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Protecting Consumers Shouldn't Take an Act of Congress

By
Real Estate Agent

As responsible Realtors, we know the value of providing ethical service to our clients.  Satisfied clients translate directly to your long-term economic prosperity.  They bring you repeat business and referrals, often the life-blood of a Realtor's business.

Responsible loan officers know the value of quality service, as well. 

A problem does exist though, because a small number of Realtors, Loan Officers and Lenders that choose to focus on short term rewards, rather than long-term prosperity.  Some deals get written based not on the best option for the client, but which option puts the most commission in the pocket of the person supposedly representing the needs of the client.  In some cases it is merely a lack of market knowledge that leads to this situation.  In other cases it is laziness that creates a lack of due diligence in performing the fiduciary duties to the client.  In the worst cases it is negligent representation, willful deception, misrepresentation, or predatory lending practices.

The National Association of Realtors has done much to police its own ranks, and maintains a Code of Ethics that all Realtors must subcribe to.

Additionally, there are state and federal laws that realtors must adhere to in their business practices.

 What really baffles me however, is the fact that there are some people, and some businesses out there that are just out to make a quick buck.  They don't care about repeat business or long-term relationships.  It is folks like this that make a bad name for those of us in the Real Estate business that are ethical, and take our duties to our clients seriously.

There seems to be more public outcry about this on the Mortgage side of the business.  Recently, several states, and congress as well, have begun adopting or considering the adoption of laws that would require mortgage brokers and lenders to make sure that a loan is "suitable" for a borrower - just like stockbrokers must make sure an investment is suitable for a client.

In Tennessee, they already passed the Home Loan Protection Act which, among other things, prevents refinancing loans that are less than 30 months old unless the new loan "provides a reasonable benefit" to the borrower.

Ohio has a new law called the Homebuyers' Protection Act which puts a duty on the mortgage broker to obtain a loan advantageous to the needs of the borrower; creates, for non-bank lenders, a duty of fair dealing to the borrower; prohibits pre-payment penalties for loans less than $75,000, and limits the amount of such penalties for loans above that amount.   The bill went into effect on January 1, 2007.

Laws like these force loan officers to ask borrowers a series of detailed questions about things like their financial goals and their tax status.  (Loan officers worth their salt, like Jeff Belonger do this already)  If the loan they make turns out to be "inappropriate," or "not advantageous" the lender could be open to a lawsuit, or even a possible prison term.

If Congress passes the current proposed law before them, the Mortgage Bankers Association predicts "it would dramatically change business models, just because of the litigation risk."

Personally, I think it is a shame that it appears to need an act of Congress to protect consumers.  I would think that loan officers would see the benefit of providing quality service to their clients, without pressure from the government to do so.  I know as someone who is trying to build a sustainable stream of business, I value every satisfied client.  I look at it this way:  Good service is smart business.  Every satisfied client may lead to 10 future deals.  Each dissatisfied one may lead to fines, lawsuits, and loss of my livelihood.  I don't need more regulations to remind me of that.

If you want to read some related material on predatory lending, here are some links:

Mortgage Bankers Association 2007 Advocacy Agenda

Current Pending Federal legislation Source:  http://www.responsiblelending.org/

American Bar Association Predatory Lending Presentation, Spring 2006 Source:  www.abanet.org

See what the National Association of Federal Credit Unions says about predatory lending legislation

1~Judi Barrett
Integrity Real Estate Services 116 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

Yes, it's about doing the RIGHT thing, not the fastest or the most lucrative one.  Enjoyed reading your post.

Judi Barrett

Integrity Real Estate Services

http://integrity-realestate.net

 

Feb 14, 2007 11:33 AM
Kaye Thomas
Real Estate West - Manhattan Beach, CA
e-PRO, Manhattan Beach CA
The best way to protect consumers is to have higher standards in order to be an agent or loan officer.  I believe that if it's tougher to become an agent or lender we will have better quality people who decide to enter our business. 
Feb 14, 2007 11:40 AM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services
Bravo a great post!  It is all about relationships and higher standards.  I heard a mortgage person yesterday who went through actual Hud-1 statements and Good faith estimates and showed where various fees were charged -- and some fees that were "hidden".   It is unfortunate that there are those (in all professions) that don't serve the consumer.  Then, we end up with legislation (or sausage)! 
Feb 14, 2007 11:43 AM
Brian Brady
Matthews Capital Markets - Tampa, FL
858-699-4590

You know, you just can't legislate against stupidity.  

Tennessee Homeowners who aren't allowed to refinance will just get credit cards to fuel their debt addiction, then refi out the credit cards in 30 months. 

