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Fiduciary, Responsibility, Mortgage Brokers, and Evil

Judge a man not by single words they expound, but rather by the character they demonstrate!

Fiduciary is possibly the most misunderstood word in real estate and lending. Brian and I disagree on the application but treat our clients similarly. Our differences over fiduciary may come from our diversity, Brian is also a hard money broker with a prior responsibility to the lender, and a mortgage banker with his own money at risk (Mortgage brokers are subject to buying back fraudulent loans, also.) and a responsibility to his firm both supercede any fiduciary to an applicant.

It matters not that the two of us disagree as we both protect the client, my concern is that those with less experience and a different mind set may interpret Brian's (misguided?) position as license to abuse clients. The stage may already be set for mortgage lenders to have their responsibility tested in court with politicians seeking votes from home owners and more importantly former home owners blaming them for rising payments and their defaults. No less than the NAR is covering their broad and vulnerable back side by pointing the finger at mortgage brokers. Please reread Jose Luis Ramirez's50+ Wholesale Lenders Now Belly-up or Floundering - updated - list keeps on growing

But this time read more than the names! There are many reasons these companies are changing and it is changing not necessarily dying, but some of us are going to pay not for our actions but rather for votes.

See: The Buck It Don't Stop Here / Shame On The NAR

Congratulations Ken you're in interesting company, CBS, the NAR.

A Question of Fiduciary, Opinions

If good experienced people disagree we add to the confusion of the good but inexperienced! Pick your mentors well! If you pick Brian Brady you'll find him at the front of the prade, slightly to my left carrieing the other side of the banner!

Bill

William J Archambault Jr

The Real Estate Investment Institute

http://www.reii.org

Bill

William J Archambault Jr

The Real Estate Investment Institute

wja@reii.org 832-259-7078 or 702-516-1569

Back Cover One House At A Time

From my past: GRI 1975, FLI 1974, Catalyst from a client 1974 an agent that makes things happen, REII, The Real Estate Investment Institute 1995.

©William J Archambault Jr ©The Real Estate Investment Institute ©REII

Posted by William J Archambault Jr on 03/19/2007 07:50 AM

Comments (38)

fiduciary, responsibility, mortgage brokers, evil, reii, william j archambault jr, the real estate investment institute

Originally posted at: The Real Estate Sage at The Real Estate Investment Institute - REII: Fiduciary, Responsibility, Mortgage Brokers, and Evil

38 Comments on Fiduciary, Responsibility, Mortgage Brokers, and Evil

MAR

2007

You can blame the lenders because they created the monster and then pushed it. Blame the Realtor because they helped push the buyer into the higher priced home. Blame the closing agent because they didn't slap the buyer for being stupid. Blame the buyers high school teachers for not teaching them financial fundementals. Blame the middle school teacher for not preparing the buyer to take advanced high school courses that would have taught financial fundementals. Blame....

None of this could be accomplished without the borrower. Did others help? Yes. I am sure. It is the borrower, however that ultimately made the wrong choice. Some might call it a stupid decision.

When you are the part time assistant manager at the quick mart, don't buy the house that will adjust up later. You might not get the promotion required to afford the adjustment. While I am at it, if you smoke you are injesting chemicals into your body. Don't be shocked when that ends up not being good for you.

Bill,

Your opinions and perspectives are valued here. Keep on doing what you are doing. It is all part of everyone making a good "informed decision" in the actions we undertake.

I think the idea of the mortgage contract - http://mortgagecontract.com/ is a good one - this protects BOTH parties and shows that the borrowers know exactly who is or is not representing their interests in the mortgage transaction - also they are made aware at the beginning of the process what the broker is to be paid

hmmmm...going to read all the links. Very well written post.

Good valuable information. I try to protect my clients with sound advice. These days they do too much shopping around for the best deals that are not always in their best interest. Some of those deals fell apart right before the closing. Then they were saved by the people I wished they had talked to in the beginning.

Believe it or not, I blame the consumer. When I, as a consumer, had the opportunity to get into an ARM to get more house, I did the research and decided that ARMs are dangerous. I know that the Constitution guarantees the right to bear ARMs, a but it doesn't guarantee the safety of ARMs. The safety of ARMs are the owner's responsibility. We, as Realtors and mortgage professionals do have a responsibility to our clients to offer them the best information available and to not coerce them into making potentially bad decisions for our profit. Oh, by the way, I was just informed that the Second Amendment to the US Constitution is speaking about arms - not ARMs. My bad.

