This article was published on HomeScape, last week. As you can see, it drew the ire of an originator at a direct lender:
If you’ve read the business section of your newspaper this past
year, you know that the mortgage industry is in an uproar. The years of
“easy money” are long gone. More than 200 national and local mortgage
lenders have ceased operations
since 2006. Surviving mortgage companies are now adhering to the mantra
of “fiscal responsibility” and have tightened the requirements to get a
mortgage loan.
Building a relationship
Many homeowners are suffering from this modern day credit crunch.
The lack of available mortgage money has driven many owners into
foreclosure or to a forced short sale. The increased inventory has
driven down housing prices, which in turn has caused lenders to
scrutinize mortgage transactions with a finer-toothed comb. A slippery
slope indeed.
It’s clear that past borrowers received some pretty poor advice
from their mortgage advisers. Borrowers, however, are not blameless.
Borrowers shirked the due diligence required to obtain the proper
mortgage and are now crying “VICTIM.” Sadly, that cry is pointless when
the sheriff sells the home on the courthouse steps.
At the heart of the problem
is the relationship the borrower has with his mortgage adviser. Loan
originators have absolutely no fiduciary responsibility to a borrower.
The only responsibility a bank loan officer or direct lender has, is to
her employer. If you can obtain a loan, according to the published
guidelines, there’s a financial incentive for your adviser to loan you
as much money as possible, regardless of your financial goals.
Mortgage brokers and their employees offer a better chance at an unbiased relationship.
But even with this scenario, their compensation is tainted by the irresponsible use of yield spread premium.
Rather than use yield spread premium as a tool to lower borrowing
costs, many unscrupulous mortgage brokers improperly disclosed that
compensation and used it to line their pockets.
Unbiased financial advice
How then, can a borrower level the playing field and get the mortgage adviser to truly offer unbiased financial advice? The Federal Reserve Bank
has some suggestions about how to do just that and ethical mortgage
brokers have been following the model for years now. The Fed
recommendation calls to negotiate a broker compensation agreement
before the loan application is submitted. Prenegotiated mortgage
brokerage fees remove the appearance of bias and put the mortgage
adviser on the same side of the table as the client. The idea of
up-selling a product is then done with the client’s best interest at
heart. Recommended loan amounts become a strategic financial planning
implementation rather than a way for the adviser to earn a higher
commission.
Sometimes borrowers improperly shop for mortgage loans by
trying to get the lowest rate and lowest fees. It is virtually
impossible to get the lowest rate on your home loan. But rather than
engage in the circular practice of mortgage shopping, borrowers might
shop advisers instead. Depending on the loan size, mortgage brokers
typically earn between 1 percent and 2 percent of the loan amount. Fees
ranging from $3,000 to $6,000 — inclusive of broker processing and
administration fees — are typical in this market.
Find a loan adviser whom you trust and negotiate a fee for her
services. Be transparent with the information you offer. Communicate
your short and long-term goals with her, and allow her to make a
suitable loan recommendation, mutually exclusive of the fee she earns.
