Just out of curiosity, do realtors have to be licensed in every state, but mortgage brokers do not?

Kevin, every state has their own rules.

Bill Roberts

Interesting Bill, I never thought of it like that. The system doesn't work well when you have a mortage broker who has an adverserial releationship with the client who doesn't even realize this, they probably think the broker is  looking out for their client and not themselves.................this stinks  

How sad, but in Southern California it happens all the time unfortunately. We do need to get everyone who is not a direct lender licensed by the DRE and get a decent training program for them as well.

 I remember when I was doing home loans everyone in my office was selling those pay option arms, just because they paid 3 points to the broker. I never sold one since I knew that borrowers would get into trouble. Now everyone who sold those loans are having to deal with unhappy clients who are in foreclosure and there is nothing they can do. How sad.

Michael, How right you are. It stinks to high heaven. It's time to change the system.

Bill Roberts

Charles, You are right of course. DRE licensing would cure a lot of ills. Maybe a little higher standards for the DRE license wouldn't hurt either. Thanks for chiming in.

Bill Roberts

Bill, doesn't the bill that was just passed call for more regulation in regards to licensing? Anyone that is dealing with a person's finances should have a fiduciary duty.

This is a sad story.  I dispute that the home owner's age is relevant.  It could have and has happened to many of all ages. 

This scenario is why we're in the trouble we're in. 

And the lenders want to tell me to mind my own business and not be interested in my buyers' loans. 

Not likely.

Excellent article.  This describes the abuse of this home owner so that anyone could understand.  Why not put this in Localism for CA??

Mario, I'll believe that the problem has been fixed when I see the actual law that says so.

Bill Roberts

Darn Bill, This guy certainly raped this poor lady. Why oh why don't folks take the time to at least understand what they are signing and how much it is going to cost them? A license is NOT going to make a dishonest person honest. Just look how many unscrupulous real estate people there are. Don't get me wrong I'm all for licensing. At least it does give the consumer some authority to complain to. The thing with this deal is the LO probably didn't do anything that is illegal. The consumer needs to be educated.

Well done Bill. How come you get all the features? :)

Lenn, Thank you very much. I am a Realtor and a mortgage broker. I look out for my clients. I think we all must do that. I advocate more real estate brokers becoming mortgage brokers and keep the transaction in-house just so that this kind of thing doesn't happen, but if it does the borrower will have recourse.

I did post it to Localism for my county (San Diego).

Bill Roberts

Sadly, Bill, there are a lot of "predatory" types here who are licensed.  I do not know that they re qualified.  It seems that character cannot be determined for a license as it is too subjective!  Thank you for your thoughts!

BB, You're right, there was nothing illegal about what he did, just unscrupulous. Plus the borrower has no recourse. If a DRE licensee had done this they would have done something wrong and would have been subject to disciplinary action . Plus she could have sued him for damages. A DRE license would have made all the difference in the world.

Thanks for commenting.

Bill Roberts

Sarah, As I mentioned to BB and others the license may not change the person but it gives legal protection to the client. Thanks for commenting.

Bill Roberts

Bill - It is no consolation, but I hope there is a special place for these people come judgement day.  I wonder if a case could be made for a kind of discrimination based upon age and ethnic background.  I doubt it, but it seems worth investigating.

NO it is not typical, but it is what the media wants you to believe is.......

your line  "When the lender pays the broker YSP they protect that payment by charging a prepayment penalty. This woman has a three year prepayment penalty on this loan."  is very misleading and to be frank wrong.  I make YSP and 98% of my loans have no PPP.  I would say 100% but there are the few "sub prime"loans that I do that have them.  Why are they subprime?  Well bankruptcy in the last 24 months makes you a subprime loan.

another comment "advocate more real estate brokers becoming mortgage brokers and keep the transaction in-house just so that this kind of thing doesn't happen, but if it does the borrower will have recourse."  My question is how many points do you make when you "double dip"

