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April 28th, 2010 (Modified on May 11th, 2010)

PART 1: Mortgage Pros React to “Ways to Fix the Mortgage Mess”



About a month ago we published a post — titled “We Want to Hear from Lenders!” — that asked mortgage professionals to share their opinions and reactions to the recent changes in the mortgage market.

It may have taken a while, but thanks to another post we published last week — titled “Fixing the Mortgage System…In One Week?” — we finally received some reactions from the mortgage community.

“Fixing the Mortgage System…In One Week?” was based on six suggestions made by nationally-syndicated columnist Peter Miller on what actions “borrowers, lenders and government officials can take now, this week, to revamp the mortgage system.” Miller’s suggestions were met with some opposition by several mortgage professionals.

Here are Mr. Miller’s “six ways to fix the mortgage mess“:

1. Nationwide Mortgage Licensing System: This national system will prevent the “bad actors” in the mortgage business from taking their bad practices from state to state. “In essence loan officers now have unique registration numbers even if they move from state to state,” writes Miller. “This means the name and registration number for a loan officer can be included in mortgage documents — and loan officer performance can then be graded in the same way that we have credit scores.”

2. Fiduciary Obligation: “The creation of a fiduciary obligation for loan officers would mean that aggrieved borrowers could take loan officers and their lenders to court in the event of abuse, a system which seems to work well for virtually every other type of business.”

3. Loans Fully Documented: This would “require that all loans be fully documented and that income and employment are verified. This would do away with “stated income” loan applications where lenders do not verify borrower income claims.”

4. HUD Should Set Rates: Miller says HUD should be responsible for setting the interest rate and points for FHA loans. “There’s no reason this can’t be done. In fact, until 1983 HUD actually did set FHA mortgage rates. Borrowers would then have an easy way to follow the market by using FHA rates as a benchmark.”

5. Predatory Lending Should be a Federal Crime: “Predatory lending is NOT a federal crime. Loan fraud — where a lender is abused — is very much a federal crime but predatory lending where a borrower is overcharged by a lender is entirely ignored by federal laws.”

6. Bring in the FBI: “Every mortgage-backed security which has a high level of foreclosures should be audited by the FBI to assure that all loans were properly underwritten. When that’s not the case then appropriate action should be taken against the lender, the loan officer, the underwriter and the Wall Street securities packager who were paid for such work.”

In “Part 2” of this series we will explore the reactions of mortgage professionals to Miller’s six suggestions. The pros will also offer their suggestions on how we can improve the current mortgage market.

Mortgage professional or not (but especially if you are!), we want to hear what you think! What are your reactions to Miller’s ideas? How can the mortgage system be improved? Leave us a comment, let us know.

Be sure to check out PART 2!

9 Responses to “PART 1: Mortgage Pros React to “Ways to Fix the Mortgage Mess””

  1. Tweets that mention PART 1: Mortgage Pros React to “Ways to Fix the Mortgage Mess” | HSH Financial News Blog -- Topsy.com Says: April 29th, 2010 at 4:46 pm

    […] This post was mentioned on Twitter by HSH Associates. HSH Associates said: PART1: Mortgage Pros React 2 “Ways 2 Fix the Mortgage Mess” http://bit.ly/9pRuVW Pros told us what they think is wrong w/ the mort market […]

  2. Josh Morgan Says: May 11th, 2010 at 9:29 am

    Hi None of these suggestions will fix the mortgage mess. None of these caused a national wide housing bubble which caused prices to fall. That is really issue with the housing mess. We are licensed by the state, so the national system is just another expense we have to pay and pass onto our clients. Granted, the loan officer should be putting their client in the best loan, after discussing the options with the borrower, but you have to remember, the loan officer does not approve the loan nor does he create the loan programs. Coming after the loan officer when a loan goes bad, will destroy the current and efficient system. The loan officer is not compensated for taking on the future risk. The investor of the mortgage is the one who gets compensated for taking on future risk of a mortgage. As for loans being fully documented, I agree with as long as their are getting the best rates as the risk of that loan is less. Stated Income loans need to come back, but should have some higher restrictions and be available to more experienced loan borrower. In my state, the small business owner will have a hard time purchasing a home. Having 1/8 increase in rate, like it was, was not enough justify the risk for low doc loans. How about requiring a 720 fico and 1/2% to 1% increase in the rate on Stated Income loans. Predatory loans are good for the market place. Those borrowers do not have any options. Granted, for the lenders seeking the quick buck, they should be removed from the industry, but there is a need for this type of loan. The FBI should investigate all mbs securities because they have a high default rate. How can the FBI solve the problem of declining housing prices and or lost jobs in a bad economy. The do gooder’s took away the option to insurance loans on the front end by the borrower. We can’t sell credit life, credit disability or loss of work insurance anymore. How many loans would be pulled out of foreclosure if we had these options to sell to clients? Yes, about 20% clients ask me if these products are available. If you really want to control the housing industry, the simple fact is you need to get the politics our of our industry and let the free market place work. Congress told Fannie Mae and Freddie Mac to loosen their lending standards so more loans could be approved. This the real reason why we have this mess. Solid underwriting standards, without going overboard, is the key to solving this housing crisis. The number one think to do is to control the front and back end loan ratios. We should be not approving loans if the front end ratio is over 30% and the back end ratio should not be over 45% which must included a car loan as all need a car to work and to function in America. Enforce the old standby, limit a loan amount to 3 or 4 times the borrowers income. This would crash the housing the market as the many borrowers are in the 5 to 8 times range. The do gooders of this world will always find problems in every loan approval. Bring back old fashioned common sense to underwriting, let the free market place work and the housing crisis will be over.

