I dispise government intervention...alot of good it did the airline or telephone business (I age myself).  The intrusion into the private sector is just that--intrusion.  But it is the gross lack of self-audit that left open the door to abuse in my industry!  This open door is now the open invitation that will have "The Man" soon standing in our midst, rule book in hand, to direct an industry "He" has not a clue to.  The stated intention will be to impose rules for the good of all (borrowers).

Let me clarify.

I started as a mortgage broker a dozen years ago.  I went to work for a reputable mortgage broker who instructed new mortgage originators in the rules of disclosure.  Good Faith Estimates and the Truth in Lending forms along with the application needed to be disclosed to the borrowers within three days of application.  We were reviewed by a trained processor.  Yet I witnessed abuse in that office.  It was not long into my first year that I asked why there were no traveling auditors visiting our office to review the viability of submitted and closed loans--only to be told such a person did not exist in any of the wholesale lenders we used:  Chase, InterFirst, BofA, etc.  No lender or entity did a random audit of files; no one came in to see if our customers were given adequate information;  no one questioned borrowers to see if the product they were sold was the product reflected at the closing table; no one presented the final application to see if it agreed with the original application; no question was asked if the assets and income were 'real'.  It was assumed that if there was inaccurate information on the application it was provided by the borrower and not 'manufactured' by the loan originator.  I was told that such a position would cost to much money for wholesale lenders.

Today, in a single quarter, Countrywide posted billion dollar losses--in a single quarter.  That single quarter could have paid for years for all lenders to put auditors on the street to randomly visit mortgage brokers, pull applications and closed loan files, call the applicant and interview them as to service provided, consistency of the original file to the final file....the list goes on.  From my experience that would take 30 minutes on the phone.  I all but guarentee that such a policing by the wholesale lenders that bought the mortgage closed by brokers would have caused many to go sell cars and would have caused others to make better decisions on representing the correct information on applications.  Fewer loans closed and now fewer homes owned by lenders in 2007, more confidence in the industry by Wall Steet today.

I pick on brokers because loan officers (as I am now) that represent the mortgage division of lending institutions/banks are audited, are watched, are held to task.  Do some cheat--yes.  Do as many cheat--no.  The following quote I found in a recent email (not my words) is the reason for abuse in my industry in a nutshell:  "Money is neither my god nor my devil. It is a form of energy that tends to make us more of who we already are, whether it's greedy or loving." 

I have spoken to too many individuals misled by bad loan originators to think any other thoughts than these.  To many first time homebuyers now loosing their homes because no one explained increase in property tax, association dues in condo communities, ARM terms or who increased income so the borrower qualified and used stated income programs instead of educating the customer about the hazards of a payment that would strangle them, and the list gos on.  I am not stating here that all borrowers are honest and that no borrower ever requested a mortgage they knew was closer to fraud than fact.  I am stating that most of the abuse is from within the industry.  Given that 70% of mortgages closed are closed by brokers rather than loan officers employed by banks, a greater portion of the guilt must rest on the brokerage side--simple math would support this conclusion.

The only question I can imagine coming up from this blog is--why is it just now happening?  It takes a long time for a cumulative reaction to happen--the Perfect Storm.  That it was inevitable is a fact in my mind.  That is was inevitable due to a lack of policing within the industry itself is also an inevitable fact in my mind--tell me how I am wrong.  There are certainly other contributors--wealth counselors for one--but this single oversight on the part of wholesale lenders is the single largest contributor and will now be the hand that has sent the invitation to Washington DC to enter our business to tell us how to do what we should have been doing all allong--ferrit out the individuals motivated soleing by greed.  And the federal government will do it in a fashion that will be detrimental to my industry for centuries to come--the government in private business makes as big a mess as the one they attempted to clean up.