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New Rules For The Lending Industry....And Everyone Around It!

Something prompted me to totally change direction in what I was going to post tonight. I'm not going to give any long intro's or pull any punches. These are my thoughts on some things that need changed or that should remain as is, heck call me the new sheriff in town. Without further ado....

NEW RULES:

Can you buy a home with no money? Short answer....No! Unless you are a Veteran, no. Is this a good thing? Absolutely!! Let me tell you why. As soon as you buy a home, if anything goes wrong (heating goes out, leak in the roof, appliances break down, whatever)....guess who's in charge of paying the bill? If you have no money in the bank, no cash in hand, no Reserves (as we like to call them)....you are in a bad situation. This is better for you, trust me on this one. 100% financing is alive and well but it is a heck of a good idea to have money in the bank after closing to be able to deal with the responsibilities of Home Ownership.

If a consumer has a fixed rate for, let's say, 2 years...which then becomes adjustable after that time has lapsed, you aren't allowed to attach a 3 year pre-payment penalty! That is unethical & in my mind....a financial crime! You know darn well that after 2 years the rate is going up and they will probably have to sell or refinance, don't penalize them for having to do so as their payment increases. A little bit of transparency folks, the individuals who make these loans make more money by putting people in them. Common Sense says, "There is no way anyone can rationalize why that's a good idea to begin with. Two year fixed rate, fine. Two year pre-payment penalty, fair enough. Anything longer is Uncivilized!"

Beginning with High-School and extending into College if that is the educational route one takes, the concepts of 'credit' and 'buying a home' should be taught. You want to teach us about the Real World, then do it! Quite frankly, the only thing I knew about 'credit' in either educational avenue is how to get extra of it...

Stated Income & No-Documentation loans are important products for certain professions and individuals. Let's dabble in some Common Sense folks. If you no longer offer the product, you leave many individuals unable to buy or invest in Real Estate who actually pay their Mortgage on time and genuinely need such products because of their situation. Knee jerk reactions aside, many of these loans perform very well and make perfect sense, don't kill the herd because a few sheep went astray.

Fine print should be put in BOLD! Don't get me wrong, the redundant disclosures in the majority of closing packages I've saw are more than giving borrowers the terms, facts, fees, etc....of what they are signing up to pay. Yet, these freaking commercials labeled with 'Low Introductory Payments' & 'Buy a $200,000 Home for a payment of $600.00 a month"are ridiculous and misleading. If I was your adviser, and if you are still reading....consider me just that, if there is fine print involved in what they are pitching, ask them to read it verbatim to you. Ask them to read it slowly and Ben Stein like.

Real Estate Agents shouldn't make loans and Loan Officers shouldn't sell Real Estate. In my mind, which is the only one I truly own, it's a conflict of interest. A loose analogy would be if my dentist was also a gynecologist. Multi-tasking only goes so far. I'll leave it at that....

These are my opinions and to my knowledge, mine alone at this point. Take it for what they are worth, argue if you disagree. Whatever the case, if you are still reading now....check out a post that I think everyone needs to read!

Ken, you cooked a live one my friend!

Posted by Jason Sardi, Mortgage Banker on 10/31/2007 10:21 PM

Comments (86)

buying a home in pennsylvania, lehigh valley mortgage, credit, mortgage education

Originally posted at: Real Estate Financing...: New Rules For The Lending Industry....And Everyone Around It!

86 Comments on New Rules For The Lending Industry....And Everyone Around It!

OCT

2007

Real Estate Agents shouldn't make loans and Loan Officers shouldn't sell Real Estate. In my mind, which is the only one I truly own, it's a conflict of interest.

Hooray for the all american loan officer kid!

You made wonderful points here and you are one of the few that believes it's a conflict of interest for the multi purpose agent/LO....

Fabulous! Do I hear me in paragraph one?? :-)) This is the way it should be.....

Jason, I totally agree! My company, Prudential has affiliated businesses which I don't use. They really don't ask us to, but I like the people that I deal with on a regular basis. I think it's a conflict of interest anyhow...

Jason - very much like the idea of home buying as a high school and college course. Makes perfect sense.

best

I fully agree - I especially like the idea of personal financing being taught in High School.

Nice post.

If it was not for NO DOC loans I would still be a renter.

Sis - I can hear the argument from the other side...but stand firm at this point on the position I wrote about. For now, that's all I will say about that.

You are Damn, er, Darn right Jennifer ;-)

Linda - The Free Market is about options, not narrow minded 'Do business with us' policies. I like your stance on that.