Bill....overall, some great points are made. As much as this is popping up all over the media now, I am already tired of who is at fault. It starts with the states, the guidelines, and those in charge of making it tougher on individuals getting licensed and or becoming a lender/loan officer. There needs to be a uniformity across the board.

Companies need to track loan officer's default rates. When I worked at a larger company, monthly reports were handed out. This company took it seriously, also because HUD took it seriously.

The overall picture, you are absolutely correct,on who should be protecting who. I remember when Brian Brady first started talking about this on AR and so many people were against him, stating that it's too the client. Well, from a realtors prospective it is, but from the loan officer as mentioned, our responsibility is to the lender. Sure, we still want to protect the client. We do this in good judgment. But the thing missed often is if we play by the rules and did what we were suppose to under the guidelines supplied, the blame should be on the client. The general public forgets that people will do what they want. .,.period.... you can't stop that.

Bill..thanks for the follow up for this....

jeff b

You can't stop with the professionals... they're opportunistic... that's capitalism at its height....

every time I hear the "subprime is evil" line I think about:

1) the clients I have REALLY helped with a subprime loans.. those deserving of the credit whose lives were changed by receiving it...

and

2) the clients I turned away who knew what they were getting into and that they were lying or cheating the system and are now complaining that someone fed their addiction. Not all the foreclosures were a realtors fault... some were refis. Not all fo them were lenders/brokers fault... some of them lied and we had to take their word on it when we were denied access to vital documents.

We can't forget that it isn't the Real Estate Pro that stopped paying the Mortgage. And... it wasn't only the Real Estate Pro that didn't read the ARM Disclosure and Addendum in the mortgage docs.

Bill and I agree on so much and I do agree in the application of our respective practices. I do point out to everyone that lenders do NOT have a fiduciary responsibility; we don't in the legal sense of the word.

There is a method to my madness, though. My insistence that we are not fiduciaries is a wake up call to the buyer's agent. Lender who claim they are are a fiduciary is factually incorrect; lenders who say they treat the clients AS IF they were are the folks you want to do business with.

Make no mistake about it, I'm carrying that banner, SLIGHTLY to your left, but always on the right.

Rich,

I was going to included property managers, but that could have been an electrifying experience.

I was going to included auctioneer, but how can you discuss "fiduciary" with a man that demands a $10,000.00 deposit before you can even raise your hand?

I'd better just say good to hear from you, give my best to Melissa and Landlord Girl.

Ron,

As all ways thanks for the kind words.

AJ,

Like "Truth in Lending" it self, this looks like a good idea poorly done! I believe in telling the client exactly what I'm charging, but I don't believe in limiting father the clients opportunity or my options. As lenders we fight the "Big Lye" (a very insidious form of bait and switch) everyday page two of this form would facilitate such behavior.

No form is going to solve the problem. Clarifying fiduciary could help the consumer, but ultimately it is only the character of the originator themselves that ever protects the consumer. Based not on contracts, but demonstrate practices as shown here on AR, I'd trust Brian Brady, Jeff, Mac, Eddie and my son Eric, I can only hope that my readers feel the same way about me.

I'm going to look forward to hearing more from you, I suspect you may belong on that list.

Christy,

Thank you for the kind words.

Lizette,

Amen!

Roger,

Of course you are right! But, who failed them? Their teachers? Their Parents? Their Peers? Their Betters? Their Pastors?

When "Cavite Emptor" is replaced by government protection the consumers soon get what they deserved! It's sad.

Thanks

Jeff,

"Overall". "overall some" I may have to go back and edit my comments to AJ! Only some? You make my point good people can have some differences.

Please reread you contracts with your wholesale sources, they are very clear, you in no way represent them!

The problem is we wear so many hats and our relations with the wholesalers are ongoing (At least we hope they will still be there tomorrow!) And often our fiduciary can be elsewhere. Again the only protection the consumer has is the originator.

"The general public forgets that people will do what they want. .,.period.... you can't stop that." Great line. A free will and a selective memory are dangerous in inexperience hands!

I'd like to add just one thing. 80% of the people who bought using those bad loans, because they couldn't have owned their home any other way SUCCEEDED!

Bill

David,

Well said!

I'm going to have to read more of your stuff, it looks like you belong on my list.

Thanks for commenting.

Brian,

Good Morning.

If you suffer from "madness" may we all be so afflicted!

There is no real need to treat your "fiduciary delusion" as it's not affected your behavior.

Bill

i think something has to be said for the guy who didnt pay his mortgage.....

lending sure gave him a shot at the american dream..... but he squandered it.

Thanks Bill... I think. ;O) You lost me on the part that you might need to go back and edit your comments to AJ.

