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Steinert named director of business development for The Turning Point

Nov 18, 2007

Mortgage reformJoe AdamaitisMortgage reform I have recently been mired in a campaign to notify those at the top of the regulation chain that we have a number of issues related to the sub-prime mess. I have submitted a narrative to Senate Banking and Finance Committee members, as well as copying those who matter in the mortgage industry. There is an urgent issue that needs addressing if the goal is to truly reform the mortgage industry. The issue is the culture that exists in the residential mortgage industry today. Mortgage reform and today's culture The recent sub-prime debacle has created a frenzy of actions ranging from Senate and congressional hearings, to the creation of new guidelines and disclosures to protect the consumer, to finger pointing by the Mortgage Bankers Association of America and the National Association of Mortgage Brokers. While the pounding of chests will certainly help some of the participants elevate their political careers, others are seriously trying to make the proper changes. Their work is admirable, and I applaud all that is happening. However, as in any situation of this magnitude, nothing will change until we change the culture. Many of you may ask, "What culture?" For those in the business, it's easy to see the changes over the last 10 years. Back then, the industry, for the most part, was a culture made up of problem solvers who thrived on the satisfaction of putting people into homes. Loan officers, Mortgage Brokers and the like were all considered the experts when helping the borrowers. In the mid-'90s, the industry and the culture slowly began to change. The culprit was the creative compensation plans. Creative companies went after the top producers using a new means of paying commissions. Instead of paying an average of $1,200 for a $200,000 loan, the loan officers were now being offered a split of the total amount of fees collected 50/50, or even higher. The result was an explosion of new blood into the business. By late 2002 and during the refinance boom, loan officers, brokers, originators (whatever term you choose to call them) were hell bent on collecting as much as humanly possible from the borrower, knowing the more they charged, the bigger the commission check. High-fives for large commissions were now part of the office routine. To reform the industry, whether it's sub-prime borrowers or prime borrowers, we need to take the fox out of the henhouse. In other words, you cannot tell a young originator that he will receive between 50 to 80 percent of the total fees he is able to generate from the unknowing/unsuspecting borrower. The culture has changed from helping to hijacking the borrowers for every dime the originator can get. How many borrowers recognize that the loan officer is being compensated by the lender and also for any points or broker fees added onto the costs? Sure, if the borrower truly understands the good faith estimate he may see this if he's using a broker, but he will not if he's using a lender or banker. Bottom line: Telling a loan officer to go out and collect as much as he can as an incentive to earn will yield the results we've just witnessed over the past five years—namely, pushing borrowers into deals they don't belong, for which they paid through the nose! Joe Adamaitis is president of Direct Mortgage Services Inc. He may be reached at (603) 427-6083 or e-mail [email protected].
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