An article by James Hagerty "Mortgage Brokers: Are They Friends or Foes for Borrowers?" appeared in the May 24, 2007 edition of The Wall Street Journal. You may read the full article by clicking HERE.
As a mortgage broker who started in the business in 1980, I have had a front row seat on the recent history of mortgage industry.
Many mortgage brokers who have built successful careers helping clients and treating them like friends. But a common 21st century business model has been to hire young "ex-hamburger flippers," re-train them to read scripted answers, and put them to work at the other end of an 800 number.
Add to this a lack of regulation and the potential to make egregious commissions and you end up with a lot of pigs feeding at the trough. The result is the sub-prime implosion with a lot of damaged families.
At the heart of this problem is the issue of agency. No one has any problem figuring out who the real estate broker works for. Most states actually require agents to state in writing who has a duty to whom. Why should mortgage brokers be different? Our agreements with our lenders specifically state that we are not THEIR agents. Who’s left?
People can become easily educated shoppers at the grocery store, but borrowers are not knowledgeable about mortgages. They need intelligent help and they ought to be able to get advice from someone they can trust. It’s hard to see how you can trust someone who specifically states, "I am an Independent Contractor and I’m not acting as your agent."
The mortgage groups fight agency because they do not want to be held to a higher standard of ethics. They all feel, probably correctly, that their incomes would suffer if they always had to tell the truth to their clients.
It’s time the regulators got this issue out on the table and settled it once and for all.
Randy Johnson Randy is a Credit.com contributor and seasoned mortgage expert. He writes about home buying, mortgage laws and real estate finance issues. He has financed over $1 billion in properties, is the author of How to Save Thousands of Dollars on your Home Mortgage and he is a feature columnist for Savvy Borrower.
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All this talk about sub-prime lending in the mortgage business, the first person to point fingers at is the one who put the mortgage together. I think there are three parties at fault.
First is the individual themselves. I remember buying my first house, and that I knew nothing about the process. Pre qualification, pre approval, home inspection, appraisal, ARM, POINTS, the list goes on. Being the analytical person I am with a college degree in computer science I learned everything I could about the home buying process. One thing is for certain, it takes money to buy a house. Another thing is making sure your credit report is clean so there aren’t any surprises that come up in the middle of things.
The second is the one who is putting the deal together. What type of mortgage are they trying to get you into? If you don’t make enough money to actually afford the house are they pushing stated income or no doc so you can get an interest only loan? Along with the rate, consider the monthly payments, and if the rate were to adjust one day, the payment could go up.
Third party at fault is the stupid bank itself. A bank approving a very bad loan for an individual is going to get involved in a mess itself. When the person gets behind a few months and they have to consider foreclosure, maybe just not approving the loan earlier would have prevented a problem. What if the person owes more than their house is worth and they short sale it? Then the bank has to cut the loss to get rid of a bad investment on its end.
My mortgage broker was very up front with me and told me what I needed to know about the loan I was getting for my house. There are plenty of people like this out there, and there are shady younger people who get approvals no matter what so they can feel successful. The broker is not my friend or my enemy, they are a middle man.