Gary - I can't believe that hasn't been implemented.....

Rebecca - Amen, the mood needs/and will change. Those products were certainly mis-used by professionals and consumers, but are needed and really make sense for some.

Jason, Don't hold back ! Go ahead, say whats really on your mind ! LOL

I'll give it a shot Bill, but I'm no good at that transparency thing ;-)

I caught that edit mister... and I'd love to invite you to be my gynecologist, but then it would be a conflict of interest. You know how that goes....

IASF!

Yay! A star!!!

Hey Sheriff Sardi- thanks for sharing your thoughts. I've never understood why finances are not more important educational institutions. They are preparing students for the future and that has to be one of the most overlooked lessons they could teach. I wish I had had the opportunity when I was in school. Would have saved me some trouble in my younger years.

I have been reading up plenty of these reviews on Lending at this point it the high lites of any story right now.

Good post. Thanks for sharing. We all learned something from you.

Jason, The battle for market share in the mortgage industry left too many folks bleeding in the field. How is a monthly option to pay negative amortization a good thing? Why even bother qualifying the borrower in the first place?

Bravo! Thank you for standing up and saying what needs to be said.

I'm my own worst editor Jennifer....

Well put Mr. Smith, times two.

Gary - I'll pretend to understand the original, if the current gets changed.

Vicky - Thanks. You're welcome. And I of you....I hope.

It can be Andrew, but like the Real Estate Market....it isn't as National as it is Regional. Neg Am Loans on a more short-term scale and well planned out medium are a nice tool for the individuals that understand the system...

As far as bleeding in the field, that's the nature of war. And the best way to qualify a borrower is to know the affordability of the life they live. Life is a war of sorts...

Thank you Deborah!

Jason sorry that got posted twice- I clicked submit 1 time and it hung there forever. Guess it was busy making a copy.

Jason Smith - No problemo man, that's the nature of technology.

Sardi - You are a comment hog, though what is said makes some semblance of sense. Then again, being me, that makes a tad bit of sense....Common Sense.

I totally agree with the conflict of interest statement. Agents should do what they are best at and LOs should do what they are best at. Very funny analogy!

Good job lil bro....this ...I'm proud of. It shows that we all in the industry can work together as a team. Love it.

Jason! "cooked a live one" - I love it! Thanks for pointing your readers to that blog - very important for everyone to know the Truth as it is. But this is my favorite line in your post "Real Estate Agents shouldn't make loans and Loan Officers shouldn't sell Real Estate. In my mind, which is the only one I truly own, it's a conflict of interest. A loose analogy would be if my dentist was also a gynecologist. Multi-tasking only goes so far. I'll leave it at that...." Ewwww!

Jason.... so Sheriff Sardi? hhhhhmmmm I'll need to rest on that one. Glad to see something mortgage related. But then again, I really haven't been around much in the last 2 months.

In any case, very well done and so many true points. I know in many schools, when you are younger, they are teaching about money and banking. But adding something about mortgages might not be a bad idea. Not knocking here though, but you know damn well, that since this is a boring subject, that many want listen or study it. And those that won't listen would have been the same ones that would fail at it in real life, usually.

Overall, great job. I liked the bold print stuff, good idea. And yes, we are seeing multiple forms now, disclosing the same. I just had to explain that to a client at settlement today.

jeff belonger

What a well written and presented blog post. Some of this stuff is so common sensical, but at the same time we still need to address the needs of the first time homebuyer. Not everyone has mom and dad that can give gifts so the 100% financing and my community programs are good thing. You are right, reserves are needed to survive!

Jason,

Stated and no doc loans are here to stay. The market big enough for them. Of course the guidelines of them are changing as we go, to adjust to current market conditions. You made good points.

That would be awesome. A dentist, a gyno, a surgeon, etc. all rolled into one. You could get a complete overhaul in one appointment!

Loved the "New Rules"! This is the kind of plain sense that needs to be passed around in our industry.

NOV

2007

.....told you so!...Hardcore poser...

....you even brought Jeffrey out of his hiatus. What wordsmithing power you have!

SARDI - Nicely done post, my friend. It's good to see you back in the saddle, so to speak.

A very well deserved star!! You are a writer, little brother, no question -- and I wish I could refer some buyers your way. You WILL get licensed in WV, won't you??

Tina - Thank you, it's only a matter of time before I get flack for using that analogy:-)

Sis - I can make you proud....every once in awhile!

