I honestly had some elderly folks tell me that they did not know they had an adjustable rate mortgage. Was it explained properly or did they just sign without asking? I don't know but my you gotta wonder what rock they crawled out from under.

As much as that might be true, err on the side that well intentioned people gloss over contract details all the time, assuming the party understands what they are talking about. I really appreciate your thoughts  and empathise with many-though certainly not all, especially those that fail to take responsibility for their own actions and need to blame someone else. The elderly today are in several groups from hip and cool to the very tied and discouraged and everything in between. They secretly desire or long for whatever benefit they can get, anyway they can get it. It's called "feeling like you got this far-let someone else just bloody give it to us"-we're tired. :-) Thanks for your post, Jeff !

I think there should be tougher fines if you are wrong about your GFE, really what would happen if I gave you one, and it changed as signing?  In California is is a slap on the wrist.  If your fees are more than a certain % off, there should be a fine.

Beth, you are totally right , there really should be. After all, as REALTORS we are accountable for all we say and do, mistakes are rarely forgiven and hardly ever overlooked. The lending industry should do a better job, but they claim they are victims to as the rules of play are so varied and inconsistent. Maybe if they found a penalize themselves when they are grossly out of sync, they will regulate themselves  and the consumer will win the day.

I agree that with all the new creative financing, the Good Faith Estimate has not kept up. It's time to review and improvfe the document. It does not prohibit good lenders from giving people a summary sheet of information along with the GFE until things change.

Accountability by the originators employing mortgage broker, mortgage bank, or financial institition. 

What if an originator had to turn in a set of the initial disclosures provided to the borrower at application? You know, those items that have to do with REPSA, TILA, GFE, the 1003, Fair Lending, all tied to series of events usually and generally triggered by the credit reporing pull date.  What if the originator had to submit these items for a Pre-Closing Review at the same time they submit the items to the lender for approval, and the internal reviewers job is to ensure accuracy and compliance within the documents? 

What if when the originator closes the file and receives the broker check and the final HUD1, they have to submit the closed file copy to the internal review who this time reviews it as a Post-Closing file.   The reviewer would look at the Pre-Closing review to see what comments or notes were made at the time of loan submission and if the rate,terms or fees changes, then the originator should have "redisclosed" these items to the borrower prior to closing to be compliant.  These actions would surely curb bait-n-switch or surprises at the loan closing table. What if the originator had to have their Post-Closing file completely in order before they were paid on the closing and their compensation released to them? Would theses actions curb illicit practices?  Would it place a burden on originators who fail to be compliant?  Would it cause companies to review their internal controls and exercise complian procedures over their origination force to ultimately slow down buy-backs, lawsuits, and loan defaults?

If anyone knows of mortgage companies who engage in the practice of Pre-Closing and Post-Closing reviews of the initital and closing documents, I would like to know about them. 

Thank you to Mr. Johnson for sharing this secret about Mr. Pollocks proposed one page Basic Facts About Your Mortgage disclosure.  After I saw an article in the May 2007 issue of NARLO Today (National Association of Responsible Loan Officers) regarding his simplified form, I drafted a version and have begun to use it in my practice.   Prior to this form I always provided my clients their GFEs and dual version of the GFE so they fully understood all costs and fees associated with their mortgage rate, terms, and even disclosed YSP discussing the reason its listed and why its there. 

All clients seem to be pleased and feel empowered when they are aware of all these items.  They understand why an ARM will change, if an ARM is used.  They understand why Interest Only has a purpose for the short-term and not be a long term solution, they must soon pay the piper. They understand the risks of negative amortization and why such a loan is recommended to them, if they are recommended due to a lower LTV, higher credit score, evidence of stable income, employment and assets to fall back upon.  A mortgage is a tool that should be used simply for that purpose. 

I know it seems as if I'm preaching to the choir here, however it is these simply fundamentals regarding borrower suitability and the originators lack of accountability that has placed some borrowers in jeopardy.  The consuming borrower also has a hand in these matters.  As far as I know everywhere in the final loan documents they say DO NOT SIGN these documents unless you fully understand what you are signing and these loan documents encourage our borrowers to get competent legal assistance to review the documents before hand.  They are to read the documents and fully understand them before signing and accepting the loan terms, however many borrowers will claim they didnt understand, they werent aware of this or that, but yet they signed the documents anyway?

The responsibility is all parties to the transaction.  If each one in the chain were to look out for each other, then we would have far less problems or perhaps even none at all.  If the borrower looked for a home in their realistic price range, which means the real estate agent would show them homes under their price range, which meant the originator would place them in a loan that is well within their means, which the lender would fully offer programs that would fit the borrowers needs and goals, which means the consumer could afford to pay and so on and so forth.  Would looking out for each other cause the housing boom to continue or would it be looked at as a means of slowing the progress?

Either way, its impossible to tell at this juncture since we are in an environment where nearly 2.2 million mortgages are at risk of defaulting and ending up in foreclosure. 

In the end, we all have a responsibility to our clients, consumers, borrowers, buyers and sellers.  Are we exercising that responsibility or are we turning the cheek and looking away? 

