that.

    They should say what you have to do and what you can’t do, and leave the term fiduciary out of it entirely.

  18. Russ,

    Clearly as a fiduciary there is no one answer that is “right”. Nor is there a “list” of what to do always and the same, as Kary would like to have. It’s about putting yourself in THEIR shoes and doing as you would do if you were THEM (and a prudent them) vs. pushing your company’s objective today.

    I’ve been a fiduciary for 35 years (longer than most) , and the standard I use is the same as I used as a Trustee, which is “The Prudent Man Rule”. The deciding factor is not about bad things happening, but the decision process in each instance and whether or not the fiduciary did “as a prudent man would do” at the time, and under those circumstances (different for each client).

    For instance, pushing ratios for an intern or for anyone whose anticipated future income is expected to go up dramatically, may be prudent. First year lawyer or doctor as an example. One income family turning to two income family, where 2nd income is less than 2 years and not countable but solid.

    In the recent mortgage debacle ratios pushed, and income stated, for consistent salary wage earners was NOT prudent, yet doing the same thing for someone else may have been prudent.

    The system always fails when everyone is looking for “one size fits all” anything. So what do people do who can’t make those kinds of decisions? Right for client A but not right for client B? They find another line of work.

    Dumbing down to the lowest common denominator is never appropriate where fiduciary acumen is required.

    I think maybe the test should be if you don’t know what the word acumen means, you can’t have the job 🙂

  19. Russ and Greg, I agree with both of you. Consumers need to take more responsibility and at the very least, ask questions–do what they can to learn more about their mortgage.

    Russ, with your example, I’m concerned that the consumer could come back and file suit against the LO down the road for “not being fiduciary” in their opinion when the strategy that was used WAS in their best interest and explained fully at that time.

  20. Sorry I meant to post under your previous post where you were talking about ARM’s and the terms. I didn’t realize I was posting on the wrong post.

    “Jason, you’re a bit off topic… we don’t have a “is this a good deal

  21. There are times when my lender tells me a borrower shouldn’t get a loan. It may not even be a ratio of number thing. That’s his call, not mine.
    However, if a loan person tells me they can’t, won’t, or don’t want to; I would have to think about that. Buyers buy for a lot of reasons. The buyer is literally my business. I would like to be the one who is making the call.
    I just don’t recall a loan person spending hours, days, or sometimes weeks with a buyer/borrower to be able to make the call as to whether that person should buy, or get a loan.
    If you want to reject on a numbers basis, great! If you are ignoring an over all business strategy in the process, that’s not so great. So how are you making these calls?

  22. Rhonda,
    If the agent calls you a few weeks later with an upset voice mail, you probably deserved it. After all, they referred you a potential client and you didn’t inform them of your assessment of their qualifications. Your scenario missed that little professional courtesy that most referring agents expect when putting their reputation on the line in making a recommendation for a loan officer.
    As for Fiduciary I think it is about time that the lending industry takes the first steps towards accountability. As you have pointed out good loan officers, like yourself, will continue conducting business in a manner that is above reproach as they have always done. Being a fiduciary does not mean that you are obligated to protect buyers from bad decisions. If they want to sign on a loan that isn’t good for them that’s their choice. The obligation in that scenario is the lenders obligation to their share holders not to make bad loans. Shame on them if they approve it.
    The Realtor fiduciary is obligated to put their clients interests ahead of their own. That means selling the buyer the house they really preferred instead of the one with a commission bonus attached. For loan officers it may be placing a loan with a lender with better terms rather than the one with higher yield spread premiums.
    I think it is well understood that many borrowers ended up with high commission subprime loans when other products would have better suited them. Others are stuck with 3-5 year prepayment penalties and other loan features that add commissions for the loan officer and did nothing for the borrower. Having a fiduciary obligation gives us a standard, albeit subjective, that asks “is this in your customers best interest or your own”. It is not intended to limit the customers right to choose and does not to give us the power to choose for them.
    The lending industry will come to embrace fiduciary much as Realtors do. I think this is really positive.

  23. Ken, I’m checking the county records often to see IF “Sammy and Susie” did actually buy a home…so far nothing has shown up. As I mentioned, unless it was seller or private financing– it was not a do-able loan. And I did inform the agent that I could not get them approved (my apologies if I left that part out of the post).

    I highly value professional referrals–my business is based on referrals and returning clients. Most the agents I work with span from before my 8 years in lending–I would not have that type of “agent base” if I did not treat them and their clients with the utmost respect.

  24. David, there hasn’t been many times when I’ve felt the need to “make a call”. Underwriting guidelines dictate that. There’s really only been one time that sticks out to me where the borrowers were subprime — they could qualify for a subprime mortgage, yet they could not have a bank account because they could not manage to keep money in it without bouncing checks and getting collections. They had terrible credit and no savings. In my opinion, they really needed to develop some financial responsibility and good habits before they took on a mortgage. I expressed some of my concerns (there’s only so much I can tell an agent with respect to my clients privacy) to the agent and I was told it’s not my job to be concerned whether or not someone can make a payment…my job is to to provide loans. Because of this example, I welcome having fiduciary responsibilities because I can officially say “yes, it is my job to be concerned”… That client, when they saw how nasty the subprime rate was going to be, decided not to buy at that time…and I was relieved.

