Mortgage banking is in my blood. I was 13 the first summer I decided to work in my father's mortgage company. While other children my age were playing kickball at day camp, I was processing loans. I assume my grandfather had a mortgage banking gene; four of his five sons chose to make careers out of it, while the fifth brother's life was taken untimely. Since that time, I am proud to say that I have come to understand all the nuances that make our industry interesting and lucrative, while allowing us to help citizens achieve the dream of homeownership.
Today, I worry about the sanctity and trust a mortgage lender has in funding a mortgage to who they believe is a qualified borrower. In recent years, the mortgage industry has been like a rollercoaster ride at Six Flags. Through 2006, it was the slow climb to the peak, while the crisis of 2007 began the high velocity shot downward. Sub-prime was a global industry error, one that I am glad that my father and I were not part of. However, it is my personal belief that many of these same individuals that brought the industry to its knees in the first place, have now found another niche.
Here is the story that brought everything to my attention. A borrower, who had no reason in the world to not make their mortgage payments, was currently delinquent. After going back and forth with this individual for some time, they confessed to me that they paid someone $3,100 because they told them that if they did not pay their mortgage, they would be able to keep their house and be able to lower their payment. Upon further research and discussion with other local and national lenders, I came to understand that a new phenomenon was brewing, and this was not an isolated incident.
Across the nation, borrowers are being contacted by "loan modification companies" and being told to not make their payments. Borrowers were being told, "The bank won't even think about taking your house for eight months, at that point, we will renegotiate your mortgage on your behalf with the bank." Inexplicably and unfortunately, many borrowers are falling for this trap and causing a domino effect of which results are not yet completely in. These companies collect fees from the borrower and commonly pay referral fees to anyone that will throw them a bone.
In a perfect world, a loan modification company may not be so bad; a borrower truly cannot make their payments, then they work with the borrower and lender to come to an amicable conclusion. However, the reality is that borrowers are being cold called and solicited to not make their payments, and kickback money is readily available. The fact that large institutions have so many foreclosures that they have no choice but to consider loan modifications only adds fuel to the fire. Loan modifications should not be considered as a burden free, money saving proposition for homebuyers.
I believe that the government needs to enact certain laws to prevent this from causing more distress on the economy, such as losses for banks, advances for seller/servicers, and a decrease in demand in the portfolio market; all of which trickles down to the many employees that are hired to work in these fields of business. We are talking about processors, loan originators, underwriters, closers, title companies, traders, and the list goes on and on. In an already damaged economy, we have enough problems to deal with. We cannot let any threats to the housing and mortgage market go unnoticed ad unpunished, especially with today's dominant mortgage product being federally-insured FHA loans. My message to brokers and bankers is, educate your consumer; don't let them be fooled into believing that they are better off NOT paying their mortgage.