Ken - Thank you for writing that post. As far as the analogy, it helps get the point across:-)

Belonger- A-Ha, you bring up a related point....that of Personal Responsibility! Yes, Mortgages are a boring subject but so is Physics and Middle Eastern Philosophy and even Gym Class to some. My guess, the Real World usage and relevancy of buying and owning a home will inherently make it more interesting to students no matter who the Teacher may be. Yes, there will be those who don't listen or may have self-induced selective hearing, but at least it would of been covered. More relevant than dissecting a cat....in my eyes:-)

Kate - Thanks and I believe that reserves are often overlooked in what they truly mean to eventual homeowners.

Esko - Those products are legit & needed, you are right. It will be interesting to see how loose the 'purse strings' get with those products since they are a higher risk and were/and perhaps always will be to some extent, misused.

Lol Christy! Now that is funny:-))

Eric - Should I make it a series?:-)

Rich- I love you man! How do you say......MWA!

Crouch - You know, it's hard to get rid of those spurs....

Cooper- Ask Geary amiga, ask Geary!

What is this? Who is this? Stay away from Cooper so I don't see her writing on topic anytime soon. :) Congratulations on the star!

Excellent! Just the kind of common sense the industry needs. Straight forwarded and to the point. Fantastic!

Jason,

Interesting...I'm just waiting to hear from some that disagree and without too much emotion.

Griffith - On topic? What is that?

Sandra - Mucho Grazie Senorita!

Neal - You & me both:-)

Well... Refreshingly clear logic without any double talk.... Nice Feature!

Wow, Jason great post. In my office a few agents originate the loans and then hand them off and get paid. Nope not my cup of tea. I like the TEAM approach, Together Everyone Accomplishes More. I like my lenders they do what they do best and I do what I do best. Good job.

These are the rules most of us would love to see. Ever notice that common sense is not so common? Congratulations on you feature!

So, you are wearing your lender hat and you still write a great post and get featured! Your passion shows through once again!

What a wonderful post Jason. Nailed the complex subject (details, it's all in the details)..with simplicity.

In addition, I am impressed with Linda's position.

Great post! There has been talk of amending TILA to be more transparent. I think there should be a mandatory national licensing requirement, including ethics training for all LO's. And not some multiple choice exam on the internet that is not monitored like many current examas as well.

I think some well-intentioned LO's put folks in the wrong program(in order to qualify a buyer to buy a home they really can't afford) to help themselves get more referrall business from real estate agents as well. It's wrong, but it does happen as well.

Hard Core!!! Next we work on SEO... so needy loan people find it. Great job.

Very well done and I'd love to add a new comment. But it seems that everyone has said what I'd have said in the previous 44 comments.

So what I'll say is that I have hard enough time multi-tasking my real estate career, why in the world would you add LO to the mix -- unless you weren't a very good agent.

Michael, it's not "Well Intentioned" if their goal is lining their own pockets.

That just isn't right. Your opinions are too far off base. Stop making sense... if you make sense, nobody will listen you.

I listened to the hearings last week held by Barney Frank. The one message that came through clearly. Well, actually there were two messages.

1. The members of Congress on the committee that were reading the question prepared by staff didn't have the foggiest idea what they were talking about.

2. There was consensus that lenders, loan officers, mortgage brokers, mortgage officers or what ever anyone wants to be called should not be making loans to folks who could not "afford" to pay the loan back.

Sounds simple minded but when a person is "qualified" for a loan of $400,000 and they can get an ARM instrument that will let them "qualify" for a loan of $450,000, seems to me that someone needs to look at the future and see what the borrower's financial condition looks like when the loan resets.

I also agree totally that the real estate and lender entities should not be the same.

I agree real estate agents shouldn't make loans, but if we see our clients are getting into something that may not be in their best interest we should recommend they get a 2nd opinion.

Lenn - as usual, you nail the issues.

"There was consensus that lenders, loan officers, mortgage brokers, mortgage officers or what ever anyone wants to be called should not be making loans to folks who could not "afford" to pay the loan back.

So many in the Lending Industry want to be called CONSULTANTS (Loan Consultant, Home Mortgage Consultant, etc..) I TRULY WISH they would take the word CONSULTANT seriously and not just change their card because it 'sounds better" than Loan Officer.

Sardi,

Nice Job, but I'm late.. I like how you broke it Down, some may think more Complex is better.