  3. Cindi Says: May 11th, 2010 at 9:36 am

    I personally feel that the new gfe and the hvcc appraisal requirements are borderline predatory lending. The borrower cannot even read the new gfe let alone understand it. The appraisals – let me see – that is just wrong on so many levels. If a lender has overlays that will end up in rejection of the loan, the borrower has to pay for another appraisal in order to resubmit to another lender. Those should at least be transferrable to eliminate the additional expense to the borrower. I also just found out one of my lenders charged 475.00 to a borrower, but paid the appraiser 350.00. What happended to not making money on those items?? If the new changes taking place are there to protect the consumer, I don’t see that happening. I see them getting hurt more now than ever.

  4. steven davis Says: May 11th, 2010 at 9:43 am

    you want to tell me why all of the above wasn’t being done in the first place? isn’t this america where people do the right thing and love their neighbor instead of cheat them?

  5. Tim Manni Says: May 11th, 2010 at 10:14 am

    Steven Davis, Thanks so much for your response. You should really check our “Part 2” of this series — we have several reactions and suggestions by people in the industries. Feel free to add your opinions in the comment section! http://blog.hsh.com/index.php/2010/05/part-2-mortgage-pros-react-to-ways-to-fix-the-mortgage-mess/ Thanks, Tim

  6. Tim Manni Says: May 11th, 2010 at 10:17 am

    Cindi and Josh Morgan, Thanks for your comments! As I’m going to tell everyone who comments on this post, “check out ‘Part 2’ of this series.” In “Part 2” we have added several reactions and suggestions from industry professionals. We’d love to have you guys express your inputs there. Here’s the link: http://blog.hsh.com/index.php/2010/05/part-2-mortgage-pros-react-to-ways-to-fix-the-mortgage-mess/ Thanks again for your input! -Tim

  7. Donna Says: May 11th, 2010 at 12:48 pm

    Where do I start? HVCC hurts the borrowers and certainly isn’t in their best interest. First, this costs the borrower more money and takes longer. If the appraisal was found to not be fair market value, why not hold the appraiser at fault to higher standards and take their license? I guess that would make too much sense. If fraud is found to be a factor, why not make the appraisers accountable and take them to court? Why penalize all the mortgage professionals, appraisers and borrowers that are innocent, to stop the small number that aren’t? I used the appraiser I used because she charged a less due to the volume of business I gave her. The customers benefited from this, not me. If we needed an appraisal or reinspection immediately, I knew I could count on her for that too. Many times she told me a property wasn’t worth the value it was sold for. Usually it was a FSBO, but I wanted to know that! I didn’t want my customers to overpay for a house. Now, it often takes weeks to get an appraisal! Also, as Cindi says, these should CERTAINLY be transferrable from one lender to another. Last but not least, the lender should not be able to reject an appraisal based on value! They are securing the appraisal company, not us! How can they tell us who is going to do the appraisal, and then turn around and say they don’t agree with it??? Now the GFE… this is ridiculous too. Why are brokers required to give a GFE that says, we are charging them an origination fee, when by law, brokers aren’t allowed to charge an origination fee! It’s so confusing, I don’t know one customer that can understand it. What is more clear, than a one page form that tells them exactly what each fee is? I can understand limiting the percentage of change, but see no reason for this ridiculous 3 page waste of paper! How about the new form that says they have received all applicable disclosures??? Are you kidding me! HOW is the customer to know if they have received all applicable disclosures? I’m wondering if the the people that come up with these forms could pass a basic IQ test. Also, in our area, we have a lot of lower priced homes. Due to other government regulations, we can’t do loans on these houses because they would exceed the maximum 3% allowed on these loans. OBVIOUSLY, the powers of being, that are making six figure incomes, living in places like NY city, aren’t thinking of the everyday people making much less. If your average sale is $1,000,000. 3% is $30,000. If your sale is $30,000., 3% is $900 and doesn’t even cover closing costs! This is NOT preditory lending! They need to get their heads out of their BMW’s and realize, not everyone is making the same income and that there is a BIG difference in percentages between thousands and millions.

  8. Johnny Says: May 11th, 2010 at 12:57 pm

    The changes affected only the consumer, it did not benefit anyone. everyone in the industry (broker and lender)is charging and making the same amount of revenue. the credit imposed to brokers does not work, all that needs to be done is increment the initial fees, by the same amount, and the final amount will include the rebate. lenders do not have to disclose YSP therefore there is no need to increment the initial fees. Something else affecting the consumer is when the Real estate agent is acting as the Motgage consultant. this is a bad combination, it normally increments the cost to the borrower when common sense tell us it should work the other way around. regulatory agencies should focus on preventing this dadly combination.

  9. Tim Manni Says: May 12th, 2010 at 1:48 pm

    Johnny and Donna, Thanks so much for your input. Be sure to read “Part 2” if you haven’t already: http://blog.hsh.com/index.php/2010/05/part-2-mortgage-pros-react-to-ways-to-fix-the-mortgage-mess/ Thanks again, Tim

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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