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
Joe Adamaitis is president of Direct Mortgage Services Inc.
He may be reached at (603) 427-6083 or e-mail [email protected]