Good Deal,

Tom Weiss

Jason - I agree about the conflict of interest thing. Many brokerages have it under one roof -it's the same thing, even if done by different people. We can teach out kids about credit, but when at 12 -they have the cell, the computer, the games: at 16 -brand new cars to drive to school (god forbid they take the schools bus). Why not a house at 25 -whether they can afford it or not. It's too deeply ingrained in our society "I want it, and I want it now". That's a long conversation.

Nicely done. Straight, simple, and to the point. Nowtell everyone about your kitchen sink young fella.

Hey Jason - right to the point, you are for sure on this one!

I could not agree more with you on this one ---> "Real Estate Agents shouldn't make loans and Loan Officers shouldn't sell Real Estate"

Your paragraph about the stated income loans and no-doc loans are so needed in so many situations - those should be here to stay! I seem to recall reading something that the National Bankers Association, I think it was them, put out that said the majority of those types of loans were not the ones in foreclosure, which made me wonder why on earth there was such bad press about them.

Anyway, GREAT post on this subject Jason!! And another pretty gold star for you, too!

MWA!!
Ann, still think I do!

Excellent points! I especially liked #'s 1 and 2. I try to explain to people calling me about buying a home and having absolutely no money to their name that it is probably not a good idea until they can scrape something together. They just don't understand it! You spelled it out very clearly.

It is very nice to be updated on these issues. I have had more issues with lenders latley. This fall I have had to amend extend at least 75% of my contracts.

Jason, all are great points! Yours truly had a listing appt last Sat with your example on point 2, 2 yr adj, 3 yr prepay. There couldn't believe...

hey, it's now 1:11pm on 11/1! :)

how did you do that!! later gator :)

were you at all sweating over this one?

I'll be back later to address everyone.

Pete- Sweating? Not at all, should I have been? ;-)

Jason,

What a GREAT post!! I am 100% behind giving the borrower the truth, the whole truth, and nothing but the truth. I agree with everything you said, with one exception. You should have added the worst offenders of the conflict of interest...attorneys and title companies...

I can't tell you how many times I have called a broker or real estate agent to offer my services, only to be told "Sorry, we own our own title company" or "Sorry, we have an attorney in-house" or "Sorry, we already have someone who does that for us." Since when does the title company or attorney work for the brokers and realtors?

Although there has been some good press lately attempting to inform the consumer that they have a choice, all too often they really don't. Too many brokers and real estate agents either give one referral and one referral only...that being their back-pocket attorney or title company...or they don't even give the client an option. The client finds out who is closing their loan long into the process. It's true that many borrowers don't know enough to even question it, but the brokers and real estate agents, if they are truly concerned for the borrowers, should feel obligated to let them know that they have a choice and could save money by shopping around. At the very least, they should be giving the client several options and not just the one company they own, have a relationship with, get kickbacks from (yes, it does happen all too often...just look at the RESPA investigations), or the ones they have lunch with once a week. I'm not saying that it's not ok to have built a relationship with a provider that you trust, I'm saying that using one company to the exclusion of all others does NOT help the borrower in any way. At least find 3 or 4 attorneys or title companies that you build a relationship with and trust to take care of your clients.

Other than that, like I said, I totally agree with your post and your efforts to keep the real estate business honest and to keep the borrowers informed.

THANK YOU for what you are doing!!!

Just thought I'd chime in from the attorney/title company end of this...at least the ones who really do care about the integrity of this business and keeping the borrower's interests the top priority.

Common sense will come back to lending. This recent knee-jerk reaction was a self protection measure by the lenders until they can get a handle on the situation.

Jason,

Be careful what you say..you might someones feelings...

Hopefully all of the idiots are gone by now!

Great picture. One more thing to add. Let appraisers do the appraisal. I guess we don't try to sell homes or do loans but it needs to be added anyway.

Dan - That's me, Mr. Clear Logic!

Missy - Thank you Missy. You are right, working together does so much more.

Brigita - I have noticed that, quite odd:-)

Diane - That's one thing I am, passionate.

Rob - I liked Linda's position as well, very refreshing.

Michael - I agree that ethics training should be implemented.

Carney - There is a long way to go before I get that SEO stuff....

Toby - Amen to that.

Mr. Rob - Now who would do such a dastardly thing?

Lane - You are probaly right my friend, I need to start writing in riddles...........again:-)

Lenn - <<<<<<<<<<<<<<<<<<<<<<<<<<<<If anybody needs a mentor. More of YOU is what this industry needs.

Christina - Absolutely.

Rob - That she did.

Tom - Don't make me MWA you;-)

Faina - The 'I want it now' attitude tends to get us in trouble. You are right about it being at the core of our society.