  25. Rhonda,

    Seems to me Ken is incorrect and you not only should not, but cannot, convey to the agent that the buyer can’t get a loan and/or why they can’t get a loan, without the potential borrower’s release to do so. If they go get a letter from another lender, then they tell the agent we’re using X and not Rhonda, and I don’t think you can tell the agent why that is. The agent might not like it, but I think that info is confidential.

  26. Ardell, you are correct that I cannot give any personal details to the agent without the buyers permission. Most of the time, the buyer will allow some discussion and there are times when a buyer will say, “I don’t want the my agent to know how much I qualify for” when it’s more than what they’re buying…etc. I’m always kind of surprised when I have an agent ask me something like “hey, I’m just curious…how much are they worth?” Sorry, Dude.

  27. I’m pretty sure any buyer whom you told couldn’t get a mortgage in your shop, and who finds someone who will give them a letter, will not want the agent to know anything except “here’s the letter from my lender”. And rightly so.

    Agents think they have a relationship with lenders, but reality is that if they have too much of a relationship, something ain’t right.

    Agents have to understand that lenders do not work for them.

    Agents have to stop recommending one lender for all people.

    Agents have to stop calling the lender “my lender” unless they are the ones borrowing money.

  28. Ardell, When I meet with a potential buyer/borrower, I ask them what I can and cannot discuss with their agent–it’s their call. If they don’t want their agent to know anything, I’ll let the agent know that they need to talk to the buyer directly. Agents need to know the terms of the loan approval if it’s being structured a certain way, for example, if the seller needs to pay closing costs.

    I also have several agents that I have an outstanding relationship with. There’s no presure–they don’t treat me as if I work for them. If anything, we have great respect for each other and we allow each other to do our jobs. The buyers benefit from having reliable service throughout the transaction. There’s simply too much “mystery meat” out there still. 🙂

  29. Great subject Rhonda!

    I have been in a similar situation as Rhonda describes, and also wondered how someone qualified for a loan, when I thought they could not. One always wonders did the loan go through by virtue of superior products or knowledge, or some corner cutting that we could not, or would not, perform.

    Since the income stream generally flows downward from the RE, to the LO, and to the vendors that each pick (appraisers, title escrow), there is always some pressure from above to perform to keep the income stream going, but most of the time, professional ethics prevail. No competent, professional RE agent would dump an LO for not qualifying an unqualified borrower, any more than a competent professional LO would dump an appraiser for not getting a higher value for the home. Still, we have to acknowledge that a subtle bias could creep in.

    It will be interesting to see what the regulations will tell us we actually have to do, to be compliant with the fiduciary law. I hope to attend some of those sessions as well, and hear their thoughts, and offer my own.

    My expectations are something like this:

    1. Loan Originators are NOT the deciders, but they are advocates for the borrower, and information providers for the borrower and lender.

    2. LOs will have to clearly state (in writing) their compensation and any conflicting interests.

    3. LO’s will be required to document that a variety of were options presented. There will be much more paperwork, to document that it was the borrower, not the LO, that chose the loan program.

    We LO’s need to be careful not to stray too far into the “decider/judge/underwriter” role. It’s not our job to ultimately decide if someone should have one loan vs another. That is not a fiduciary duty. It is our duty to present the facts (including risks and benefits), to obey the law, to tell the truth, and to let the borrower and lender decide if they want to go thru with the transaction, based on the facts presented.

    Here’s another moral question/dilemma to ponder, post fiduciary.

    Borrower wants a loan, qualifies for most any kind of loan. Fiduciary LO presents a 30 yr fixed, at a variety of rates and costs. Buyer chooses one. Later, the buyer cannot afford the payment, loses home. Buyer claims the LO did not act fiduciarily, because LO did not offer an Option Arm (which was available to LO at the time, but the LO did not like the Option Arm, and did not present it), which would have allowed buyer to remain in the home, with minimum payments at 50% of the fully amortized 30 yr fixed, for the 1st 5 yrs.

    Did the LO adequately perform fiduciarily?

    I would say that the LO will likely have to prove that he/she offered, (and the client rejected) the Option Arm, in order to defend against future claims, with some kind of written, signed form. By extension, the LO will have to prove that ALL options were presented, and rejected. Bad news for trees, good news for the paper industry.

    Any dissenting opinions?

  30. I agree Roger…we are going to have more documentation to cya that we provided options. How can we prove that a client understands the mortgage terms or that they are making the best decision after a LO provides them with their available options?

  31. I’m sure you’re right about the buyer not getting a house due to their inability to qualify for a loan. If they do show up on the tax roles keep watching, they may end up with a notice of trustees sale in a year or so.