Would you like to have some fun with the "suitability" line of reasoning?  Require homeowners who need cash-out (or a home equity loan) to sell the plasma TV, ATV, boat, $60,000 automobile, and other "trappings of conspicuous consumption" before they could touch their home equity.  When Congress mandates that, I'm on board with suitability requirements for originators.

Feb 14, 2007 11:51 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Damn... first off, Brian Brady beat me to it....  lol    2nd.....Rich, EXCELLENT post and thanks for the mention. Much appreciated...

But getting back to what Brian is getting at. I believe in certain types of laws. New Jersey in acted a law about 4 years ago, stating that homeowners could not pull cash-out of their homes for the purpose home improvements. They even had you sign a paper stating that you knew about this and that the money was not for this. They since went back and took that law away. New Jersey and many lenders nationally incorporated a law that is called NTB.  Net tangible benefit. Rich, as you mentioned in one paragraph, that the refinance makes sense. That they recoup their costs in so many years. 

Overall...laws, rules, and guidelines are important.... but as Brian is stating, it can back fire and hurt clients. What happens if home values sky rocket... you could drop the PMI and pull cash out and rates dropped... what is classified a reasonable benefit to the client?

 WHAT they need to go after more are those that falsely advertise and or mislead in advertisements. They need to put more money and effort into is and stop those that prey on the consumer that is bait and switched. This is where the root of the problem starts, where these lenders then give rotten deals to the consumer after they think they have a good deal locked up. More people need to stand up and report this stuff. The states need to make pamphlets that have to be signed by each borrower and put a copy of it in the file. EDUCATION and educating the client.... not just laws and penalties against the lenders. Because some of these consumers will lose out.  Just my opinion. Hope some of this makes sense, because I am tired.

 again, great post and topic...

Feb 14, 2007 12:29 PM
Kaushik Sirkar
Call Realty, Inc. - Chandler, AZ
"a small number of Realtors, Loan Officers and Lenders that choose to focus on short term rewards" - I wonder just how small the # is?  I worry that its actually a fairly good sized chunk of the population....
Feb 14, 2007 12:31 PM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans
Kaushik...great point. I will say this.... there are 100's and 100's of loan officers and lenders.... but I would bet the number is higher than what many of us would expect.... just my opinion and .02.
Feb 14, 2007 12:50 PM
ARDELL DellaLoggia
Better Properties Seattle - Kirkland, WA
I don' t have a lot...but what I have seems to find it's way to me three 18-22 year old daughters :)
Feb 14, 2007 01:27 PM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer
I think you are right on about the short term rewards.  I think the people who seek those usually have to spend more money and more time and chase their tail more than the typical ethical real esate professional who will have more business that "falls in their lap" from referrals.  It may take more patience and time but well worth the long time reward!
Feb 14, 2007 03:12 PM
Bill Patterson
Kelly, Realtors - Waco, TX
Having just finished my Ethics MCE, I can't help but think that it would help if the class focused more on actual ethics than what paragraph and subparagraph of which code talks about comingling, etc, ad.infinitum.  Then again, can you actually teach ethics?  I mean if someone's nature is to take the shortcuts and try to subvert the rules to reach their goals, will a class about how "you really shouldn't take advantage of clients" help?
Feb 14, 2007 09:31 PM
David A. Podgursky PA
THE PODGURSKY GROUP @ Re/Max Direct - Boynton Beach, FL
THE PODGURSKY GROUP - Make the Right Move!

Bad Brokers, Bad Realtors - Bad professional that are both!

My theory which you'll see in so many comments comes from an NAR post late 2005.  After a survey of people in real estate transactions they found:

  1. A person would decide to enter into a real estate transaction -buy or sell - but not actually being to act on that decision until 1 yr later.
  2. That person who spent so much time analyzing the market, looking online, checking finances, etc would search for and  then make a decision on who their Realtor would be in less than 24 hours!!  Talk about a quick decision.
  3. Then, they would just do business with the mortgage broker that the Realtor recommended. 

Don't even tell me that your referral sheets don't have one person standing out above the others - simply putting someone at the top of the page and someone on the bottom signals buyers.

Now... if you ARE giving a sheet of business cards or contact information, it would make sense to really know if these people are good professionals.  It would also make sense to understand the actual license laws in the state so you know the difference in that lender that has a desk in your office (sooooo unethical), the one that is working at the bank, and the mortgage broker who has access to 100+ WHOLESALE lenders. 

I am the Mortgage Broker model... my success is based in service to get long term clients... and my clients are Realtors too!  If  I do a poor job, I can hurt your future success! If I do a great job, I get referrals for the entire closing party!

