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Stop Blaming The Mortgage Broker!

Since the sub prime mortgage market meltdown began there has been talk about all kinds of laws being put into crying baby place to regulate the terrible mortgage brokers out there who have caused this terrible problem.

TIME OUT! Let's put the blame where it really should be!

I'm a mortgage banker, so I'm going to preface this. I'm not excusing any fraudulent behavior on any body's part. Be they a mortgage broker, a mortgage banker or a bank. If somebody was mislead or lied to, then the current laws should be strictly enforced. People should go to jail!

That said, blaming the mortgage broker with causing this problem is like blaming Sears for selling somebody a lawn mower if they go out and stick their hand into the blades. As long as Sears disclosed any potential hazards with the product and the product was functioning correctly, they are off the hook.

These borrowers were disclosed to multiple times about the programs that they were applying for. Look at an ARM disclosure, it points out the WORSE CASE SCENARIO. Chances are that if the loan WAS originated by a mortgage broker (not all of these loans were, by the way) they were disclosed to by the broker, then again by the lender, then again at closing, then again when they signed the note and mortgage/deed of trust.

People and politicians like things to be simple and easy. The easiest target in this situation is the mortgage broker. Most of us are small businesses and don't have the political clout of the large mortgage banking companies or banks. It's also more politically correct to not blame the poor home buyer here. It makes for better political drama to have some politician go to bat for these poor victims rather than point out that they signed all of those disclosures pointing out exactly how their particular loan program worked!

Now, you might be able to make the argument that Toro shouldn't have made the lawn mower in the first place (running with our analogy from above), but even then, the mortgage broker should still not be held liable. They were selling a legal product and they fully disclosed the hazards.

Maybe a better analogy would be suing the 7/11 for selling you cigarettes when you get lung cancer. It's no secret baby smoking that the cigarettes were potentially harmful to you, but if you went into that store and bought them anyway, who's fault is that? If you started smoking 50 years ago, maybe it's the cigarette companies fault because they kept it secret back then. But if you picked up the habit in the last 30 years or so, it's on you!

Personal responsibility. Wow, what a concept!

So, if any of you reading this are a politician or if you agree with me, put the blame where it really should be. On the borrowers who took a risk and lost or maybe on the lenders who developed these programs if you must, but not on the mortgage broker.

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.

Posted by Bob Mitchell - Realtor St. Louis on 05/03/2007 08:25 AM

Comments (16)

sub prime meltdown, mortgage brokers, sub prime mortgages, payment option arms, valuelist real estate services, rb bob mitchell

16 Comments on Stop Blaming The Mortgage Broker!

MAY

2007

I agree with you Bob. It is about accountability. Borrowers are being overlooked in this equation of he said, she said..it's their fault. Good post : )

Bob-I think Kelly said it best with "accountability", which there seems to be a lack of in this country anymore!

As they old saying goes, if you point a finger at someone, you have three fingers pointing back to yourself. However, I think a lot of LO's in the industry did not act responsibly as well. There is some blame is to be shared by everyone(LO's, Wholesale Lenders, Real Estate Agents, Wall Street, etc.) with the borrower at the forefront.

Kelli: Thanks for the compliment

Bill: I do think that it's evidence of a larger trend, maybe the victimization of America.

Michael: I agree with you about every group having some blame. I remember thinking about the payment option ARM or the Savings of America Negative AM arms from before and how dangerous these loans could be. I won't say that I didn't write them, I did. But when I did I made DAMN sure that the client knew what the perils were. That said, I sleep at night 100% comfortable that I did nothing wrong here. It not fair to be painted with the same brush as companies, some very large, who pushed people into these loans. Even then, if they followed the law and properly disclosed, it's not on them!

Bob

ValueList

NOV

2007

I loved it. I agree 200% with it. You said it all. It's really too bad that people don't get it. You should be saying these words to the legislature

One other thing. Sorry but after reading further, I disagree with Michaels comment of "if you point a finger at someone, you have three fingers pointing back to yourself." What is that ? It's a hypocricy because he then goes on to say that there is some blame to be shared by everyone? Wrong! Closing documents are simply a contract and you should know what you're getting into when you sign. If it has been disclosed to the client several times then shame on the client. Go into court and try to explain to a judge that you signed a contract but didn't understand it. The judge will laugh you out of the court room.

Nevertheless, why is it so important to assign the blame, anyway? Because the poor customer does not want to admit that they made the wrong decision on the biggest loan of their life? Nobody wants to be accountable for a bad decision of that magnitude. Simple human nature! It's easier to blame others for our shortcomings.

Maybe we could focus on how to solve the foreclosure problem. Realizing that there are bad apples in any industry is imminent but don't give the rest of the industry a black eye for something that was done by a few unscrupulous cons. I say, get rid of them the old fashioned way. Simple good old fashioned investigation. Not enough manpower? Okay then suffer the industry but don't complain. It would cost much less to bust the bad guys then the cost of the losses these banks put up with.