 Option Arms suck and they should not be sold to anyone that doesn't have a clue about how things work

Yes this loan officer probably did "rip her off"

Sorry if you think LICENSING would have stop this loan, although it may have stop this loan officer from getting in the profession

I don't see how being licensed would make the mortgage person any more liable for the borrowers position. The borrower signed the docs and evidently did not read them. Why should the mortgage person be responsible if the client ends up not being able to afford the loan a year later. People on general need to be responsible for the decisions that they make. This would be no different than a car dealer selling a high priced vehicle and 6 to 12 months later the buyer realizes that they can't afford the vehicle any more and now they owe more than the vehicle is worth. Why would the car dealer be responsible?

I am no way saying that what the mortgage person did was ethical, but from what was said he did not commit and laws or violate any regulations to finance the borrower. In all reality if he only made $12,000.00 he cut himself short because most lenders allow a broker/LO to make up to 5% of the loan amount which on a loan amount of $344,000.00 would equal $17,200.00, and if he followed Fannie Mae Guidelines he could have made ALOT more.

I personaly did not do very many options arm loans because I saw many people would get into a bad situation, BUT those few that I did do were pushed on the borrower by the real estate agent telling them they could afford the house with that type of lower payment, so the clients came to me wanting that type of loan.

I see on a regular basis how mortgage people are so terrible for marking these and I had NUMEROUS realtors recommending these to their clients so that they could sell a home which was priced higher than the customer should be buying. Who should be liable here ... the mnortgage person for financing what the client requested or the realtor for pushing this product on the client so that they could get the sale?

Sean Allen

Debbie, thank you for your kind words. This one got away with it, but if we're smart we won't let a whole new group get away with it next time.

Bill Roberts

Let's do something about this travesty. Let's get rid of unlicensed, unqualified loan officers. Let's replace them with fully qualified brokers that have a fiduciary duty to their clients and let's offer the borrowers the protection of AGENCY.

Oh, yes...let's.  May I set the rules for licensing, Bill? 

Joe, You seem awfully upset by this. Did it touch a nerve? The license may not prevent this kind of practice but it does give a means of redress (at least here in California) and a good chance that he would never do it again.

As for your comments on prepayment penalties and YSP, I can't believe you said that. I looked at your profile. You've been in the business long enough to know the relationship between ppp and ysp.

Thank you for your thoughts.

Bill Roberts

Nope no nerve,

YSP does not equal PPP.  I do way to many conventional and FHA loans.  PPP equals sub prime and alt a.

At least in Colorado

Sean, I wouldn't do business with you. Too bad, because I might have before this. You can't see that the mortgage broker took advantage of an old lady with a language problem? He took her out of one bad loan and put her in another and it cost her $23,000.00 for the insult.

And his fee of $12,000 was exorbitant. He should have done the re-fi for $5,000-$7,000. NO MAS! aND HE SHOULD HAVE PUT HER IN A FIXED CONFORMING.

Bill Roberts

Brian, I've been trying for months to get some sort of agreement with you on licensing. I know you prefer some sort of federal licensing along the lines of securities licenses. I prefer the DRE model. Can we find a solution?

Bill Roberts

The Pay Option ARM is/was a great loan for the "right" person.  If you are a self employed person who makes your money in different cycles other than monthly, they are great.  If you are using them for short term financing, they are great.  If you have the financial accumen and assets to manage the loan, they are great.  If you are a cone jockey at the local Dairy Queen wanting to get into a $350,000 housew/no down payment, they are a recipe for disaster.  In short, they're not so great. 

Let's face it, most Loan Originators don't fully understand Pay Option ARM's.  So how is it that they can clearly illustrate it to their clients.  I think the major problem with these loans is that the lenders made them so attractive to the LO's in the form of YSP, that they just jumped on it w/o knowing what they were doing.  In the frenzy a lot of people got reckless.  Lenders.  LO's. Borrowers.  There is no one person to put the blame on.  Greed ruled the day.