You can also contact past clients when they might be in a position that they need to refinance for home improvements (in SoFla after a hurricane) and recommend a mortgage partner to help them out.  Sometimes the mortgage partner might get them at the right time when they're thinking about investing in another property, expanding their business whatever and need a good realtor to help them identify a property!  What if they believe you DON'T do anything but houses??

States stink at regulating loans.  What Tennessee is doing just has to tick off the right person before some attorneys group takes it to the Tennessee Supreme Court - it will then be thrown out and then no state in the country will be able to institute anything like it.  If Legislators wouldn't cut corners and really study the issue - say with the Mortgage Brokers Association, then they might actually understand what they're ruling on.   It is nice when the rich boys with lobbyists paying for their expenses get to tell the two income family that scrapes to meet their mortgage every month to scale down.  Don't they have the right to the same possessions?

Feb 15, 2007 12:57 AM
Rich Schiffer
Swarthmore, PA
Referral Agent, e-PRO
Thank you all for the comments.  It is refreshing to know that other professionals agree with me.
Feb 15, 2007 01:37 AM
Dale Heck
Sotheby's International realty - Pinehurst, NC

Unfortunately some realtors look at selling real estate as short term.  If you do a great job for a client, you will reap the benefits of new clients and more referrals.

 

 

Feb 15, 2007 02:16 AM
Christy Powers
Keller Williams Coastal Area Partners - Pooler, GA
Pooler, Savannah Real Estate Agent
I totally agree....but it shouldn't be too shocking. If everyone would act ethically and do the right thing, we wouldn't need the police or any of form of correction. People are just people no matter what they do for a living. It's a crazy world we live in. Sometimes, I wish I had been born when things weren't as bad. I now have to worry about my children and the world they will face.  
Feb 15, 2007 07:35 AM
Christopher Karalis
Orange County Capital Mortgage - Laguna Niguel, CA
Info from the website. Lots of info
    (a) In General- No person engaged in the construction of new houses may require a purchaser to enter into a mandatory arbitration agreement as a condition precedent to entering into a contract for the purchase of a new house.

 

    (b) Separate Documents Required- No person engaged in the construction of new houses may offer a purchaser a contract for the purchase of a new house which includes an agreement on mandatory arbitration unless such agreement is a separate document which contains only language pertaining to the mandatory arbitration agreement. The separate document containing the mandatory arbitration agreement shall also contain the following statement: `By Agreeing to Binding Arbitration You Are Giving Up Your Right To Go To Court'.

 

    (c) Arbitrator- The mandatory arbitration agreement shall not name an independent arbitrator and shall contain a procedure that adequately guarantees the purchaser an opportunity to participate in the selection of an arbitrator which shall occur only after a dispute regarding the homebuilding contract has arisen.

 

    (d) Enforcement- If any person violates subsection (a), (b), or (c), the agreement on mandatory arbitration will be of no effect.

END

Feb 15, 2007 08:08 AM
Rich Schiffer
Swarthmore, PA
Referral Agent, e-PRO
Christopher -- I am sorry, but may I ask...what is your comment addressing?
Feb 19, 2007 03:05 PM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans
Rich... I am trying to wonder the same thing. Maybe he is just mentioning some things on a more detailed level.?? Giving examples.
Feb 19, 2007 03:57 PM
Rob Robinson- Lehigh Valley PA
Bertrum Settlements (Title & Abstract) - Allentown, PA
Thank goodness for the Title guys. We're an honest bunch :^)
Feb 21, 2007 01:28 AM
Frederic A. Din
AXIA Real Estate Group Inc 760-235-4885 - El Centro, CA
Imperial Valley REALTOR®
Greetings Rich, I would like to personally invite yuo to join in on the grass roots efforts to do exactly what you subscribe to with regard to your business practices, excellent!

I've been endorsed by Consumer Advocate Harj Gill, M.Ed of American Mortgage Educators as an ethical, reputable,and knowledgeable loan officer and mortgage broker and wanted to share this phenomenal resource with other Real Estate industry professionals to check out their Consumer Information Center. 

If you also subscribe to the premise of the consumer first and are an Ethical, Reputable, and Knowledgeable real estate industry professional visit, http://www.homeloans.cc/wanted.html to learn more about this great resource and grass roots efforts to help our industry. 

Become an endorsed Realtor(r) and let the American Consumer know that you stand for their rights!

Thank you, Frederic

Mar 16, 2007 01:12 PM
Rich Schiffer
Swarthmore, PA
Referral Agent, e-PRO
Interesting, Frederic.  I popped over to that site, and found the NARLO code of ethics.  I printed it out to read later.  I will get back to you with any questions or comments.
Mar 17, 2007 02:05 AM