<gets off his soap box>

I wanted to address the GFE situation.  As the term states, it is an ESTIMATE.  We as brokers ( the good ones, anyway) do our best to disclose every fee and cost the the borrower may face during the transaction.  However, things can ( and a lot of times, do) change during the processing of the loan.  If there is a change, I would re-disclose.  Unfortunately, not all of my competitors did. 

Situations such as the appraised value being different than was initially disclosed, caused the LTV to be greater than the initial approval. Therfore the rate increased. The borrower did not qualify for a 30yr term, but at a 40year term, they got approved; borrowers have quit their jobs; co-signed for new loans; not kept up on their payments; and the list goes on, as to why loan terms change during the processing phase.

Yes, there should be re-disclosure if there is a change of loan terms.  Florida has just passed such a law, which becomes effective Oct 1st, 2007.  Hope that curbs the bait-and-switch guys.

I wanted to address the GFE situation.  As the term states, it is an ESTIMATE.  We as brokers ( the good ones, anyway) do our best to disclose every fee and cost the the borrower may face during the transaction.  However, things can ( and a lot of times, do) change during the processing of the loan.  If there is a change, I would re-disclose.  Unfortunately, not all of my competitors did. 

Situations such as the appraised value being different than was initially disclosed, caused the LTV to be greater than the initial approval. Therfore the rate increased. The borrower did not qualify for a 30yr term, but at a 40year term, they got approved; borrowers have quit their jobs; co-signed for new loans; not kept up on their payments; and the list goes on, as to why loan terms change during the processing phase.

Yes, there should be re-disclosure if there is a change of loan terms.  Florida has just passed such a law, which becomes effective Oct 1st, 2007.  Hope that curbs the bait-and-switch guys.

Thanks For commenting and enhancing this post Richard. The new disclosure forms I hear will be coming out shortly and this new 3 page disclosure will go a long way in making the terms more clear. Even the best of disclosures will not help unless the consumer reads them.

William - if I may borrow Frederick's soapbox for a moment.  I usually am not overly sympathetic when people don't read the papers they sign.  But I do feel that we have had a number of years where realtors sold people homes they could not afford and lenders placed borrowers into loans that they knew or should have known the borrowers could not complete.  I am a realtor and a mortgage broker and I deal with a limited number of clients seeking refinance assistance.  I am constantly amazed at their reaction when I tell them what their old loan documents say.  The realtor and loan officer received their commission checks and took their families to Disney World.  And now they may get to do it again when the homes are sold out of foreclosure.  And I agree with you that government regulation of the lending industry has been a case of the fox watching the hen house. 

There seems to be plenty of blame to go around.

Hi Ted,Very good points and thanks for adding them inhere on this post. As I have come to learn more and more about this, my opinions also have changed, or at least have become way more sympathetic to this ever expanding crisis. Some of my recent posts may more accurately reflect this.

William, I believe most borrowers did not know what they were signing for several reasons.  I am also a mobile notary and I found that a great number of the loan officers were not following up with the borrowers as they should have.  They sent the notary out to sign and the notary did not know what was promised to the borrowers and was told not to say anything about the loan or the company represented.  So most just shut up and had them sign. And by the way, the LO was not phone available either.

They had the notary say, you have 3 days to cancel.  So then you know what the percentage of people that follow up on actually cancelling.

And then there's the temptation of not signing and losing the loan vs getting it going and closed and getting the money and moving on.  So why rock the boat at signing even if it was not what was promised.

And then some you could not tell them anything if you wanted to because they knew too much and felt that their loan was all good.  Even if it did say it would adjust -- they believed the amount that was on the TNL as the amount it would adjust to rather than think that it might be higher than the estimated number that is on the TNL.

The good faith is a little confusing unless you really know how to read it, so I can believe that most just look at it for a certain number (say broker's fee) and thought oh its OK.

There is truly not enough education on the lending process for the consumer.  Thats my 02 cents.

You bring out good points, good post.

Our Miss Brooks, How are you? Many Thanks for adding in your .02. It is important to get that here. I am so surprised how this post of all of them cropped up. I wrote this back in MAY 2007 and I have learned and written more updated information that I had learned. I am totally sympathetic as I realized the extent that people were abused.

Greetings, I hope all is well.

Thank you to Mr. Johnson for posting this interesting article and thank you to the industry professionals who sounded off with so many positive comments.  I am glad some were able to use the soapbox and continue the advocacy regarding this all important consumer topic. 

This topic is timely and is on the minds of industry insiders and consumers alike.  It's always important to discuss matters that will help consumers with their financial decisions and choices. 

Hello Frederic, Thanks you for dropping by and reading my post. Thanks you also for your very intelligent  and cogent comments on this issue that to date has not evolved to an acceptable conclusion. Consumers , agents mortgage brokers are in this together. With our minds open and our mouths shut, we all accomplish good things ahead. There are certainly enough criticisms to last many lifetimes. Too many are long on criticism and short on solutions. As professionals working together, we can and will solve this crisis. I have great faith in the truly committed to guide those that aren't, and we will land our feet once again.

Many thanks for your great comments and hope that you will love ACTIVERAIN as much as I do.