That being said, when Option ARMs come back into vogue (which they will) should the LO's be required to obtain certificaton to sell them?  For that matter should there be federal standardized licensing and continuing education for all LO's, Bankers and Brokers on all loans?  This would be a significant undertaking.  One that would require a lot of cooperation from the Federal and local governments.  Would it be worthwhile?  I think so.  Maybe I'm off base, but there are systems in place like this for Financial Planners, Life Insurance Agents, Realtors, etc.  Why not the mortgage origination industry?

Just thoughts.  All the best,

Rob

Rob, I can't find anything to quibble with in your comments. I agree as a mortgage planning tool neg am products are great. You should be able to borrow money out of your house and invest it for a higher rate of return. That's great.

But in this case, that wasn't the case. She was sold an inappropriate loan at a very high cost. At a time when she could have been put into a good loan product.

Thanks for commenting. Let's see if we can't come up with a "licensing" solution before one is imposed on us.

Bill Roberts

Sooooo Bill,

What you are saying is that mortgage people should limit themselves at 1.5% to 2% max in our revenue while real estate agents regulary charge 5% to 7%? Why should we make any less in our trade than you do in yours. It is a free market society. We are here to make a living just like you. All fees are required to be disclosed to the client on the GFE so that they can openly see what we are being paid. If they don't want to pay it, they can negotiate down or go somewhere else to be financed. If the client is not comfortable doing business in English then they should seek someone out who speaks their language so that they can better understand the process. The borrower obviously chose to do business with the mortgage person, why is it his responsiblity if she didn't understand.

I am very fair and honest with our clients and tell them the full story on the financing program and any consequences. I will even turn down client who I believe have no business getting a mortgage but I know we could close the loan if we took it. But I will also say that I'm not cheap and I will rarely do a loan for less than 3 pts regardless of the loan amount and I make sure the client knows what my fees are up front.

Sean Allen
The Mortgage Professionals

Sean, You can charge whatever you want. I am a loan broker. I generally charge 1 to 1 1/2 points on a loan, either as loan origination fee or YSP or a combination to add up to that amount.

The reason that the mortgage broker should charge less is because it is less work than selling a house with a lot less liability. I would guess that after you take the 1003 you hand the whole file over to your loan processor. She does most of the work. And then you charge the borrower for her services separately.

If you price the loan and submit the loan, that is probably all you do. That's worth 3 points? Give me a break.

Bill Roberts

yea right..... less work ...waaaaaaa. Wake up and smell the roses. Both jobs entail alot of work. And yes, I have a processor and her fee is $600.00. Don't like it ... don't refer.

You might want to dismount that Great White horse you think you are on.

Sean Allen

Bill- Congrats on your feature. There are these types and they should be hung out to dry just for what they do. I don't think licensing has anything to do with it. Here in Florida  you have to be licensed to be mortgage broker or loan officer. And it does not by any means stop this type of behavior. Katerina

Bill you are right on, I spoke with a client that was in the last leg of a refi somewhere withing the last couple years and it was the same scenario but with more fees.  He was lowering the monthly payment in the short term and burying these people in the long term all while keeping a tidy sum of $20k in fees.  I hooked these people up with a reputable lender and cut their fees by over 75%.  something needs to be done to protect our industry and our public from scum like these.

Take care!

RJH

amen to licensing mortgage brokers, lets get home inspectors on the same program.

Solution, Bill?  Sure, let's get a license for lenders.  One that bears relevance to our industry.  You're promoting a real estate sales license for financial advisers.

Haven't we learned from these past five years that our licensing in California is inept?   Why promote the very license that got us into this mess?

We can do so much better, don't you think?

Katerina, Thank you. The license won't stop this kind of thing but it will give the client more rights (at least here in California) and that's not bad.

Bill Roberts

This particular broker operated under a DOC Consumer Finance Lending license. A company license that is more akin to registration than actual licensing. No individual licensing is required under the Department of Corporations CFL license.