Now as for the foreclosures, why don't bank's just offer an affordable alternative to the homeowners that are in trouble instead of letting them default? What if banks lowered their rates for the distressed homeowner but increased the term of the loan? And they could require that the homeowners work with a financial expert (appointed by the bank) during this process. Then as the homeowners situation improves, the banks could re-negotiate the terms of the loan or even refinance the client. It's better than ending up with a foreclosure on the books. Banks don't want to because they'd say that it sets a precedence and they'd have to do it for everyone. Right? I'd love to see real solutions to the real problem, not the smoke and mirror laws that will put more people (brokers) out of business and force them to foreclose as well.

Very well said Bob. We didnt create the mess. The lenders made up all the rules and we just followed them. It would be the same way today if they started loosening up the guidelines again. If the program is available and it fits the borrower and the borrower understands all the pitfalls, we have done our jobs.

We are consultants that share information and educate borrowers. We arent here to "cut people off" like a bartender and not serve them. We are here to give and show them whats available...if they like it, they will take it.

NOV

2007

Ron: Thanks for the comments. I have to say that I both agree and disagree with you regarding your statement that the mortgage brokerage industry doesn't accept SOME of the blame. There were some real sleaze balls out there doing some pretty unscrupulous stuff and I don't have any problem at all increasing the requirements to be a loan originator. While it might not have been up to us as an industry to tap our congressman on the shoulder (not that he would have listened to you anyway!) and tell him that we needed additional regulation as an industry, the fact is that we didn't do it.

It was not uncommon at all for people to be flipping burgers one day and then originating mortgages the next. This has to stop! Also, those spike headed slime balls who you saw at the broker's functions who stood there bragging about how they took Grandma for 8 points need to be forced from our business. What we do is too important to have a used car salesman mentality about the industry. All that said, the mortgage banking companies and the banks weren't a whole bunch better than we were and there is absolutely no rational reason to "blame" this mess on the brokers alone.

I also agree with you that the real focus on this mess should be on working our way out of it and that means getting the problem loans worked out if they can be worked out and liquefied quickly if they can't be worked out. The sooner we get this mess behind us, the better. That last comment is not intended to say that the government coming in and modulating the flow of foreclosed homes onto the market wouldn't be a bad idea.

Anyway, thanks for the comments!

Charles: I couldn't agree with you more as long as the loan originator played it on the up and up! Thanks for the comment!

Bob Mitchell

ValueList Real Estate Services, Inc.

NOV

2007

Accountability is one thing forgotten in this, but there is another...

Brokers do not create the loans that we sell. Lenders do. They also hire account executives to come and sell us brokers on their products. Lenders also create the guidelines, underwrite the loans, give the final approval and fund the loans. The broker is just the introduction man that looks for the best fit for everyone.

The subprime mess is the result of aggressive lenders making easy money ignoring the realities of a return on the investment. Many of the biggest ones filed BK and walked away after making millions in writing these loans their investors couldn't get enough of!

Brokers must bear some responsibility, but let's not forget the other players.

NOV

2007

Ed: Thanks for the comment. I think that we're on the same page here!

Bob Mitchell

ValueList Real Estate Services, Inc.

Thanks for setting the record straight!!

:-)

Bob,

Personal responsibility is the key to the subprime mess. If you go out and take on a large debt obligation like a mortgage, you ought to understand at least the basics of what you are signing for. To blame it on one single sector in the process is totally wrong.

Bob I agree with you. The lenders bear some responsibility for creating these "toxic" loans and many brokers acted in unethical ways but the ultimate responsibility comes down to the borrowers who signed the docs. Even if you dealt with a broker who didnt explain the pitfalls of programs like Option Arms, if you took the time to read the disclosures you could have found out yourself or at least been confused enough to warrant asking further questions or get a second opinion to see if this was the right loan for you. I personally have never written an Option Arm in 10yrs in the business because I felt that the program was being marketed to the wrong people but I still feel those borrowers who chose them have to sleep in the bed they made and stop trying to put the blame on everyone else.

JAN

2008

Interest only loans, and some ARMs ought to have never been allowed. Whoever allowed these frauds to be perpetrated on the unsuspecting comsumer should be in jail. Is it the baby's fault he chewed on a poisonous toy from China? You Cowards.

JUN

2008

i read this after i responded to AJ's post and read your reply

here here!!!!!

i said many of same things.........are there people who did unethical things? yes? but dont lump us all in same category

any many of his points were wrong

fees need to be disclosed and if they "change" at closing from disclosures than that person needs to complain to banking dept...............same w YSP-please dont try and tell people how YSP works when you dont know....................yeah we can make extra money by charging hiogher rate........doesnt mean the borrower will want that rate ............you have to be competative in order to get loan in 1st place

just becasue you can make 4 pts ysp by charging rate of 8 while other guy has rate of 6%..........who is borower going with?

GRAET POST.................im with you 100%

Thank you for the comment...The whole YSP argument (that it's some how an under the table kick back is ludicrous! Nobody is doing this stuff for free and by any other name that Rose is called profit.

Human nature being what it is, people will attempt to gain as much "profit" as possible, but the competitive nature of our business is there to keep it in check! Banks do the exact same thing, but they don't have to disclose what they are making on the back end.

Personally, I don't think that is fair at all!

Bob Mitchell

ValueList Real Estate Services, Inc.

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