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Mortgage Veteran Offers Senate Committee Chairman Dodd Advice

Dear Chairman Dodd:

Soon, HR 3915 will be endorsed by the House of Representatives and most likely referred to the Senate. The committee you chair, will have an opportunity to read, discuss, debate, and amend this bill before recommending it to the general Senate for vote. I am a 20 year veteran of consumer financial services with the last 14 years in mortgage lending. I have helped over 700 families finance their homes and closed some 1700 loan transactions. I humbly win submit my expert opinion to you for consideration.

The Libertarian in me begs you to do absolutely nothing; it’s the borrowers’ cavalier attitude towards financial planning that caused this mess. While my statement is true, it is but a component of the underlying malaise in the residential real estate industry; we adopted an even more cavalier approach to loan approvals and that irresponsibility is being felt by the investors who trusted us to perform adequate due diligence. Failure is a costly but cogent instructor; to discourage failure on both the borrower and investing lender sides of the equation might be more costly in the long run.

I oppose individual originator licensing in its proposed form. It doesn’t demonstrate true expertise and might induce a false sense of security to the consumer. This very act may very well damage the consumer by perpetuating the adolescent approach to financial planning the average American exhibits. It transfers the responsibility of prudent money management from the consumer to the license issuing body; sadly, those bodies are not up to the task.

I am a pragmatist so I know that my remarks about licensing, while philosophically pure, are impractical from a political view. Inasmuch, I recommend that the licensing requirements be strengthened continued

THIS POST WON THE WEEKLY ODYSSEUS MEDAL FOR REAL ESTATE WRITING

Posted by Brian Brady- America's VA Home Loan Broker on 11/10/2007 10:03 PM

Comments (24)

hr 3915

Originally posted at: America's #1 Mortgage Broker: Mortgage Veteran Offers Senate Committee Chairman Dodd Advice

24 Comments on Mortgage Veteran Offers Senate Committee Chairman Dodd Advice

NOV

2007

Brian.... this was awesome and you did an excellent job.

What I liked most is this statement that you made, I oppose individual originator licensing in its proposed form. It doesn’t demonstrate true expertise and might induce a false sense of security to the consumer. You and I definitely see eye to eye on that one.

I also totally agree with your statement in regards to YSP. This could hurt borrowers more than help them if they allow this part of the bill to be passed.

Lastly, I love your statement in regards to investors. Investors should be treated as “savvy” individuals. The very “danger” of “swimming in the deep end” should be a sufficient enough incentive for the investor to perform the due diligence required.

Overall.... excellent letter. You have a way with words and getting your point across. I would love to copy this letter and get other loan officers to sign this also. Why don't we work on something like that? I truly think that we should define the NJ lending laws, between the no prepayment penalty, the NTB (net tangible benefit) formula, and that bankers and brokers can't charge more than 4.25% in total fees. This is to include pts, closing fees, commitment fees, and a few other fees.

Good job... this should be a featured post.

Great post and excellent ideas.

Sean Allen

Brian, excellent post. I think that national licensing is a necessity. Not because it will stop all abuse, but so it will establish a minimum level of competency. There are too many loan officers placing their clients in loans that they don't even understand themselves.

Brian:

That is way too brilliant to actually become a law.

I hope they read it..... better yet, I hope they understand it.

I do not think that congress has the knowledge to legislate on this issue.... come on now, these guys cannot be experts on everything, and they get their bullet points from lobbyists....

DO NOTHING is the best course.

and to add.... the originator isn't the problem here.... it is the investors.....

Tom is actually correct (at least in my eyes). However, originator licensing, as stupid as it is, seems likely. Political presured will force this hand.

If we are to license originators, the Fed is actually the regulator of jurisdiction here. That body should establish a licensing standard with teeth . The current proposal will do more harm than good.

My summary states:

In closing, I’m telling you not to “do it” but if you’re going to “do it” then “do it right”.

