1st MetTC Blog

So, Who's to Blame

I read an interesting article on Bankrate.com by Elizabeth Razzi, a freelance personal financial reporter and author of “The Fearless Home Seller,” it was entitled “Mortgage Ignorance Rampant.” It headlined polling results that showed 34% of homeowners don’t know what type of mortgage they have, Adjustable Rate or Fixed Rate! I really don’t find this surprising, as it is my belief that many of the people who jumped into the mortgage business as Loan Originators in the past five or six years did so without having any real background which would qualify them for the job. They were warm bodies who could answer the phone, follow the script, and SELL the person with whom they were speaking a mortgage loan. And preferably, a mortgage loan with a couple of points up front (Origination Fee) and two or three on the backside (Yield Spread). To keep the rate on the proposed loan palatable, the mortgage form offered was an adjustable rate loan. Everyone was scrambling for the lowest rate, and what you got was an Adjustable Rate Mortgage or Option Arm. Wham, Bam, Thank you Mam; next caller please!

I have personally been the business of finding people money for over twenty-five years. Most of it on the commercial side of the business, but also many years doing Residential loans. For years I have called myself a Mortgage Advisor because most clients with whom I met, knew nothing about mortgages, except the fact they had to get a mortgage to get the money to buy a house. Even those who were refinancing their home had very little mortgage knowledge. And, it was interesting to note that even though my clients may have been quite sophisticated in other financial matters, their mortgage savvy was nil. While I was doing working with mortgage programs everyday, the average person only goes through the mortgage process a few times in a lifetime, and in order for me to be comfortable advising them on what kind of financing they should use, I needed to educate them on what the various kinds of mortgages were and what went into their qualification for a mortgage. To help the make the right decision they needed to know what the positives and negatives were for each kind of product and how the different programs fit with their needs and desires. Could I do this over the telephone? Yes, but it was much easier if I met with the clients where we could sit around a table and draw pictures of the plans, because pictures make the learning easier and the understanding greater.

Who is to blame for the Subprime fiasco? Is it the lenders who created the new mortgage programs which allowed so many more people to qualify for home ownership? There is possibly some responsibility there. Customers were screaming for loans; there was a mortgaging frenzy, and where there is that amount of clamor for a product, there are bound to be profiteers. But, in my opinion, the profiteering was much more on the side of the people who originated the loans. the ones who had no compassion for their clients or compunction to get them into the right mortgage, rather only to sell them the one which made the most money. So much for who profited, the question is who’s to blame?

Today we see the politicians holding hearings. They are up in arms over the Subprime foreclosures, which they should be. They are looking for someone to blame, and they are pointing their fingers at the lenders. When you point your finger at someone, there are three pointing back at you. I know we have all heard that, and in this case the three fingers point at the culprits. There are many states in this country where there are no controls, no required education, no modicum of experience necessary to become a Loan Officer or Loan Originator. All lawyers, financial planners, stockbrokers, bankers insurance agents, etc. must be licensed. The individuals who guide clients through the largest financial transaction they will probably ever make in their lives are unlicenced, most times untrained, and I’m sorry to say, often only in it for the buck. There will always be people who will take advantage of a situation. Training and Licencing will not eliminate the problem, but Training and Licencing will go a long way toward minimizing it.

Next time, “What a Mortgage Advisor should know”