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Stupid Is, As Stupid Does, And There Is No Fixing It

By George Souto

Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

December 30, 2012 06:36 PM

Sorry, I know it is not nice to say stupid, but there seems to be a lot of stupid going on with the Consumer Financial Protection Bureau (CFPB). They are making it very obvious that Stupid Is, As Stupid Does, And There Is No Fixing It.

If anyone had any doubt whether or not the Consumer Financial Protection Bureau (CFPB) had a clue of how the Mortgage Industry operates, and the Loan Originator Licensing process work, the latest proposals by the CFPB should make it clear that they don't.

The Consumer Financial Protection Bureau (CFPB) rolled out a couple of new proposals last week, as well as reviving a couple of their past brilliant ideas. The intent of these proposals is to protect Borrowers from the evil empire made up of Lenders, Brokers, and Loan Originators. The latest brainstorm over at the CFPB on how to go about doing that would be to:

Create new rules requiring Background Checks for Mortgage Loan Originators
Prohibiting Loan Originators from steering borrowers to higher-priced products
Lender discounts to pay for Mortgage Origination Costs
Loan Originators to be paid one flat fee on loans no matter the loan size. Sounds good right?

Let's look at these brilliant proposals one by one, because the CFPB is a day late, and a dollar short on a couple of them.

Create new rules requiring background checks for Mortgage Loan Originators: This first one is a good representation of what the CFPB seems to do best, duplicate what already exists. Once Loan Originators were required to become licensed in 2010, an independent extensive Background Check that is done by each State's Banking Commission, and includes finger printing, and a credit pull became part of the Licensing Process. As a result of the State Banking Commission Background Check process, a number of prospective Loan Originators were denied a license. I know this to be a fact, because since this process was put into place we had three Loan Originators that we were considering hiring, that were denied a license because of what was discovered during the Background Check. So if we already have a procedure that is working, why do we need the CFPB proposing the same thing that is already in place. Is it possible that the CFPB has not taken the time to checkout what is already exists, and how it is working, before coming up with what they propose?

Prohibiting Loan Originators from steering borrowers to higher-priced products: The number of Lenders doing residential mortgages has been greatly reduced in recent years, making the Lending Industry a very competitive one between the remaining Lenders. Also most Borrowers shop around these day, or are very aware of what the local interest rates are. If a Lender, Broker, or Loan Originator tried to put a Borrower into a high-priced loan product the questions would start to fly, especially from the Realtor working with them. Having said that, the need for this proposal assumes that there are high-priced loan product still around. Subprime Loans are basically gone, and there are obvious reasons why Hard Money Lenders are still around. I would really like the CFPB or anyone else for that matter to point out what these high-priced loans are that Brokers and Loan Originators are putting Borrowers into. The CFPB needs to stop talking in general terms, and provide proof to back up the accusations that they are making. It is easy to make accusations, but where are the facts to back them up?

Lender discounts to pay for Mortgage Origination Costs: OK, I will keep this one short and simple. In one breath in the prior proposal, the CFPB wants Lenders to keep interest rates down, and protect Borrowers from high-priced loans. But in the next breath they are encouraging higher interest rates so that money can be given to cover the origination fees. Something just does not make any sense here.

Loan Originators to be paid one flat fee on loans no matter the loan size if the loan. Sounds good right? Since most of the members here on ActiveRain are Realtors, let me ask this, how would Realtors like to be paid one flat fee regardless of the Selling Price of the house? This is what is being proposed for Brokers and Loan Originators. I would like someone to explain to me how this protects Borrowers, especially Lower Income Borrowers. In order to establish a flat fee, an average amount would have to be determined that takes into consideration both smaller and larger loans. To keep things simple lets say that is $1,000 per loan. Now let's see how fair that is:

A Borrower purchasing a house for $100,000 pays $1,000 which is 1% of the sales price. A Borrower purchasing a $500,000 pays $1,000 which is .02%.

I don't know about you but it seems to me like the smaller loan amount is subsidizing the larger loan amount. The Buyer that can afford the least, is subsidizing the Buyer that can afford the most. May be it is just me, but there seems to be something wrong with that concept. Also I ask you if this brilliant idea is being proposed for Brokers and Loan Originators, how long before the same guideline is imposed on Realtors?

These proposals are what happens when decisions are based on assumptions, and not facts. The assumption is that Lenders, Brokers, and Loan Originators are all out there trying to take advantage of defenseless Buyers/Borrowers. Realtors deal with Lenders, Brokers, and Loan Originators everyday, are you seeing what the CFPB is accusing Lenders, Brokers, and Loan Originators of? If the answer to that question is not no, then please give me an example of an experience that you have personally had. Not something that you have heard, but an example of what you personally experienced in one of your transactions.