Licensing originators is a stupid idea but if it is to happen, it can be done correctly.

Too many time our leaders do thing from their own experiences and do not rely on people in the area of expertise they are entering into. Most of the congressmen have 100's of issues they try to become experts on and they need comments like yours thank for taking the time to present your case.

great post. Once again the main problem may be missed. They may want to think about educating people in school as to the decisions they are going to make in life. The minorities are going to suffer the most but I am sure they will come back with a government program for them later. Hard to believe these same people could not forsee this. Let let know we have an energy crisis lying ahead? Let them know social security is going to suck up a lot of cash in the next 5-10 years.

NOV

2007

Brian,

I have nothing to add, but I'd like to be associated with this post.

Thank You.

Bill

William J Archambault Jr

The Real Estate investment institute

First National Mortgage Sources

Can someone explain how, for the past 8 years insupervising over 1,000 home sales, I had one, (1) home buyer who defaulted. It was a sub-prime 2/28 loan. The buyer had the ability to pay but choose not to expecting an ex to pay for her. One out of over a thousand home sales in 8 years.

Either a buyer is qualified or they are NOT. Where is the problem? I don't live in a cave. I know that not everyone is qualified, but we rely on loan officers to do a credit review and tell us whether or not a buyer is qualified. If a loan officer tells me that a buyer is not qualified because of credit problems, that's the end of that buyer. We sell homes. We don't sell pipe dreams.

My question is, with all of the "guidelines" for qualification and loan approval that exist in Fannie Mae, FHA, VA, mortgage groups, housing groups, consumer groups, etc., how did the situation get to where it got???

Where was the enforcement and will it be as pathetic in the future? Give me a couple of good programmers and we'll have a program to locate patters of abuse quickly. Seems to me that the problem is not that the industry didn't know the risks that were building. The problem was that the industry didn't want to know.

The real estate and financial industries exchanged short term financial gains for long term statbility. Regulators were too busy lining their own pockets to regulate. Congress was too busy building their own power to exercise oversight.

I hate to see lsgislation come out now. It will be reactive and typical overkill, like Sarbanes Oxley. I listened to the Barney Frank herings. They had no basis in reality. Barney Frank was paying off political contributors.

I have nothing to add, but I'd like to be associated with this post.

You just did both, Bill. You're endorsement speaks volumes

Thanks for your insight! I will watch this process with more insight thanks to your great post.

They need to make if fair across the board. They should also make it an expensive bond and licensing process. This needs to be a 4 year degree process like appraisers are going to.

Brian... if you don't mind. Lenn..... in 15 years, I only know of 2 that defaulted and went into foreclosure. One told me because their taxes went up and her income was cut back. The 2nd one.... they bought a 2nd home, were well qualified. They owned a few business and they still both worked for the corporation. She lost her job.... a $55,000 job. On top of that, they owned 2 tanning salons that were making less money after they bought.

Overall, you sound like a great realtor and know what you are doing. But for part of what has happened, things happen. Yes, many American's spend frivolously, and some just don't care about the circumstances. We can point blame at banking institutions, we can point the finger for easy to obtain 'toxic' mortgages, and we can blame ourselves.

In my own opinion, we have been in a slight recession for the last 6 years. Sure, people were spending, things looked good, but so many numbers are construed. We could be here forever on this topic. But with relaxed loan programs and people not taking responsibility, this was the biggie. On top of that, greed.... loan officers not explaining things correctly, making one program look good when it could actually be bad for them.

There are just too many unknowns..... I do understand the politics in this one. It's like a lawyer that makes a problem in a real estate transaction to justify their fee. And this is just an example. But many politicians are under the heat lamp now and they are just trying to make themselves look good. Yes, they could make it worse. I think it needs to correct itself. This is where we need to get in touch with our congress people and make them aware of all of this.

Brian, I won't comment on your licensing proposal because we have divergent opinions there, but I do like your YSP proposal. I think we need a level playing field with the banks. Their cost of funds vs their lending rate is yield spread premium in the strictest sense.

