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   ARTICLE   |   From Scotsman Guide Residential Edition   |   January 2008

Time to Step Up

By taking responsibility and making internal changes, brokers enhance our industry’s image

In the past year, many U.S. homeowners’ mortgages caused them undue hardship or foreclosure. This has affected the economy as a whole, and the mainstream media have seemed to point the finger primarily at mortgage brokers and lenders.

I admit that our industry has issues -- some of which we are responsible for. And I agree that we must accept some of the culpability aimed our way and work hard to correct these issues. But it is not by any means the entire source of the economy’s ills.

I am saddened that many blame us, as an industry, specifically for all the hardship. I understand the concern, and clearly, numbers and statistics don’t lie. But I fail to understand why they can’t bring attention to what we are doing to address these issues and the proactive positions brokers, lenders and secondary giants such as Fannie Mae and Freddie Mac are taking to aid in our recovery.

Unless we speak up for ourselves, bad news will continue to sell. New homebuyers will continue to delay decisions on housing as long as they hear that as bad as things are, values will continue to decline. Lenders will continue to set increased underwriting standards in place that, in some cases, make lending in certain states impossible.

You see, our lending partners don’t just look at their individual portfolios. They read the papers, too.

Foreclosure losses are at an all-time high, and there are tighter regulations on mortgage lending. Is this situation the nightmare that it appears to be? Or is it the cleansing the industry needed? Is it time to add the licensing and disclosures that have been sorely lacking in our industry? Is this the wake-up call to establish some accountability and culpability that will better inform and protect consumers and force lenders to assume the credibility that their clients assume they demonstrate?

Although it is easy to blame the media, the loss of jobs and careless consumer spending, there are at least three other components that we must analyze before we can expect any positive changes to occur.

Internal industry changes

First, mortgage professionals must make changes to improve public perception. This comes from upholding standards.

People regularly ask me whether things are “really that bad.” I tell them yes and no. Statistics don’t lie. Job losses and increased foreclosures are real. Many states’ economies are not good, and a quick turnaround does not appear on the immediate horizon.

Many states’ economies and an exodus of working professionals have created an influx of available properties. This, in turn, has caused market-value stagnation in many communities and property-value depreciation in others. Although this is a challenge for many, values across the country today remain higher than property values of five years ago.

Although most read of the horror of the current market, practical thinking and realistic expectations dictate that there is still profit available and many great bargains for new homes.

As an industry, we must hold up our hands and assume some responsibility. For those of us who have been in the mortgage business for decades, we have seen our standards for approval so diminished that what became approvable loans were considered fraudulent in past years. Some brokers thrived on consumers who had poor credit, no ability to document income or assets adequately, no downpayment and no savings history. If there was money to be made, these brokers made it -- more often than not at the consumer’s expense.

Did brokers and lenders honestly believe that a 100-percent financed loan with no income or asset verification and a 580 credit score would perform?

For years, I have questioned whether brokers and lenders who made these loans were providing a service to those who could not qualify for a conforming loan. After all, the bottom line was that if lenders made sound underwriting decisions, there was room for these loans.

For many who saw the continued easing of credit standards, though, it became an opportunity for greed. Those who remained ethical and logical in their thinking were smart enough to see this day coming and survive.

Licensing and legislation

Another main issue is that there are no federal requirements for individual loan-officer licensing. Although companies are required to carry a license, many states do not have specific educational requirements to get one, nor are there requirements for employees. Some states have enacted laws or educational requirements to ensure a minimum standard of expectation.

Couple that with a lack of proper disclosure to consumers, and it’s an accident waiting to happen.

Many brokers have been clamoring for fair and equitable mandatory requirements across the board. Bills have been proposed but never passed, as many would have been harsh on brokers yet would not tighten the standards on banking institutions because they fall under different guidelines.

This lack of legislation allows mortgage brokers or banks to hire any employee with or without training or experience to be the consumers’ source for recommending product and pricing. The sad moral to the story is that most consumers who defaulted on an option ARM couldn’t begin to explain how their loan functioned, don’t understand how they got into their current predicament and got their loan from a loan officer who couldn’t have explained it, even if they asked.

Taking responsibility

Consumer ignorance is not bliss and is not a license for mortgage brokers to take liberty with it. Just because a lender can do something for a borrower doesn’t mean that it is the best decision. Honestly, given the common sense we are supposed to possess, since when did taking out a second mortgage to 100 percent or 125 percent of a home’s value become a good idea?

We must assume more responsibility in working with our clients. We need to educate them that establishing an important business relationship is tantamount to any successful endeavor. Consumers should understand that without knowing the background of a particular lender, brokers making a choice by asking only about rates and costs often is a recipe for disaster.

Despite the doom and gloom, I don’t believe that things are all that bad. We can continue to wallow in our misery and let bad news flow, or we can accept the changes that are certain to follow and find the wherewithal to champion our cause.

We should advise our clients to remain consistent, yet prudent and realistic, in their financial decisions; to understand their goals and objectives; and to take the time to build a relationship with a broker who demonstrates a commitment to their short- and long-term goals and who has the experience to back it up.

That posture, in addition to this industry cleansing, will help alleviate many of the bad actors who contributed to this mess. Consumers must believe that there are many good and reputable brokers and lenders out there. Together, we will all see the light at the end of the tunnel.


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