I thought that we lived in a country that one was presumed innocent until proven guilty, but it seems that the CFPB is presuming guilt without proof of guilt. When proposals are proposed, and decisions made based on assumptions, the end result is stupid proposals, and stupid decisions that make it obvious that Stupid Is, As Stupid Does, And There Is No Fixing It.

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Frank Laisch

Orlando, FL

"The Insurance Guy"

George, I love the Picture! It seems that, the more the Government is involved, the more it costs consumers. Stupid Is, As Stupid Does....

Dec 30, 2012 09:29 PM

Richard Iarossi

Coldwell Banker Residential Brokerage - Crofton, MD

Crofton MD Real Estate, Annapolis MD Real Estate

George,

Oftentimes, when the government gets involved, there are unintended consequences.

Rich

Dec 30, 2012 09:45 PM

Linda Piper

Planatek Financial, Inc. - Ventura, CA

George: It is very disheartening to those of us who understand just how complex lending already is to fathom that our government could possibly understand this business well enough to write any meaningful legislation about it. The consumer will suffer the brunt of any regulation in the end...this stuff is not only stupid, it is late to the party since most of what they are trying to "regulate" already exists, and sub-prime for the most part no longer exists. The worst part is that our tax dollars are being used to fund this nonsense while our elected representatives squabble like children competing for the last cookie over how best to manage our national budgetary resources.

Dec 30, 2012 10:41 PM

Richie Alan Naggar

people first...then business Ran Right Realty - Riverside, CA

agent & author

You cannot have a law for everything. We are not robots needing programming. Its time for people to work things out

Dec 30, 2012 10:59 PM

Dave Jones

Dave Jones Realty, llc. - Prospect, CT

Broker/Owner - e-PRO Dave Jones Realty llc Prospec

Great points George. Makes you wonder what people think. Hope you have a Happy and Healthy 2013!

Dec 30, 2012 11:52 PM

Bryan Robertson

Los Altos, CA

At first glance these things might actually look like a good idea. But as you say they are either redundant or don't fully think through the impact on the industry. Protecting the consumer does not always mean putting more restrictions on the people providing services that has more to do with educating the consumer on what they need to know.

Dec 30, 2012 11:55 PM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Joe, sooner or later they have to listen to the drum if more and more people beat it. Have a great new year also :)

Sally & David you will get A LOT of support for that suggestion. In fact I have a follow up blog to this one about one organization already calling for a resignation of one of their top people.

Lenn that is an EXCELLENT simple explanation, but they just don't get it, because they have not lived it.

Dagny yes I do to, but those making the decisions don't seem to understand that, or better yet do not want to understand it.

Michael I don't think that they will ever understand that, because their purpose is not about protecting the the consumer it is about justifying their existence.

Ed do you think ......... LOL

Frank that does seem to be the pattern

Richard I would like to think that it is unintended, but some times I start to doubt that.

Linda your statement is an excellent summary of what is happening, and it just keeps on happening over and over again.

Richie, unfortunately the government seems to thing that we are mindless children who need to be protected from ourselves, when in reality we need to be protected form them.

Dec 31, 2012 01:09 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

David, yes it does, and you have a great 2013 as well.

Bryan your statement is right on the mark. It would be nice if those who are making the rules could come to that realization.

Dec 31, 2012 01:13 AM

Joel Weihe

Realty World Alliance - Wichita, KS

Helping you to use your VA home loan benefits

While their at it why not make tile insurance companies pay one flat fee to insure titles? #sarcasm

Dec 31, 2012 03:52 AM

Joan Cox

House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO

Denver Real Estate - Selling One Home at a Time

George, there are rules everywhere that do not make complete sense, and many made by our government!

Dec 31, 2012 05:48 AM

Nick T Pappas

Assoc. Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Broker/Providence Property Mgmnt, LLC Huntsville AL - Huntsville, AL

Madison & Huntsville Alabama Real Estate Resource

George, as you illustrated it doesn't seem fair at all especially to someone purchasing a lower priced home and they are the ones needing help the most.

Dec 31, 2012 07:03 AM

Steven Cook

No Longer Processing Mortgages. - Tacoma, WA

George -- I thought we got a couple of those put to rest this past year. Here we go again.

Reblogging to hopefully get some more people to be aware of this problem, since can't suggest it, as it is already featured.

