To Whom It May Concern:
I find the gestures by the Senate a touch misguided, or even potentially disingenuous.
That being said, I would hope that in this inquisitive and exploratory stage, a person who is held up in public as a qualified expert on the subject of mortgages would be able to put in his tax free two cents.
It is not my personal opinion that I am an expert, rather that by the definition of California laws that for the health and longevity of my career that I take the actions necessary to meet the definition of "an expert" by operation of CA law.
This is true for the Salesperson who is required three college level classes, five tests, and an FBI level backround check. Moreso, for the people, like myself, allowed to hold themselves out as Real Estate Broker, where it becomes eight classes, eleven tests, and the same check.
In CA, we do have another type of Mortgage License, available to Corporations, and regulated by our Department of Corporations. Although they are regulated in a different manner, materially they are beholden to most of the same practices we on the Real Estate side are-- with the notable exception of not having to make disclosure on the MLDS of rebates received from an in-house banking resource. Hereafter I shall only be referring to our Real Estate side of the equation.
Unlike other states, whose laws I am unfamiliar, I can only speak from the point of view as a Real Estate Broker doing business in primarily CA. In our state, the common and legal practice is for the person signing the bottom of any mortgage application to be a real estate licensee.
In our standard regulations it has always been our agency practice, and my understanding that our practices are more or less standard to the state and federal laws, to have delivered (or attempted delivery) of a loan application no more than three working days from an origination. Most Lenders, such as Countrywide, et. al., require upon submission a signed initial application before conducting Underwriting.
Any subsequent change at any point in the complex negotiation process between agent on behalf of client and lender requires us to verbally disclose such changes to client, and materially deliver evidence of those changes in a reasonably timely manner on a revised application.
Contrary to assertions in some of the testimony by certain of the consumer advocates, the client of a good Broker will have had many chances to review the mortgage application as it is processed, and not meet that document for the first time at the signing table three or four days before funding-- and often when the luxury of saying "no" to a set of loan documents (the legal instrument of the mortgage) has moved on for the client.
A broker is the person who brings the massive corporate money to the householders. Our job then requires us to walk both worlds. That of the consumer advocate, and that of translator.
The loan process asks us to translate our clients situation to the Lender in a standard format whereby a credit decision can be made.
In that process, we are required to be reasonable within the purview of law and ethics. In the most unreasonable possibilities, operation of section 32, as we call it, will prevent any agent or Lender from approaching, in most instances, and avoiding always, the definition of usury.
Regulations D, Z, et. al., have provided additional training for the average consumer to think in terms of "RATE."
What is confusing is that the rates which they typically identify on TV, Radio, Billboards, Newspapers, etc. are APR, not note rates. Moreover, there is an "apples and oranges" phenomenon. What I mean is that in the ten to twenty factors which can define the Terms of any loan are typically unseen, unknown, and undisclosed except at the signing table.
Unlike certain implications and assertions at the hearing yesterday, this is not from unethical dealers (in most instances). In the case of the so-called "exotic mortgages," this is really a function of most licensees not having the time, energy, or in some cases skill or capacity to even begin to master the subtleties of such products.
As one who has done that for quite some time, the Lenders make subtle changes over time, changing the thresholds and requirements, and often creating confusion in their broker liasons and thus by default providing agents with less than perfect information to provide in good faith to the clients.
In many instances the Lenders are able to make exceptions, allowing a client who has met guidelines on an application submitted in a prior month to be funded at those qualifications in a subsequent month wherein the guidelines had been moved. Lets say for instance the DTI requirement was revised by the actuaries to 45% from a previously published 50%.
As a emipthetic witness to their efforts and good faith, although this example may allow certain parties the opportunity to characterise a Lender as creating a risky situation for the consumer, most Lenders want to keep faith with the consumer. The motivation of most sub-prime Lenders is not to "churn and burn" the consumer, whereby they are required to run like a hamster on a wheel of refinances year after year.
Consumers are at the end of the day required to take actions necessary to make an informed decision. Caveat emptor (buyer beware). I could regale endless examples and stories of clients hearing what they want to hear, but my fiduciary obligation prevents me.
I found that my training as a teacher of children for four years was very handy in the educational process I was required to subject most listening clients to. That said, not everyone can be expected to get straight A's. Most clients are working full-time jobs to pay their mortgages and consumer debts... they don't need to become fully trained loan officers just to refinance.
Actually, that brings me to the my characterization of the Senate being disingenous. Consumer spending habits, debt addictions, and fiscal disciplines are fed by a steady diet of junk food.
Advertisers and even government officials asking the American citizenry to spend money on non-necessities distract from family budgets.
Credit card offers sent to new homebuyers in a volume which would allow them to wallpaper their new home in a year are no help to the young couple starting out.