Tom B... you should get that branded.... make that your own quote and get a trademark for that. I can't think of the other word. But in any case, if you ever become famous, that would be a hell of a quote.

lending sure gave him a shot at the american dream..... but he squandered it. That is good....

jeff b

Very interesting post William. Thank you for a good read.

Most people don't know that I have to buy back bad loans... I try to explain this to clients who ask me to "bend the rules." They never believe me though. I think I'll just send them a link to your blog next time.

Tom,

Jeff just said it so well that all I can add is thank you for sharing.

Jeff,

In my comment to AJ I said "I'd trust Brian Brady, Jeff, Mac, Eddie and my son Eric, I can only hope that my readers feel the same way about me."

Thanks for the opportunity to repeat it, I love redundancy. If it wasn't for reading and rereading, listing and relistening I might never learn anything. It's the same, without writhing and rewriting, teaching and reteaching(?) I might never get my ideas across. I especially like it when I car repeat good things about good people.

Karen,

"Most people don't know" That is the problem!

Thanks for the kind words.

Bill

LOL

Bill, So, am I understanding correctly, that your opinion, is that your fiduciary is to the borrow and Brian's is that it is to the lender? Are there any cut and dry laws related to this? My tilt would be towards being the fiduciary of the lender since you are in the business of "selling" their money. But in reality, it IS the character of the man that makes the difference no matter what the law states.

Maybe there's no fiduciary. Maybe you are a true intermediary owing both parties honesty and fair dealings. Sort of like being a Transaction Broker in Florida. Oh heck, now I'm just confused. I wonder if the general public is as well?

I'm going to go with Bryant on this one. Slightly confused....either way, I try to give my clients various information and for those that need it some additional guidance.

Hey, the home inspector tried to derail the process by noting all the problems with the house! LOL

In some states, usually those that license home inspectors (California is not one of them), even home inspectors have a fiduciary responsibility to their Clients. I, for one, don't want such a responsibility, but I would welcome home inspector licensing in California.

Bill - I feel like my dad just kicked my ass. Melissa is fine and Landlord Girl is out collecting.

If you are a little mad at me, then I missed your point and am sorry.

Rich,

I like subtle humor, obviously I missed my mark.

I don't kick friends, you noticed that Brian and I are on good terms.

Landlords know their fiduciary lies with the property owner, auctioneers with the seller be it the court or home owner.

I saw the lack of ambiguity as a chance for humor, there was no place to question your position it's clear even to my other friend Mr. Brady.

I was just saying hello to Melissa and Landlord Girl, she reminds of our Amy, who was only seven when we owned the trailer park and often collected payments, wrote receipts, and made change in our office. We never though of a super hero costume.

Others have missed my point for most it was my fault.

All My Best,

Bill

Mr Brady and I have had this conversatio in the last week LOL Good post, and I for one think a legal application would be good so those who (unlike you and Brian and Jeff and George) are pesky predatory types would have some accountability and we wouldn't have to be making laws that we shouldn't need.

lending sure gave him a shot at the american dream..... but he squandered it.

Bravo, Tom.

Excellent post, Bill. Bill and I are original friends from AR when only mortgage people read each other's posts. I respect his opinion much. Bill has asked me when I stopped beating my wife, and now he wonders if I care less than other mortgage brokers about the customer.

It is the ultimate complement to be such a subject.

Bill - Some days I am an idiot and some days I just play one on TV. Today I hit them both. On the flip side, I did find someone at AEP (electric company) that can make a decision. A good day.

MAR

2007

Dear Readers,

Brian Brady and I are friends and friendly. We've traded some barbs to make our points, there is no known difference in our approach to our clients which means that our, personal debate over the legal applicability of fiduciary, is a mute point, it wouldn't change either of us.

How could such confusion exist? For one thing for most of the last 15 years I've used Calyx Point as an origination/loan processing system, like most of these systems it contains many optional, and useful forms, two of which seem to take different positions on the fiduciary issue. Point's "Brokerage Business Contract" defiantly states that the broker is not an agent of the applicant. Yet, if you use the "Mortgage Brokerage Business Contract" it seems to outline Fiduciary, but never uses that term.

What most of you don't know is that a mortgage brokers contract with his wholesalers states that he is not an agent of the lender, there is no fiduciary with the wholesaler.

The issue can be further complicated when a prior relationship precludes fiduciary, such as "hard money, or when the broker is acting as a mortgage banker/correspondent lender. Lacking law or a relevant contract it remains a debatable point.