Dec 31, 2012 09:10 AM

Jeanne Kozak

RE/MAX In Action - Martinsburg, WV

REALTOR and Broker/Owner in WV and VA

Just more bureaucratic BS...these guys in DC are gettting more clueless everyday, and in the end the ver ypeople they are professing to protect pay the price for their stupidity. How many Realtors have had a good candidate to own a home left out of the market by what is intended to be consumer protection.

Dec 31, 2012 10:17 AM

Mark Loewenberg

KW of the Palm Beaches - Palm Beach Gardens, FL

KW 561-214-0370

such a FLOP from the days in 2004 and 2005 when mortgages were a literal dime a dozen, now they over compensate and as you mention buyers are guilty first until they can prove they are innocent

Dec 31, 2012 10:20 AM

Christine Donovan

Donovan Blatt Realty - Costa Mesa, CA

Broker/Attorney 714-319-9751 DRE01267479 - Costa M

George - Common sense is applied to so few things these days that this is just not a surpise.

Happy New Year!

Dec 31, 2012 11:14 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Joel, the possibilities are endless :)

Joan they do seem to specialize in that department.

Nick the CFPB seems to have overlooked that little fact.

Steven they just keep on coming back like a nightmare. Time to start pushing back.

Jeanne, they claim to be doing it for the consumer, but the results prove otherwise. People need to start looking beyond the words, and focus on the results.

Mark the buyer always seem to get the short end of the stick.

Christine, common sense has long left Washington, and those that they are suppose to be representing have long stopped being a their priority.

Dec 31, 2012 12:08 PM

Frank Castaldini

Compass - San Francisco, CA

Realtor - Homes for Sale in San Francisco

There always need to be a balance between laizze-faire and overreach...Lawmakers are not very good at this without the public clamoring. While I believe lenders took advantage of the situation and oversight is essential, the politics involved often make this process very challenging.

Dec 31, 2012 07:53 PM

Lyn Sims

Schaumburg, IL

Real Estate Broker Retired

George: Seems that some efforts are duplicated & unnecessary. Others seem to be aimed at a market that has alreay collapsed & corrected itself. Day late & a $1 short to solving the banking industry problems. Different agencies have meddled & created a bureaucratic monster.

Jan 01, 2013 03:31 AM

William J. Archambault, Jr.

The Real Estate Investment Institute - Houston, TX

Wow!

Loaf for a day and miss this, shame on me. 8>(

This will do no more than the original federally mandated licensing.

What it will do:

1. Mislead the public into believing that their government cares!

2. Tax the loan originators.

3. Create a new bureaucratic.

To understand this you must first know what a bureaucrat is: A public or private servant that provides an absolutely necessary service we never knew we needed and will never benefit from while propagating it’s own kind!

I’m not opposed to relevant background checks, but the key word is relevant! Nevada required me to go through the same 40 year background check cassino owners go through. I had a hard time coming up with unrelated people that knew me at 12.

I have a real problem with the higher price products provision! They don’t have the slightest idea what a loan cost. Most belie the lowest price loan is the one with the lowest APR or even the "rate" such thinking is both ignorant and costly! In 40 years long before I ever recommended any loan to a client I ask them how long they intended to keep the loan. Why? Because allot of people epically military never intend staying long term. I financed allot of military who’s posting was for 3 years extendable to 6. The best short term owner’s can hope for is to break even at about 5 years those keeping the loan 6 years will pay just a little bit more. Then there is the amount to close the more you pay up front the lower the APR! Unless they have allot of savings most home buyers should keep their cash! It’s not the APR that causes defaults it’s the lack of liquify.

I for one have always charged based on the work involved. Why should anyone take on high those clients need extra help if we can’t get paid for it? A fixed fee for all will only eliminate extra help for consumers! The bureaucrats will protect you out of a home of your own!

All this consumer protection is for naught. All that happens is that the mortgage brokers who brought us reasonable money and near universal opportunity to own your own home since 1974 will be limited. The banks and S & L’s will recapture control of the mortgage market with no limitation on consumer cost and dwindling competition!

It’s not stupidly! Angelo Mozilo out lined this to the Mortgage Bankers ten years ago!

I’d say: Cunning is profiting on what the stupid will accept!

Bill

Jan 01, 2013 08:11 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Frank the government has gone way beyond what the original founders intended government to be. They have done it all in the name of protecting the people, when in fact all they have done is provide for themselves.

Lyn, very well put, and a very accurate assessment.

Bill I love your definition of a bureaucrat "A public or private servant that provides an absolutely necessary service we never knew we needed and will never benefit from while propagating it’s own kind!" I have to write that one down for the future.

Jan 01, 2013 08:51 AM