my old pug, Orson
The term “mortgage broker” has become bastardized in recent years by the media and our elected officials in Congress. The term is often wrongly used to describe a mortgage originator who’s gone bad or done something wrong. Mortgage brokers are blamed for what’s gone foul in the mortgage industry when the room was packed with mortgage originators who work for banks, correspondents and credit unions…it’s just so much easier to blame the dog.
Yesterday, when Jillayne wrote a post about Shawn Portmann, the Seattle PI originally has the title to their article incorrectly calling him a “Mortgage Broker”; after the Washington Association of Mortgage Professionals contacted the author, he corrected the title to read: “Feds to mortgage banker: We want your giant bag of money”. I considered this a small victory for WAMP and applaud them for getting the Seattle PI to correct their title and for defending the mortgage industry.
I wasn’t so lucky last spring when I tried to get the Seattle Times to correct calling a mortgage orignator who worked for Chase Bank a “mortgage broker“…you might remember the story involving stated income loans for hot dog vendors and limo drivers from Russia who were trying to sue Chase for hundreds of thousands of dollars over their lost earnest money. She refused to correct her article. How an employee of Chase is a “mortgage broker” beats the heck out of me.
It’s very convenient for big banks to vilify “mortgage brokers” because somehow they believe it makes their mortgage originators appear to be of a higher quality. And….once the small mortgage broker industry has reduced to almost nothing, consumers will all have to go to one of three banks or a handful of remaining correspondent lenders or credit unions for their mortgage needs.
The big bank$ have convinced Congress that it is the “mortgage broker” who has smelled up the industry. Somehow they forgot to mention that:
- mortgage brokers only sell bank products and programs. Wholesale bank reps call on mortgage brokers and correspondent lenders begging for our business. Back in the subprime days, they’d be lined up out my door pushing Countrywide, Washington Mutual or World Savings/Wachovia option ARMs stated income or 100% financing. These programs were created by the banks/lenders not brokers. The broker was the street dealer (sales) and the bank was the drug-lord/meth-lab (supply).
- mortgage banks/wholesale lenders underwrite the loans that brokers originate for the bank. Brokers do not make underwriting decisions–mortgage banks do and correspondent lenders do can (per bank guidelines). If a wholesale lender/bank did not want to make a loan sent to them by a mortgage broker–they could decline it!
This morning, I’m reading the White House Blog’s “Top 10 Things You May Not Know About the Wall Street Reform and Consumer Protection Act” and number 2 is:
“Mortgage brokers will be prohibited from making higher commissions by selling mortgages they know consumers can’t afford.”
First of all, I agree that NO mortgage originator, regardless of the type of institution they work for, should earn a higher commission for selling inappropriate mortgages–in fact, they should not originate that loan <period>. This point is so poorly written — is it saying that a mortgage banker CAN make a higher commission originating bad loans? Our own White House has joined in on bastardizing the “mortgage broker”!
My plea is that Congress and the media use the term “mortgage originator” when in doubt of what type of institution the MLO is employed by or if they’re making a general statement about mortgage originators. The definition of “mortgage broker” is not an unsavory mortgage originator. This is reckless to an industry that is fighting to stay alive.
Rhonda, it is a damn shame that our legislators are writing laws without knowing the basics of the industries that they are affecting. There is so much wrong with that statement on the White House blog I don’t even know where to begin.
Several years ago, I saw this coming and wrote a blog post about it called Why I Can’t Vote for Democrats. My predictions rang very true.
Russ, I just read your post and linked it in your comments–do you have a crystal ball? 🙂
I view mortgage brokers and local correspondent lenders as small businesses/entrepreneurs in our community. Banks were no better or worse when it came to “bad apples” committing fraud.
Please tell me you don’t blame that poor old pug for unsavory smells in your home. LOL!
Yes, the entity funding the loan is responsible for underwriting/approving the deal…however, I have met MANY mortgage brokers who refused to put their clients into a loan they knew the client could not afford, even if the bank would have otherwise approved that loan, and many mortgage brokers who talked clients OUT of selecting a pay-option ARM when the bank would have also approved that deal.
What use to be an ethical choice is now going to be taken away from the industry and will become law.
I completely agree – I get mad when people are too lazy to bother to use proper terminology for anything.
As for the title mixup, now you know how us real estate people feel. We’re not all Realtors. The National Association of Realtors really brainwashed their members to think they are better than other real estate sales professionals because they signed a “Code of Ethics”. Like that makes a difference. Some of us are proud to NOT be Realtors. I am a Built Green Certified Professional Real Estate Broker. We (GreenWorks) decided years ago that being a member of Built Green was more inportant than being a member of NAR – and we all have plenty of ethics. NAR charges a lot for membership, saying their national marketing program is worth it, and they use the money to fund real estate related PACs in Washington DC.
More on titles: As of July 1st, in Washington state all of the “real estate salesperson” titles were changed to “real estate broker”, and all of the previously Associate Brokers became “Managing Brokers” and whoever is in charge of the whole office is called the “Designated Broker”, and the Firm now has to be licensed separately. I took a Forms Update class yesterday and the attorney for NWMLS who taught it said the title change to calling all of us “Broker” was to add a level of professionalism to the industry, I think for the consumer looking in. We still have “agent duties” to our clients and act as their agent when in a transaction. But at least now we are all Brokers – many other states already used this term and it made Washington licensees look like something less.
