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July 5, 1999
"You have had
some unflattering things to say about mortgage brokers... Do you believe
that the industry attracts rogues?"
I don�t believe that the
industry attracts more than its share of rogues, but it creates more than
its share. What we do to make a living leaves its mark on all of us.
Mortgage brokering is a feast
or famine business. When business is bad, a lot of the smaller players
fold their tents while the more substantial ones hunker down and wait for
the market to improve. This tends to create a mindset that you have to
make as much money as you can when business is good because it won�t be
good forever.
Furthermore, mortgage brokers
quickly learn, if they didn�t know beforehand, that it is easy to
generate more income by deceiving their customers. Most customers are easy
targets because they have little or no experience in obtaining a mortgage,
and the process is so complex and multi-dimensioned that opportunities to
take advantage arise at every turn. Those brokers that are really good at
it leave satisfied customers who never realize they have been had.
Some mortgage brokers intermix
this mode of doing business with a bit of charity work. They may take
clients who need very small loans and who require so much of their time
that there is no way they can be adequately compensated. That they are not
paid enough for their efforts with these customers is a good rationale for
overcharging other customers who can afford it.
And then there are always a
few customers who do understand the business, and who end up exploiting
the broker. This is not difficult to do, especially on a refinancing where
the borrower is not faced with a firm date on which a loan is needed. It
is amazing to me how many letters I get from borrowers with larcenous
impulses toward their mortgage broker who are looking for tactical advice
on how to turn the tables. (I am no more sympathetic to them than I am to
the over-charging mortgage broker).
Like the charity customers,
these provide inadequate compensation to the mortgage brokers, but in this
case it is involuntary. It also strengthens their mindset that you have to
make as much from other customers as you can get away with.
Mortgage brokers also
encounter customers who require much more of the brokers' time than they
anticipated at the outset. Here are some examples:
*The borrower can't document
assets held in a financial institution because the institution only
provides quarterly statements.
*The sale of an existing
house, which will be the source of cash for the new purchase, has hit a
snag.
*The credit file has been
impacted by adverse information originating with a family member with a
similar name.
*The borrower can't find the
Settlement Agreement with a vindictive former spouse who won't cooperate
in settling a joint debt.
*A lien for child support
has been recorded against the borrower.
Brokers feel that they
need a bag of tricks they can use to compensate themselves for such
unexpected demands on their time.
"...I bet you
get lots of angry letters from mortgage brokers. What do they say and how
do you respond?"
I get a fair number. Most of
them say that they are not guilty of the particular unsavory practice that
I have discussed in a prior column, and they resent being tarred with the
same brush. It is unfair, they say, to condemn an industry for the actions
of a few rotten apples, which every industry has.
My response to them has been
that ethical business people in an industry with rogues do suffer from the
association, and it is unfair. I then go on to point out that it is
extremely difficult if not impossible for consumers to sort out the
ethical mortgage brokers from the rogues. Referrals from other borrowers
are close to useless, since those who were overcharged seldom realize it.
(On purchase transactions, as
opposed to refinances, borrowers often follow referrals from their real
estate agents, who have a financial interest in the transaction being
completed. A mortgage broker recommended by the agent can thus be relied
upon to have the loan disbursed at the closing table. But agent
recommendations are little or no protection against being overcharged.)
I then go on to tell my angry
mortgage broker respondents that what is needed is a self-enforcing code
of conduct to which ethical mortgage brokers like themselves could
subscribe. This would allow borrowers to distinguish between them and the
rogues. I have been working to develop such a code, I tell them, but I
badly need input from industry insiders, and would they be interested in
working with me on this project? I am still waiting for my first response.
October 11, 2001
Postscript: Following publication of this column in July, 1999, several
brokers volunteered to work with me. The result has been the
development of Upfront Mortgage
Brokers.
Copyright Jack
Guttentag 2002
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