Bill Roberts

Hi Brian-

Excellent -

I think it all does boil down to the 'do it right' part.

We have rules / laws now - they and they aren't enforced.

Where is the sense in adding MORE rules - especially poorly thought-out ones - that also won't be enforced?!?

Brian, this is an excellent post with concise, cogent info. Without licensing or standards how would you propose the consumer be better served since currently it's caveat emptor?

Without licensing or standards how would you propose the consumer be better served since currently it's caveat emptor?

Yep, Josette. The current system actually works quite well and is heavily weighted to the consumer. There has never been a time in the history of this country when capital was a cheap and readily as available as the first part of this decade. Buyers got drunk on the cheap and free flowing money and Congress wants to give them two aspirin. There is a curative nature to the "hangover"; it encourages moderation or abstinence in the future.

So, this bill looks like it will pass in some fashion. The licensing will be even more dangerous to the consumer because it suggests competence. The consumer will still make reckless decisions except now they'll be guided by a licensed (and clueless) "professional". If licensing is the answer, make it meaningful.

The drawback to my proposal is that licensed professionals will tell people no. The adolescent nature of the average American precludes him from looking beyond a two year time horizon. That's really okay. 80% of the people who gambled their future to buy a bigger home, or who treated the unexpected largesse from rising real estate prices like an ATM machine, will work out just fine.

There is no reason to institute one thing from HR 3915 other than political posturing. However, if Senator Dodd is serious about making borrowers, lenders, and originators accountable for their actions, he'll highly recommend my proposal.

Thanks for your comments and forward to the Chairman's staff. I sincerely hope he reads it and seeks my counsel.

Brian - This is very well written. I would not presume to claim complete understanding of the issues. It seems the more laws that are passed, the more things stay the same. The end effect is yet another batch of disclosures that no one seems to read. I don't think you can legislate away stupidity. Greed would have no traction if stupidity did not obfuscate the real dangers inherent in risk.

Hi Brian, you make some very strong points....but I have to tell you Lenn....and her programmers might be a cheaper solution to a no win problem if no one looks. Nice post Brian, as always.

The inherent problem with the mortgage and real estate industry is the lack of guidance to the borrower. Congress, who hasn't a clue about our industry, can legislate till they are blue in the face and promulgate all sorts of legislation changing and adding disclosures etc,, but it will not have the desired effect. All this legislation will do is limit consumer choices instead of providing for the means to create an educated borrower.

I watched a discussion on CNBC when this bill was introduced. It involved Dodd and Barney and I was stunned when one of them mentioned that there is something wrong with a borrower signing a stack of documents in about 15 minutes with no understanding of what they signed. WHERE DOES THIS HAPPEN????? Not in my neck of the woods!!! It is common practice here for the parties to retain attorneys for representation, including the Lender. Therefore, a borrower has an attorney to explain the documents and provide guidance at the closing. A borrower has never left my table not understanding the produce and the ramifications of the transaction, whether I represent the borrower or the Lender.

So maybe its not more disclosure that is necessary, maybe these borrowers need counsel.

So maybe its not more disclosure that is necessary, maybe these borrowers need counsel.

Kathleen, that's true but attorneys aren't the answer. Attorneys, while useful at explaining the legal rpoints of loan agreements (note, deed of trust or mortgage), mostly lack financial planning expertise.

We can go one of two ways here; leave things as they are and encourage borrowers to hire a real financial planning expert to originate the loans or demand that originators have financial planning training.

I wouldn't be opposed to seeing attorneys develop such expertise. I have two attorneys in my CFP classes and I believe they would develop into excellent loan counselors.

DEC

2007

I'd believe you on that. It doesn't take a genius to know that licensing someone on something doesn't make them an expert on it. Take teenagers behind the wheels of cars for example.

http://www.vareficenter.com

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