Jillayne:
I hear you. I have said no to quite a few borrowers who I didn’t personally feel needed a loan. However, as originators we have to be very careful since we could be accused of discrimination if a bank would in fact fund that loan.
Personally, I think an easier solution would have simply been to record the LO, Realtor, and Attorney working on the deal with the mortgage. I think consumers should have the ability to look up how many loans an LO has funded, what types of mortgages (conventional, fha, subprime). Doing this also would help authorities easily track what shops are doing crappy deals from the start.
I agree that the press should use Mortgage Originator if there is any doubt. I do think that correspondents have a bit of an identity crisis. Generally they UW the file and fund in their own name and don’t disclose rebate pricing (sounds a lot like a banker), but they are using a warehouse line of credit instead of their own deposits. Most smaller banks still sell their mortgages just like correspondents do. I think there is a significant distinction between “big box” banks, community banks, correspondents and true brokers…..too many identity crisises to keep track of for me…
I think the industry issues were caused by moral/ethical issues at a company and originator level, not just that specific programs/products were or were not available.
How long were option arms available? it was only when they were abused that they created issues. That is a company/originator moral/ethical issue, not necessarily the avialability of the product.
Michael, with regards to option ARMs, we had so many banks/wholesale lenders PUSHING them on us to sale–I never originated one option ARM…not one! The bank/wholesale reps would tell us we were missing the gravy train…and I’m sure we did and I’m perfectly happy with that! It as if we were the last virgin in high school–I kid you not! The more they heard no, the more they pushed the product.
I agree that the issues boil down to the ethics of the originator — it doesn’t matter what type of institution they work for (kind of the whole point of my post). There are good and bad originators at banks, brokers, correspondents and credit unions.
BUT when a certain product is pushed over and over again with how to sell it and how much bank the LO can make–I’m sure many LOs fell for it. They were hearing over and over again how “safe” it was, what a benefit the flexible payments were… how to add a prepay to increase your profit… I could barf! …And this came from the bank/wholesale reps.
Can’t put together that loan due to ratios? Bank/wholesale rep has a stated income loan for your client! Bleh–I could go on but I just finished my lunch.
Michael, there were times when certain products made sense–I could use a NIV loan for one of my clients now–and it would totally make sense and be appropriate.
The products were pushed hard by wholesale (I think they were paid extra on certain programs depending on what the bank was wanting to originate for their portfolio) to LOs who either didn’t know or didn’t care what the result would be.
In addition, we had consumers pounding down our doors wanting those low teaser rates because they just saw the Wachovia commercial where a woman needs an option ARM so she can make her minimum payment due because her dog just had puppies. I would offer those clients fixed period ARMS (never an option ARM) after explaining why I thought the option ARM was not a good choice and some would understand my reasoning and some would go down the street to the next mortgage originator who was happy to provide that loan.
it was that very “pushing” of product to under-educated-under-qualified-morally-questionable-all-about-the-money Originators who could only “sell off the menu” that led to most of this.
Agree whole-heartedly…
Great piece Rhonda. I completely agree with your thoughts and appreciate you making the distinction.
Russ,
Your [comment][1]:
has been gnawing at me a bit. For starters, it would be a great idea to have the real estate agent and the escrow officer…perhaps even the appraiser (although not so much an issue now since HVCC) tracked on each transaction…imagine the patterns that could appear.
I’m also amazed at how real estate agents in general have seemed to have skipped the subprime taint… many of them were rolling in transactions thanks to the programs that were available–making HUGE bank… it was not uncommon for me to have this conversation:
ME: the buyer should work on their financial scenario so that they can buy FHA.
AGENT: do you have a program they would qualify for?
ME: Probably.
AGENT: It’s not for you to decide what the buyer “should” do. It’s your job to offer any mortgage they qualify for.
Most agents didn’t want (and may still not want) mortgage originators to have any moral responsibility to buyers… just keep dishing out those mortgages and keep your well meaning advice to yourself.
I quit working with many of the agents I used to during the subprime era because they didn’t like that I would risk “discriminating” by offering a plan b of waiting.
Russ, I actually had 1 client acuse me of discriminating for not offering an First Franklin 80/20 mortgage to him. He had a local ACLU member contact me because he believed I didn’t offer him the loan due to race. It was a horrible mortgage and he had about a 60% DTI…when I explained FF’s terms of the mortgage to the ACLU person, he actually thanked me for not providing this gentleman the loan. (I tried explaining the terms to the borrower and why it wasn’t a good mortgage, but he still wanted the mortgage–even though he didn’t qualify). It would have been terrible for him or anyone…regardless of race.
I think it’s sad that we need laws to try to dictate ethics.
Exactly. The discrimination issue is a big one. Since LOs do not underwrite mortgages, it is not our job to determine if someone should be given a loan. I have my own personal opinions about people’s credit worthiness, but it is really a fine line between me refusing to do a loan when I know with reasonably high certainlty a bank will fund that loan. We have to be VERY careful about how and why we decline to do a deal. All I know is I keep immaculate records of client communications and EVERY SINGLE client of mine knows their DTI, creidt scores, etc. No one could ever come back on me and say I didn’t warn them they could be in over their head.
I have no problem being a fiduciary and ultimately making those decisions, however, I also believe if LOs are going to be held responsible for bad loans, I should also have the responsibility of underwriting my own mortgages. All these pundits want to put the risk of bad loans on me and my earnings, etc but don’t want me to have the ability to make the underwriting decision. I would stand behind every loan I ever originated.
Not too many Realtors want to hear that their client should be waiting to buy a property.
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