So am I right, normally! So is Brian wrong, seldom! And, at the end of the day it remains so. I am one up though because of Brian's unfortunate use of the word "care" if I suspected he didn't care or you had any question we wouldn't be having this debate.

Your state and the forms you use may clarify your position. My position remains the same, but I understand the confusion think it's safe to say that it really doesn't matter what matters is how you treat your applicants!

Bill

Bill, Your and Brian's input to this larger discussion of responsibility is right on. Even where you are in disagreement, both of you have the important part right - protect the borrower. As far as fiduciary, I have to say I can argue both sides of it pretty equally (i.e. I'm as confused as many others about where we mortgage brokers actually stand). I do know, however, that both my borrower and the lender can take money out of my pocket in court for non-performance. Therefore I do have a perfomance responsibility to both.

I think the reality is that there is plenty blame to go around for the current state of affairs. Lenders put out programs that were just time bombs waiting for a trigger. Too many loan officers cut too many corners to get a bigger paycheck and fit people into those programs. Too many Realtors forgot to ascertain whether or not the customer would be able to afford (not just DTI) the house they were selling to them. Too many appraisers let Realtors and loan officers dictate the value of the appraisal. Too many settlement officers..... The list is endless and eventually involves all of us even if all we did wrong was look the other way or keep our mouths shut when we knew of others whose ethics skirted legality (often from the wrong side).

And, while ultimately the buyer is responsible for his purchase (the money we are selling moreso than the house in this case) if the product was misrepresented we need to allow some slack to him. Then again, the kid flipping burgers at the golden arches who got 100% on a $150,000 FTHB purchase should have known better. The couple who bought the house and got a divorce a month later (this is real, happened to me) and figured there was no reason to tell their mortgage broker this was going to happen should have known better since so much was made about sufficient income. But I guess you can't fixed stupid.

All of that said, the sadder truth is that the minority caused the problem the rest of us let slide and now we all get to pay for them. It should also be a lesson to us all that our first responsibility is to ethically preform our functions in a way that provides responsible benefit to our customers, each other, and the investors whose money foots the mortgages we all generate.

Terry,

I do know, however, that both my borrower and the lender can take money out of my pocket in court for non-performance. Therefore I do have a perfomance responsibility to both

Excellent analysis. A fiduciary wouldn't have that problem. This is so pedantic but so important, too.

Why am I insistent upon the phrase we are not fiduciaries? Because the Realtor is, and act like one when referring financing choices.

Bill says Your state and the forms you use may clarify your position.

I agree. Interestingly enough, the form should preclude a borrower from "shopping" and give the broker exclusive financing rights, too...THEN..you act as a TRUE fiduciary.

An "Exclusive Right To Finance" I love it!

Best idea on the entire blog! I wished I'd have suggested it. But, like I said, Brian is seldom wrong!

I don't even get the award for the best line. Tom Burris does! I will repeat it, I love redundancy. "I think something has to be said for the guy who didn't pay his mortgage..... lending sure gave him a shot at the American dream..... but he squandered it."

I do feel victorious! My concern is for the client, and no one has descended with that! I excepted no less, look at the people responding! We are preaching to the congregation. We must remain vigilant, for surly those that abuse their clients can motivate bad feel good legislation on all of us.

Bill

MAR

2007

Bill,

As I have stated previously, I do value your opinions and knowledge, among other things. Today, I was reviewing some bookmarked posts/links that dealt with fiduciary responsiblity and also re-acquainted myself with the definition.

As I pondered the definition and considered relationships, a thought re-visited was the circumstance where a licensed realtor also a licensed mortgage broker/loan originator represented a client in both sides of the transaction (RE sale/Mortgage Loan). I would like to read your perspective on how fiduciary responsibility/conflict of interest may or may not exist.

While you or someone else may have addressed this in another post I did not take the time to search it out. While you could comment here....it might make a worthwhile subject for an separate post.

Ok Ron,

You ask and I jumped in with both feet. I've commented on this many times, but here's a separate post.

I may lose some friends with this.

I know it will be "R" rated for extremes, and violence.

Wearing Two Hats, Guaranteed Incompetence Or The Only Way To Insure Competency?

Bill

Bill,

Thanks for taking the leap....with both feet! My friend, might I suggest this: Any friends lost over providing or stating a professional opinion and one that is appropriately and respectfully presented would most likely not be the best kind of friends to have anyway......IMHO!

MAY

2007

I could be wrong but doesnt the borrower see the costs at closing? dont they see the payment at closing? dont the sign an adjustable rate disclosure at closing? cant the borrower speak and ask questions? the borrower is not fully innocent and i dont believe that all mortgage brokers are guilty.