Easy credit for furnishing, autos, and other consumer goods to fill that new house blindside even the most studious and well intentioned family when start rates and no payment clauses expire.
No, its not the Mortgage Lenders to blame, nor the Brokers.
To be sure, there are some bad apples. And people like Mrs. Haliburton and the Advocates she contacted must continue to pursue their efforts to weed out bad practices and shady practicianers.
Here are my suggestions;
1. Expand consumer protections.
For now, the only thing an advertiser must publish is an "APR," which I defy every senator to be able to calculate accurately from three scenarios without the aid of a computer. I would be surprised if ten members could even do that with the aid of a standard calculator. Suffice to say it is a complex formula.
Consumers are by instinct led to beleive that "RATE" is the most important feature to a loan, and the expansion of the "exotic mortgage," a term which I find offensive, market bloomed when a loop hole in calculating the APR by use of start rates and MOST IMPORTANTLY START INDEXES was perceived by the Lenders.
Right now I find the APR requirement (although an important indicator) to be asking consumers to fly a plane with only a wind speed guage.
I have to add, please streamline the overall process, because making things more complicated and layered will only create more opportunities for well intentioned fiduciaries to make mistakes due to subtlety and complexity of law.
2. Expand consumer protections (on other forms of credit).
If the credit card industry was required to follow the regulations of a mortgage application conducted by operation of real estate law in the state of CA, then America would be a healthier fiscal society. Imagine "sitting at the table" with the disclosures on what amounts to a virtual negative amortization variable product.... 28% APR? Actually, true potnetial APR for many credit cards is far greater than any present requirements in published rates!
In fact, most disclosures are in the form of a non-signed, opt-in, 6-point font format. The paper is often smaller than your hand, and the legalese is intracable. If the mortgage industry was able to get away with the legalized mafioso practices of the Credit Card industry America would be Bankrupt.
If the poor, dumb, ignorant householder (yes, I am being sardonic) uses most forms of consumer credit say 96% of the time for 14% of their total debt, and the other 4% of their time they are concerned with that catagory of credit known as mortgage, the other 86% in this example, then the culprit in creating poor habits in that "consumer" is the vigorous consumer credit industry.
The reason I find it so incredible to blame the Mortgage industry for American spending woes is because in the case of laws, such as the Patriot Act, the citizen is told "ignorance of the law is no excuse."
Not equivocating corporate creditors with government, but its a bit overstated to point out the "sub-prime" mortgage market as the source for the consumer savings and debt crisis. Most brokers and Lenders are "taking the order" of the American consumer.
Again, I could cite many instances of my educated opinions falling on deaf ears only to fiduciarily effect an outcome which would be second or third on my list of best possible options for that households particular financial long-term health. The fiduciary obligation cuts both ways.
3. Clamp down on the Credit Card Industry.
Consumer credit is one thing, but Credit cards are an entirely different bag of hammers.
There are no ethical guidelines for workers at a credit card company to follow. In taking your application (assuming you even talk to anyone), processing, servicing, or collection practices the guidelines must be so thin as to avoid notice altogether.
Yes, there are certain standards, but there is a deep seated chaos in the granting of easy credit on the one end and punitive fee practices on the other end of that spectrum.
What message are lawmakers allowing these companies to send to consumers. How does this make for an educated, aware, and responsible society?
I can understand how certain members of your constituencies (some of my former neighbors, and possibly some of my present ones) can bring themselves to characterize credit cards as "the devil."
I am not of that ilk, and beleive with strong reform there is a place at the table of the American Economy for a healthy, honest, fair, and ethical consumer credit industry.
4. Expand Education.
Schools need to teach practical maths from ages 6 through 16.
Schools need their funding.
Schools need so much help and reform, I just wont go any further here.
5. Harmonize state law requirements.
I understand there are states wherein virtually anyone can originate a mortgage.
On the other hand some states (like Texas) make so many prohibitive laws so as to reduce the marketplace to exposure, thus competition, and thus most consumer choice.
Although education may not make agents, who are after all people, ethical, it can help in making them competent. Fingerprinting may discourage a certain bandwidth of potential bad apples, but at the end of the day... money seems to make people do weird things.
CONCLUSION;
I am of the belief however, that it is not "money," or whatever the thing is, that "makes" anyone do anything.
Rather we are a society of Rights and Responsibilities.
As citizens we are granted certain Rights, and it is the Congresses job to protect and steward those bundle of rights for all citizens-- and by impication in more noble times we could add "and all people of the world."
However, we are also responsible to one another. That is what motivated me to speak out in this blog after enduring C-Span for an hour or two on a subject in which it is my obligation to monitor.
Each person is responsible for his or her actions, and ethics and fair dealing is no exception.
Money is not the root of all evil, rather poor decisions and misguided intentions.
Let us pray for the good decisions and well-researched intentions of our lawmakers.
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