As published in Scotsman Guide's Residential Edition, October 2007.
With the growing number of stories about predatory lending showing up in the media these days, your clients may be worried about becoming the next victim. And who's to say they're not in danger? Actually, as their broker, you are.
With the proper knowledge, you can recognize predatory lenders and how they operate. Once you know what to look for, take steps to reassure your borrowers that you're watching out for them. In today's market, you can't overestimate the value of making borrowers feel safe.
What is predatory lending?
Predatory lending is controversial -- even the definition is disputed.
On the extreme end of the spectrum, there are people who believe that simply offering certain loan products can constitute predatory lending. In other words, regardless of the borrower's profile, the fact that certain loan products even exist is read as evidence of predatory lending.
The more common definition, however, pertains to practices rather than products. This follows the belief that lenders and mortgage brokers have an ethical obligation to find the best loan for each individual client; therefore, breaking this code would signify predatory lending.
Making no effort to determine a client's profile before suggesting a loan product or worse, knowingly suggesting a loan product that is unsuitable for a client, would fall under this definition.
Sound the alarm
Unfortunately, many borrowers affected by predatory lending are victimized by people they know and trust. Typical predatory lenders operate in the same community as their victims.
Given this state of affairs, it can be hard for a mortgage broker to warn borrowers about predatory lending. If the broker is not part of that community or does not have a trusting relationship with the borrowers, convincing them that they are getting an inappropriate loan can be a challenge.
There are things you can do, however, that will make it easier to convince your clients that you are working in their best interests. In fact, the same practices that make you a knowledgeable mortgage broker will protect your clients from the predatory lenders in their community.
Gain your clients' trust
Borrowers need to shift their trust away from potential predatory lenders and onto you, their broker, so that they don't have to worry about being victimized.
For friends, relatives and past clients, the issue of trust is already resolved. If they didn't trust you already, they wouldn't be doing business with you right now.
But how do you build a rapport and earn and maintain the trust of new clients? Start by doing the best job you can for them in matching their needs to the loan products available to them, and then follow these tips:
Listen to what your clients say. People who think you understand them and the issues they are dealing with are more likely to trust you than people who think that you don't care. Listening is a great way to show your clients that you're here to help.
Explain things. A loan is a complex instrument composed of many different terms, which are difficult for most borrowers to understand. If you can explain the terms of a loan in a way that your clients understand, without condescension, you will almost certainly be increasing your credibility in clients' eyes.
Display your competence. Give your clients some understanding that you have enough knowledge to close their transaction, but watch to make sure that you don't sound arrogant or off-putting.
Admit mistakes. They happen. If you acknowledge and rectify honest mistakes, your clients will have more evidence that they can trust you -- especially if you can point out any mistakes before your clients do.
Don't rush in
Time is of the essence when processing a loan. But the loan will be processed more efficiently, and borrowers will be more satisfied in the future, if you spend time conducting due diligence on the loan terms before the commitment stage. One of the telltale signs of predatory lending is that borrowers must agree to loan terms and close a loan in a short period of time. Predatory lenders create this artificial time constraint for two simple reasons:
They want to avoid answering questions that might expose them; and
They want to prevent borrowers from shopping around because they know that there are better terms available.
The best way to stop predatory lending is to educate yourself about loan products on the market. If you're well informed about what terms the market is willing to offer your client, then you won't fall into any traps -- and the threat of predatory lenders will disappear. If you suspect a rate is out of the ordinary, don't hesitate to shop around for other quotes against which to compare it.
Knowledge of the residential mortgage market and your clients are powerful tools. They can be your best asset in fighting predatory lending and building customer loyalty.
Randy Groover is the president and CEO of the Seascape Financial Group. Seascape Financial Group is a California-licensed mortgage brokerage focused on providing debt and equity financing for commercial clients and debt financing for residential clients.
Contact Groover at (650) 341-2764 or firstname.lastname@example.org. Visit the Seascape Financial Group Web site at www.seascapefinancialgroup.com.