I will agree that some brokers are misleading and some are crooks, but at the same time the borrower needs to read between the lines and ask questions at closing.

Damien,

Welcome to AR, I hope we hear frm you often.

Yes, you could be wrong (I was once) but your not wrong about all the disclosures the borrowers receive at closing.

More importantly, the borrowers also received them when they applied for a loan or within 3 days there of!

You're listed as a mortgage broker, when you submit a file to a wholesaler they will also send the borrowera GF & T in L! If you or the lender make any changes to the program, the borrower should receive them again. At closing there will be two more sets one from the broker and one from the lender in addition to all of the other disclosures!

The problem is not with the application or closing process. The problem is human nature! When the buyer stops making the payments, he never believes it's his fault! Never, never, never!

Yes, there are some crooks, but I'm unsure how much of this they caused, the borrowers signed their papers too! Some people have been screwed, but they lost their house because they stopped making the payments they agreed to.
I feel very sorry for the losers, but to put the blame on the mortgage industry is absurd! Thanks to the sub-prime mortgage market, we have a higher percentage of home owners than at any time in our history! Those nasty loans and the brokers that sold them have expanded home ownership beyond anyone's dream! For all the negative press it's important to remember that 80% of those so called "undesirable, unqualified, undeserving would be home owners have succeed!
To all those calling for reform, I suggest: As you leave home count your first 24 neighbors, now look back towards your home, carefully study the whole 25 homes, odds are 5 of them were purchased with those nasty sub prime loans! One of those 5 is in trouble and may lose their home, but 4 have homes they couldn't have any other way. The 1 that stops making his payments will be gone, which 4 of your neighbors are you going to get rid of so you don't have to feel bad about the one dead beat?
This whole issue is class and race bigotry! How dare those undesirables think they dissever to live like their betters! If we eliminate the sub-prime market, in the name of "consumer protection," we can force those people back in their place! Now Damien do you have any question on where I stand? If you do I want you to leave home tomorrow morning in the other direction and count 24 more neighbors. Keep in mind that your home is included in this group also! By the end of the week, if you go in the remaining directions, you'll not only have 4 neighbors losing homes to those nasty sub-prime lenders but at least 1 losing it to a conforming lender! Bill

MAY

2007

There is always someplace to point a finger, realtors, borrowere, the lenders, the programs, the legislators the list goes on and on. I'm strongly opposed as Illinois has HB1478 in the house right now. I'm outraged that a lack of integrity (or a lack of knowledge) has forced this kind of action.

MAY

2007

Shawn,

I had to Goggle

Illinois has HB1478 to know what you're talking about. Please elaborate every mortgage and real estate salesman in Illinous should be fighting this!

You're on AR use it. This iladvised feel good legastion hurts everone!

Bill

JAN

2008

Bill, thanks for pointing me to this post. I probably would have got to it eventually, but better now than later.

I too have gone 'round and 'round with Brian Brady on this issue.

In California we have two distinct laws governing lenders, the department og Corporations and the department of Real Estate. Brian falls under the DOC while I'm licensed by the DRE.

As a DRE licensed lender I have fiduciary duty to my client, the borrower, while Brian does not. I also have an agency relationship (by law) which is even more valuable to the borrower because it means I am acting as his agent when I arrange a loan for him.

I advocate all mortgage brokers in California being licensed by the DRE and doing away with the CFL license from the DOC. Naturally Brian opposes this.

Bill Roberts

Bill R,

Suprise, when it comes to DOC v DRE in CA, I agree with Brian.

The DRE and similar agencies license to tax and add to their staff. Individual loan originators gain the appearance of respectability when licenced, their brokers seem to take less responsibility.

I say license the company, make them 100% responsible for their LO's no questions ask. I would allow registering LO's only to prevent people from working for more than 1 broker at a time, and to list LO's that were fired for cause.

I would also make fiduciary to the client absolute! Brian and I disagree only on if there is a Billfiduciary not on how we treat our clients.

Bill

JAN

2008

OK Bill, I see that I've got to educate you too (I've been working on Brian for a while now). The issue of DRE licensing has little to do with the DRE. It has to do with:

Licensing the individual rather than the group
Background checks on the individual
Individual responsibility for acts
Violation of "Agency" is a tort
Loss of license for egregious acts. See my post Is This A Typical Loan Scenario?

The list goes on but this should be enough reason to make the change.

I welcome having this discussion with you. before change is imposed on us it would be better if we could agree on what changes are necessary and desireable.

Bill Roberts

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