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
Comments(21)