    As Roger points out there are going to be new prroceedures to follow to ensure the Broker that they are in compliance with the fiduciary obligation. You have probably heard that it is reccomended to agents that they always offer 3 choices for any services like loan officers or inspectors. Will you have to offer 3 lenders for each loan type… only time will tell.

    Rhonda, are you saying that you can’t tell the referring agent that the buyer isn’t qualified or that they are marginal in your opinion unless the Buyer dierects you to do so?

    As far as disclosing a buyers confidential credit information the law is clear, you can’t. However it does not prevent you from disclosing whether a buyer is qualified or not. The NWMLS Financing Addendum requires that the “Buyer provide to Seller a letter of loan committment from Buyers lender stating the date of loan application, the current status, and any coditions that remain for loan approval”. The document is signed by the Buyer and is a bargained for contract. Providing a list of conditions required prior to loan committment may require disclosures the lenders are uncomfortable with. In my experience lenders have not had a problem doing this unless the loan was inserious trouble.

    Remember there are alot of people counting on the buyer getting their loan. The Seller, Escrow Company, Lisitng Agent and Selling agent to name a few are relying on the Buyers ability to get a loan. The Seller has to make significant committments financially and personally complete the closing. All parties involved have a stake in the Buyers qualifications and the validity of the lenders pre-approval letter. I think you can make disclosures without violating the buyers privacy or breaking the law to the extent that the other parties to the contract are aware of the status of the loan without specificly disclosing protected information. I really don’t think the Buyer privacy cloak is so broad that you can’t say anything.

  32. Ken, if I had a buyer who insisted that I not reveal any of their information to the agent…which I’ve not had that happen yet…I would have to honor their request. I would tell the agent something like:

    Joe Agent, Mr. & Mrs. Buyer has given me specific instructions to not discuss any of their financial matters with you or anyone. You will need to ask them directly whether or not they are preapproved for the mortgage.

    The agent would I’m sure read between the lines that they have a buyer that may not be too interested in working with the agent or that they keep their cards tightly to their chest.

    Again, I’ve not had this happen. A more typical discussion that I have with clients is something like this:

    Mr. and Mrs. Buyer, Joe Agent is going to require a preapproval letter to accompany the purchase and sale agreement when you present an offer on your next home…. (usually they’re nodding and pleased with that).

    Or…if things are looking so swell…

    Mr. and Mrs. Buyer, based on your current scenario…this and that’s available or we need to work on this to help you with that (you get the idea). Joe Agent will want an update on our progress working on your loan approval, would you like to let him know or can I provide him a brief update? (My update will not go into nitty gritty details– such as credit scores, etc. and I would review w/client what I would tell the agent to get the clients permission).

    A lot of people are counting on the buyer getting the loan–I feel my duty is to the buyer first and foremost. As ARDELL points out, LO’s do not work for the agent. In fact, Jillayne would point out that LO’s only presently work for the mortgage company in which they are employed.

  33. Ken,
    I should have added that I do provide prequalication and/or preapproval letters. At that point, if the buyer is refusing to allow this, we obviously have issues with that buyer.

    And I am providing more “loan commitment letters”.

  34. With any luck, the regulations will stipulate that certain loan types (30, 15 yr fixed, no prepays, etc) meet the prudent and suitable criteria, kind of like the “safe harbor” clause that was included in some proposed federal legislation.

    After all, financial advisers are now fiduciaries in this state, and no investment works out 100% of the time. They must have to prove that the investments they recommend are prudent and suitable for the needs of their clients.

  35. Pingback: Will Real Estate Agents Embrace a Loan Originator with Fiduciary …

  36. I’m sitting up tonight at 3:00 a.m. because last night before going to bed we discovered former clients have apparently ran into an unscrupulous (to put it mildly) loan broker.

    Anyway, this is an example of at least two things. All professions are affected by a few bad apples and no one should buy real estate without the assistance of either an agent or an attorney. This would have raised all sorts of red flags.

  37. Kary, it doesn’t sound good. I hope the loan originator is turned into DFI. This market has rid us of many bad apples but we cannot assume they’re all gone (because they’re not)…and unfortunately, your clients are proof of that.

    The county no longer has deed of trusts on line because often times, either notaries or the lenders, were putting social security numbers or WDL #s on the document (typically under the signature line) and ID theft was happening as a result.

  38. The LO is expired as of 12/31/08.

    I know why they don’t allow access (typically is was SSN). No other county has done that, as opposed to people simply contacting the county and having the specific DOT taken off line. I just hate the King County site because they have the stupid sign off rule, where you get signed off after XX minutes, even if your actively doing things.

  39. I’m sure it’s less work for the county to just remove all DOT’s vs per request. Deeds of Trust were on line just a few years ago…when they were, I requested to have my DOT’s removed and I encouraged my clients to do the same.

  40. Even if the LO’s license has expired, I think you and/or your client should file a complaint w/DFI (if the LO has done something that calls for that). DFI could be behind in updating records and this LO could try renewing their license at a later date.

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