Bill, that's an inaccurate statement.  A CFL license requires:

a- background check

b- financial responsibility test (including a credit report)

c- net worth requirement

d- bond for financial guarantee

A DRE broker's license requires (a) only. 

Bill,

Mortgage Planning is a dicey subject!  While I consider myself a Mortgage Planner, I'm very cautious in how I advertise and explain it.  So thank you for your comments on the subject, they are valid!

Regarding the Borrower, she got hosed due to a lack of regulation on the product, lack of understanding of the product, lack of understanding of the loan process (pre-pay penalties on both loans, etc.), and a greedy $#%*! loan officer.  While we weren't in the room when the LO explained the deal, these facts indicate that the borrower was taken advantage of.  If that's the case, shame on the LO.  The upside is, if that's how they make a living, they won't be doing it in the mortgage industry much longer.  Most predatory loans are gone!

Sorry to belabor my point.  I wanted to clarify my position on the original question! 

Many thanks and all the best,

Rob

Robert, Good for you. Some LOs think it's all right to charge whatever they can. Just check out the comments here.

The Loan Officer must have a fiduciary duty to the borrower. Without it gouging will go on. Also they will "sell" inappropriate products.

It cannot be buyer beware when most borrowers don't have a clue about mortgages.

Bill Roberts

Michael, Thanks for commenting.

Bill Roberts

Brian, In answer to your question, YES we can do better. I'm for upgrading DRE requirements and standards. But the DRE license process is good and so is the disciplinary procedures.

As for your CFL license requirements, what about testing? What about individual licenses? What good is a background check on the "front man" and none on the actual originators?

Bill Roberts

Working with, and teaching, many first time homebuyers, I am partial to CONSUMER EDUCATION. I am licensed in California and in Oregon, but my personal ETHICS dictate much more than either licensing agency requires. Continuing education requirements in both states are insufficient for newcomers to the mortgage business.

The free market theory vs. the unsophisticated borrower adds another layer. I attend my borrower's closing appointments whenever possible in the event they need questions answered. Every escrow officer has gone through and pointed out any YSP (aways matching the original GFE) and hit the highlights of th  program for the borrowers. I can only think there are many hands this woman's loan went through.

EDUCATE - the consumer AND the licensee...DISCLOSE the program particulars and terms...have an independent 3rd party REVIEW TERMS AT CLOSING. Won't eliminate all the sharks in the waters but will hopefully nip more of these cases in the bud. 

Thanks for bringing this topic to the table, Bill.

so if i read your comments correctly, you are making average 1.25 on the loan and what 3 on being the buyer agent and 3 on the seller agent for 7.25?  do you disclouse this to the buyer?  maybe you only work with buyers so you are only making 4.25%.

and please tell me about the laws in Cali, and especially about PPP.  Personally according to my experience and you looked at my profile.  I find your comments way off base.  Please educate me and show me the facts and the lenders guidelines

and less work than selling a house  ......  what are you smoking?

both sides have a lot of work. the fact that you double dip makes it less work

Rob, thanks again. I understood your position from the start. We are in harmony on most of these issues.

Bill Roberts

Karen, I agree that CE is inadequate. In fact it is a joke. I think education needs to be college level classroom instruction. And consumer education is woefully inadequate or not available at all.

But expecting escrow officers to "police" the activities of unscrupulous Loan Officers isn't going to fly. Just because the GFE closely resembles tke final HUD doesn't mean it was the right product or fairly priced.

It seems that your "standards" are very commendable. If everybody acted as you as you do we wouldn't be having this discussion.

Thank you for contributing.

Bill Roberts

That is indeed a sad scenario you describe. Even sadder is she is not the only one who has a situation such as this.

Bob & Carolin, All we can do is work toward higher standards and licensing. Maybe that will cure the problem.

Thanks for chiming in.

Bill Roberts

Brian, In answer to your question, YES we can do better. I'm for upgrading DRE requirements and standards. But the DRE license process is good and so is the disciplinary procedures.

