This article is for informational purposes only and does not constitute legal advice. Readers should not rely on it as such. No one should attempt to interpret or apply any law without the aid of an attorney.
Used car salespeople (and lawyers, too, I am sorry to say) have often been looked upon as the bottom rung of the professional ladder. If someone wanted to put down a group of professionals, they compared them to either used car salespeople or, yes, attorneys. Well, the tide seems to have turned. The favorite whipping boy for all of the ills of the world (besides perhaps Barry Bonds or the architects of the ill-conceived debacle in Iraq) seems to be the Mortgage Broker!
Not too long ago, The Wall Street Journal, not usually known as an anti-business publication, ran a front-page article on July 5 titled The MiddlemenMortgage Mess Shines Light on Brokers Role. Sen. Charles Schumer of New York was quoted on that same front page as saying The Mortgage Brokers are the wild, wild West of mortgage finance. He went on to say in the same article, We need to bring a sheriff to town. Subsequent to Schumers comments, legislation was introduced in the U.S. House of Representative by the top Republican on the House financial panel. Rep. Spencer Bachus (Alabama) wants the federal government to set licensing standards and provide for a national database for Mortgage Brokers and others who sell home loans.
The Wall Street Journal article, in the first few paragraphs, indicates that 58 percent of home loans are originated by Mortgage Brokersup from about 40 percent ten years earlier. The breakdown shows that half of all mortgage loans made to borrowers with good credit are originated by Mortgage Brokers, but Mortgage Brokers originate a whopping 75 percent of sub-prime mortgage and about 70 percent of Alt-A loansi.e., loans that fall between A loans and sub-prime loans. Sub-prime loans, of course, are the ones that have received the overwhelming amount of press coverage as of late. By providing these statistics at the beginning of the article (remember the title of the article), the writer is clearly attempting to illustrate how the Mortgage Broker has replaced the used car salesperson as the nations most despised service provider. However, if one has the patience to stay with the article to its completion (which continues for almost an entire inside page of the paper), one would see that the main focus of the story is not about the Mortgage Brokerage industry, but about the escapades of one particular unlicensed Mortgage Broker in northern California. While the web of deception that this particular mortgage originator has spun is quite interesting to read about, if the press and our legislators would spend more time publicizing (and regulating) the proliferation of unlicensed handguns in the same manner that they publicize the havoc caused by the occasional misguided Mortgage Broker, we would be much better off.
Yes, the Mortgage Broker seems to be stuck in the unenviable position of being the scapegoat of the mortgage industry. About the only things that this industry has not been accused of is selling those steroids to Mr. Bonds (if, in fact, he used them) or outing Valerie Plame. Then why are they being held responsible for this sub-prime mess, and why hasnt the industry been defending itself in the mainstream media? Is it because the politicians are so far removed from the actual reality of the mortgage business that they dont understand the difference between a Mortgage Broker and a lender? Recently, the head of a federal banking insurance corporation was heard to say that Mortgage Brokers are a big chunk of the problem with sub-prime lending. It is not the Mortgage Broker that is making the non-performing sub-prime loans, it is the lenders. The public, and the regulators, need to understand this differentiation!
An editorial that appeared in The New York Times on July 10, Myths Spun by Lax Lenders, read: Lenders should not be able to offer loans that do not fit a borrowers credit profile. That is all fine and well. If lenders had not offered these products, then Mortgage Brokers would not have been able to sell them. Lenders offered them and made a great deal of money on them, as did Wall Street. Those who made a lot of money on lousy loans dont stand to lose their houses now that the game is ending, The New York Times editorial went on to state. True. But Mortgage Brokers were only one of the tools used by the sub-prime lenders to facilitate the making of these sub-prime loans. If the loans werent available, Mortgage Brokers couldnt have originated them.
The undeserved noose seems to be tightening around the neck of the Mortgage Brokerage industry. As Congress seems intent upon some sort of national licensing initiative, one must ask how this would benefit consumers in states like New York where the Mortgage Broker is already licensed and heavily regulated. In fact, here in the Empire State, even stricter regulations will soon go into effect requiring licensing of and background checks on individual loan originators.
The Federal Reserve has recently issued rules requiring that lenders qualify applicants differently than they had been doing. More specifically, they want to make sure that an applicant qualifies for a mortgage payment based upon the real interest rate, not on any teaser rate. Great! Long overdue! Again, what did the Mortgage Broker do wrong? In most cases, it was the lender who determined that a borrower had sufficient income to repay the loan, not the Mortgage Broker.
Even though the blame seems to be directed, for the most part, on the wrong parties, the Mortgage Brokerage industry is going to have to work very hard to regain the confidence of the general public. There are only so many evenings that the national news shows can lay the blame for the mess on an essential and functional industry before the industry fights back, and fights back hard. Whenever you see an article, hear a broadcast or witness a legislator equating Mortgage Brokers with the wild, wild West, pick up a phone, write a letter or send an e-mail in response. Only you can turn this public relations nightmare around. Do it now!
Richard H. Lovell Esq. is the founder of Ozone Park, N.Y.-based law firm Richard H. Lovell PC. He was a member of the New York Association of Mortgage Brokers board of directors for more than 14 years. He may be reached at (718) 835-9300 or e-mail [email protected].