A License to Sell Loans
By
Peter G. Miller
Have you ever looked at the paperwork
you get when financing or refinancing a home?
Really. No kidding. Have you ever read
the stuff people want you to sign?
There are a lot of scraps thrown our
way at closing, and I have yet to meet anyone who has either read all
of the documentation or totally understood what it meant — me included.
However, there is one piece of
paperwork I very much understand and you should too: My loan officer
doesn't work for me. He's not my agent and he's not required to get the
best possible rates and terms for me.
For proof, let's turn to some of the
paperwork I received from a recent loan:
“This fee disclosure represents the
entire agreement between the parties hereto and no waiver or
modification, or any other addition to the terms hereto shall be deemed
effective unless evidenced by a written instrument signed by all
parties hereto. It is further agreed that this disclosure shall be
construed as creating no more than a contractual agreement between the
parties hereto and not any type of agency relationship, fiduciary
responsibility or other trust relationship or responsibility.”
The oddity of this situation is
overwhelming: A real estate broker or attorney must place your
interests first while a car salesman, telemarketer or loan officer has
no such obligation.
You can see the conflict.
Where do borrowers get mortgage
information? From loan officers. Borrowers are absolutely dependent on
loan officers to scout the marketplace for the best possible deals
given the borrowers’ financial profile.
How do loan officers and lenders
maximize incomes? Just like car salesmen and telemarketers, by selling
products which produce the highest commissions and the largest
revenues.
It doesn't have to be this way. For
example, since 2001 North
Carolina law has required mortgage brokers to “make reasonable
efforts, with lenders with whom the broker regularly does business to
secure a loan that is reasonably advantageous to the borrower
considering all the circumstances, including the rates, charges, and
repayment terms of the loan and the loan options for which the borrower
qualifies with such lenders.”
The problem with the North Carolina
law is that it does not apply to any federally regulated lender.
However, under the proposed Borrower's
Protection Act (S 1299), legislation introduced by New York Senator
Charles Schumer, every mortgage loan officer across the country would
have a “fiduciary relationship with the consumer.” In other words, the
job of the lender would be to get the borrower the best possible loan.
Instead of supporting such
legislation, the mortgage lending industry wants a different approach:
According to John Robbins, Chairman of the Mortgage Bankers
Association, his group supports
the “national, uniform regulation of mortgage brokers including a
national database of approved brokers. A clear, fair national
regulatory standard for mortgage brokers is an essential step to
establishing much better mortgage lending protections for borrowers.”
Such standards, says Robbins, “must be
national in scope to enhance competition in all markets for all
borrowers, especially nonprime.”
The catch is that if there are uniform
national standards then state laws such as those in North Carolina
would become useless. Under the concept of preemption, when federal and
state rules conflict the federal rules take precedence.
And what national standards do lenders
oppose?
As one example, Robbins says his group
is “concerned with language regarding the prohibition against lenders
and brokers steering borrowers into loans or loan terms that are not
‘reasonably advantageous to the consumer, in light of all the
circumstances.’ While MBA opposes steering and favors informed consumer
choice, this type of standard would force loan originators to determine
whether a loan is suitable for a borrower. MBA has carefully studied
the issue of the potential effects that the imposition of a variety of
approaches to suitability would have on the mortgage market. MBA has
concluded that imposition of such a standard would not provide benefits
that would outweigh the costs to consumers, lenders and other market
participants.”
How, exactly, would consumer costs
increase if lenders were required to place borrower interests first?
Would not loan expenses go down if lenders were obligated to present
the best possible options to client borrowers? If loan costs were
reduced, would not mortgage delinquencies and foreclosure levels
decline? Aren't such results good for lenders and investors?
Robbins says his group “does not
believe that a disclosure of function and fees is warranted for
mortgage lenders. Unlike a broker whose role may be uncertain — agent
or loan provider — a lender's role is clear. A lender underwrites,
approves and funds the loan. The lender does not hold himself out as an
agent of the borrower. While a lender must serve its customers fairly,
and the industry has done much to assure high professional standards, a
lender owes a duty to its shareholders and investors. A borrower knows
a lender offers its own products and does not offer to shop for
borrowers.”
Borrowers know such things? How many
mortgage ads explain that a lender is not selling the best possible
loan to a borrower?
“Regulation limits competition,”
explains Jim Saccacio, Chairman and CEO at RealtyTrac,
the nation's largest foreclosure resource. “When we regulate doctors,
lawyers or barbers, we're saying that not everyone can open a clinic,
law office or barber shop. In exchange for limiting competition and
therefore raising the income of licensed professionals, as a society we
expect those who are licensed to meet certain standards of education
and responsibility.
"If we're going to have uniform
regulation nationwide that limits mortgage competition, then the public
should get something in return,” Saccacio explained. “That ‘something’
should be the expectation that my lender will take every reasonable
step to get me the best possible loan and that I will know all the
fees, charges and commissions involved. That's no more than someone
buying a shirt in a department store would expect — and no less than
borrowers should accept.”
_____________________
Peter G. Miller is the author of the
Common-Sense Mortgage and is syndicated in more than 100 newspapers.
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