Geary - Anybody know a good plumber?

Ann - Thank you so much and................MWA!

Jeannie - Thank you!

Chris - I hope that changes for you sooner rather than later.

Nick - Hmmmmmm, that's peculiar. As far as that listing, that just makes me sick that somebody put them in that.

Mary - I can say that I haven't had one good experience with an attorney doing Title Work.

Tom - To a large extent, I agree with you there.

Neal - God forbid.....

Rey - They are fading fast I'm sure.

Chip - That's a heck of a point Chip, I agree.

Sardiman.... I'll have to send that one to the keeper of the nicknames.... LOL

Common sense? What a concept!

you mean that borrowers should actually have the capacity to repay a loan? what a novel thought!

good post!

Commen Sense, If only everybody had some, especially our elected officials who want to monkey with the system

Jason,

This is how it should be, you did good! :)

Dan Cummings........

Yeah Kelly, imagine that:-)

Lol, thanks Paul.

Michael - You hit it man, I could/eventually will go off on a tangent on the elected officials of the cities, states, & country we live in. Just chip in on bail when I go to jail:-)

Suzanne - Thank you my dear, work off that candy yet?

I couldn't agree more that loan officers should do loans and real estate agents should sell real estate. I can tell you right now, I DEFINITELY wouldn't want my dentist doing the whole gynecological thing. GREAT analogy.
I have seen a lot of issues with pre-payment penalties recently. Consumers need to be very careful to always ask what pre-payment penalties, if any, might be in place on the loan program they select.

Jason, you have a colorful post, I would like to mention that I have 15 years experience as a mortgage broker and Im the co manager of a mortgage company and a real estate company and I have experimented in the last year with giving my real estate agents the option to originate loans...so far I have had no regrets...some of my agents are making more money from loans then sales right now, just because it has been so slow. But hey, we have to do whatever is necessary to survive and then position ourselves to prosper. Best of luck to you old chap. ktm

Jason - Some excellent points here. Loved the dentist/gynecologist analogy although it might be a timesaver :-)

NOV

2007

Excellent points. Thanks for posting.

Jason, it is a damn shame that personal finance is rarely taught in high school or in most U.S. colleges. While Freshmen suffer through Economics 101 understanding little beyond the supply and demand curves and maybe grasping the concept of net present value, when it comes to personal investing, credit, mortgages, etc., our educational system is severely lacking. How about a nationwide mandatory high school program on personal finance? Something that would prepare people for the real world! Just don't set up a government committee to implement and run the program.

Also, I agree that Realtors should sell real estate and lenders should make loans, work in partnership -- but never cross the streams -- it could cause total protonic reversal!

For years the banks have tried to get into real estate brokerage at a nation level avoiding the state laws and have not been able to get that bill passed. Now they are trying to eliminate mortgage brokerage. On one hand they say that the increase in competition is good and on the other they are trying to restrict competition. It's all about the banks making more money.

Good stuff. I am particularly fond of teaching 'Real World' stuff in college. Learn about credit and buying a home!

But why start in college.... responsible money can be taught in elementary. Savings and beginner money management (why we are not buying every toy you see at the store) can be taught in middle school. Advanced money management in HS.

Jason, Great post....practical and solid.

Great post! You hit the nail on the head!

Denise Worsley
MPNC

Thank you thank you thank you! You are correct. I have been preaching this for awhile on Broker Outpost.

Right on Ginger!

Kirk - It's good that it is working out for your agents and hopefully the clients. In my opinion though, it's a conflict of interest. Thank you for your input!

Marlene - Never considered it a timesaver, I may be onto something:-)

Bob & Carolin - Thanks for reading.

Brian - It still boggles my mind, I only hope some players in the Education Field are reading.

James - I have heard they've been trying to do this for years, my guess/hopes are that they will again fail.

Martin - Good point, that's very true!

Jeanean - Thank you.

Denise - Call me 'The Hammer.' :-)

Brandie - I'm familiar with Broker Outpost, maybe I've run across you there before.

Hey Jason,,,I don't mind spending time reading all of your posts, they certainly do offer more than just charts and numbers for the masses. Good job here on this one as well. I know of many in the mortgage business who are on a long walk somewhere else right now, selling copiers, waiting tables, back to doing home improvement. Its good to have a correction every now and then, it keeps the systems honest..With your permission I have copy and pasted some of your content into a booklet I am making for buyers and sellers to read in the lobby, or even reference to it in links in my OTHER BLOG...Who owns this stuff anyway