A License to Sell

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.