So is the barbers' license, Bill but it still bears little relevance to lending.  A barbers license tests knowledge of haircutting while a DRE license tests knowledge of real estate brokerage.

How about we try another avenue?  Do you think it is better or worse that we teach originators more about financial planning than real estate sales?   Bill, we are SO far behind states like Arizona in lending expertise because of the DRE license.  I know this because I'm licensed (and practice) in both states.

Bill, I've heard several horror stories like this, but I never got a detailed explanation.  Thanks for spelling out how the broker was able to make so much money on the deal.  I feel sorry for the people involved.  Maybe they should contact the local papers, though I note that the broker (real estate and loans) who was walked out in handcuffs here in Santa Clara County still has a spotless record according to the DRE public search.  He may still be an NAR and C.A.R. member, too, despite all the clamour about REALTOR ethics.  I'm with you on the need for licensing, but we also need to make the R stand for something.

Another solution might be to require low to moderately qualified borrowers to attend borrower education or counseling. I agree that there need to be higher industry standards. As far as who has more work to do in closing a sale, speaking from experience, the processor generally does most of the work. Work that the agent, the loan officer, the appraiser, escrow and title, and the notary, should do. Every LO and RE agent out there should hug their respective processors. Without them, none of your deals would close.

How about we start an internet campaign to seriously address this topic and get something passed?

my opinion is to restrict LO to get no more than 1 point for their service, lenders to restrict rebates to LO perhaps this would control this type of scenario.  I am sad for the current system. I am sad on behalf of those borrowers in difficult situation with negative amortization loans.  thanks to all for sharing your thoughts, opinions and ways to find a solution.  greetings to all.

I agree what a nightmare, I worked as a real estate paralegal and then a loan processor and the first mortgage company I worked for were awful. They were only interested in THEM and what POINTS they could charge. Clients were getting ripped off and when I worked there (which was for a short period of time) I would help the clients out as much as possible and fight for every loan to make sure NO ONE got ripped off. Needless to say I was not liked too much but at least I slept at night.

Like anything else consumers need to be educated and shop around and not just accept the first "deal" they get.

Phyllis Pafumi

It's too bad so many people don't understand how to take care of their clients.  Just because I can do something doesn't make it right.  Consumers also have got to get better educated about the process...

I don't know what action the homw owner would have here but it seems that she SHOULD have an action.  I don't think she was defrauded, but is there any case for her to make?  People have recourse if they buy a "lemon" from the car dealer why not the loan officer?

I love your call to action Bill, very nice!  I think the market is naturally weeding out the bad but an agency agreement between for a mortgage would probably show more loyalty on the broker's part.

I don't know how people like that can live with themselves. It will not last forever. They will pay for it in the end.

Brian, You think that a real estate license is only a license to "sell" real estate? Real Estate Brokers in California have broad powers in real estate transactions, including the "right" to hold escrow, draft agreements, arrange financing, and give advice. They are in essense financial professionals specializing in real estate.

Your low regard for real estate brokers hinders our discussion.

Because of what a real estate broker is (in California) I advocate better training and higher entry standards for licensees. Now, whatever training you see as necessary would be helpful to this discussion. I agree that a curriculum similar to what is required of a financial planner might be good.

I appreciate your participation here.

Bill Roberts

That's a crime and unfortunately we see it everywhere.  Mortgage brokers were not required to be licensed in Maryland until the past year and it's about time.  From what I understand, they have criminal background checks as part of the licensing requirements.  Mortgage brokers, Realtors, anyone involved in the housing purchase, should be held to a higher standard and should be more regulated I think.  I think anyone who is playing by the rules and looking out for the best interest of the consumer would welcome this!

Frank, Thank you for weighing in on this subject. As for your example of an arrest in Santa Clara County not showing up on DRE records, it will upon conviction.

The Realtor issue is one for another post. There are many issues there in fact.

