I was perusing the net and found a story online I wanted to share. Let's put a little different angle in hopes of creating some responses from real estate agents. Before I share the link I want to say first that the mortgage person depicted in this story is a criminal and deserves to go to jail.
The question I am asking is did the real estate agent do their job in looking out for their client or were they more interested in earning a commission or worse too ignorant/inexperienced about their job to realize what was going on. Please understand that I am asking this question in the aftermath of what has gone on the last 6 years and especially in the past 2 or 3 years. Before that time frame we weren't really concerned with what happened in this story, but now should we be?
It's a pretty quick read at http://www.housingpredictor.com/foreclosurecrisis.html
This starts out pretty regular where the McGregor family realizes they can buy a home with no money down and poor credit. Where it goes south is with the mortgage broker (MB) (please understand that it was/is not only brokers doing this type of activity, but also banks and mortgage banks- I personally know of a Washington Mutual employee that argued with me for an hour how inflating an income was not mortgage fraud).
The MB inflated income, so there is no documentation of income other than a verification of employment, and they charged $31,000 in fees that was rolled into the loan- I assume through a higher home price. Now more than 8% of the purchase price in closing costs seems to be extreme, it is in my area, but maybe elsewhere it isn't.
The story says that the MB didn't care because he gets paid when the loan closes, well that is true for an overwhelming majority of lenders the originator doesn't get residual income from the monthly payments on the loan, but certainly not unique to MB.
Okay here is what I am getting to. Was the real estate agent doing their job? Here are my thoughts. First, did the agent even ask them about how they qualified, a simple question "what type of income documentation did the lender require" could have raised a red flag?
Next, did the agent get a GFE before and see those high fees? Granted, the lender could have jacked those fees up at closing. Then of course the question would be why would you let your client work with a lender you don't know and therefore don't yet trust?
Did the agent know the loan was an adjustable that had the possibility of going up significantly in two years? If they didn't shouldn't they? All you need to ask for is the TIL and an ARM disclosure to realize that this loan could easily cause the payments to go up significantly. If the agent had discovered that wouldn't it be prudent to go deeper with their client to make sure they could afford a big payment increase?
It's no secret these two year ARMs were sold under the premise that you will have two years to get your credit cleaned up and we'll refinance you. Come on how naïve is that? What do people do when they buy a new home? They spend money don't they? How are they going to clean up their credit while they are spending all their money on their new home? So wouldn't it be prudent to make sure the client could afford a new much higher payment?
Now I am sure I have most of you saying "well that's the job of the mortgage lender" and I fully agree. The question I'll throw back at you is don't you think part of your job is to make sure that the lender your client is working with is doing right by the client? Isn't that part of your fiduciary responsibility? If it isn't shouldn't it be? If it isn't do you think that Civil Attorneys could make it your responsibility? Eight years ago maybe not, but now, today don't you think they have a hell of a lot of ammunition?
Do you think a financial services type "suitability" standard is that far off? The media, Congress, NAR, NAMB and the MBA are already talking about it. Heck the NAR President said that agents are partially to blame in all this because they weren't making sure their clients were getting into financially prudent loans. There's a new much higher standard coming and by gosh we obviously need one and we are all going to be involved, because even if the powers that be don't do it the legal profession will likely take care of it for us.
Please don't take offense to this, I put a higher standard on my fellow mortgage originators I am just saying that the real estate agent doesn't deserve a pass in this.
Please share your thoughts.
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