Bill Roberts

gee what a surprise. Someone during the housing boom took advantage of a consumer to make a fast commission. I LOVE this new market. It is allowing true professionals such as yourself rise to the top and start building long term relationships from helping the consumer, not hurting the consumer

Bill ~  I am all for the client being protected.  I just wish that there was a way for this industry to be pro-active rather than reactive.  Most often to protect a consumer, we need to be stopping the bad loan before it occurs,  love reading the discussion...

Kerry, Do you propose sending the buyers to college for a four-year degree or are you suggesting something along the lines of traffic safety school? Already there is mandatory counselling/education for reverse mortgages and first time home buyer grant programs. Do these work? Or are they merely perceived as something that has to be "gotten through" so that they can do what they wanted in the first place? I think consumer education is a much bigger task than you anticipate. And is it really necessary? Should you have to go to Law School before you can hire a lawyer?

Thank you for your participation.

Bill Roberts

Lupe, I disagree with you on mandatory restrictions on LO earnings. I think these people need to rein in their own appetites. And real estate agents need to take a more proactive position regarding the fees their buyers are charged.

Thank you for commenting.

Bill Roberts

It's pricks like that LO that make things rough for the rest of us. 

Bob Mitchell

ValueList Real Estate Services, Inc. 

Bill,

Have your client call WaMu and see if she can get a modification.  I did that with a borrower in a similiar situation with the same lender and guess what?  They did the modification. 

Good luck!

Bill, don't get me wrong, I completely agree that this LO is a greedy bum. As a processor I saw so many deals where the borrower was getting shafted by origination and or ysp. I noticed that it was most prevalent between hispanic LO's and borrowers. I always brought these up to my BM, but that was as far as that ever went.

The addage "you can lead a horse to water but you can't make them drink" applies to borrower counseling. I agree there is a great deal of ambivelance about borrower counseling. However, in light of recent events, the counseling obviously would need to be revised. There is an organization called NeighborWorks that edcuates, trains, and certifies financial counselors. This training is not a crash course by any means. This could be an area for additional job creation. There is obviously a huge need.

As far as predatory LO's, that is a really difficult one. I believe that constructive dialog should absolutely continue. By constructive I mean dialog that is not wrought with finger pointing, insults, and condescention. Thank you for opening this dialog.

Washington Mutural gummed up my sale horribly, it nearly killed my sale.

Against my advice, my buyer client went with WaMu instead of a local lending institution.  The sale was wrought with problems stemming from my seller client.

121 days later my sale closed with a local lender.  WaMu, at the 12th hour would not underwrite the loan after prequalifying my buyer.  Fortunately my buyer wanted this home very much.

WaMu,  I have a file on them full of complaints to show future buyer clients who are tempted to go with those ----n dot.com'ers! 

Phyllis, Loan pricing is a matter of personal values and market conditions. When an LO thinks he is "the only game in town," only his conscience will moderate his greed.

Josette, Yes, LEGAL and RIGHT are not synonyms.

Ben, Far buyers have recourse for lemons because states have adopted "Lemon Laws." No such law exists for mortgages.

Renee, Agency is a "legal" protection for the clients.

Robert, It has already lasted too long.

David & Lisa, We need higher standards, licensing, and fiduciary duty.

Sean, Every "slow" market cleans house so to speak, but as soon as things "heat up" they all come back.

Sarah, How right you are.

Thank you all for helping with the disussion.

Bill Roberts

Bob, Tsk! tsk!

Richard, Thank you.

Vivienne, WaMu is the lender, but this was done by a broker not WaMu.

Bill Roberts

Kerry, I really don't think that consumer counseling is the answer. Better Loan Officers is the answer. If the LO was better trained, licensed, had fiduciary duty to the borrower, acted as the borrower's agent not merely a merchant, and had something to lose if he screwed up or unfairly treated someone, then maybe we would see better loans, more fairly priced.

Bill Roberts

Bill.  If this were the only example of this kind of transaction it would be a different story.  Way too much of this, in your industry and mine.