To be blunt, business sucks. As a broker, we listen to the needs of our customers and provide them options for mortgage loans offered by various lenders. Since the start of 2007, over 100 lenders have closed, many programs have changed, and various legislative measures have been raised or have already passed. Imagine trying to play a par 5 hole when your choice of clubs keeps changing and the hole keeps moving... and don’t forget the rules, they are amended every other day. Except this isn’t a game, if I don’t sink the ball, one of my customers might have to keep renting, might have higher mortgage payments, or might even lose their house. I take my job and the financial well-being of my customers very seriously. Changes in the industry are not just making my job difficult, they are hurting good, hardworking Americans, a cross section of which are my customers.
As if that doesn’t make things difficult enough, I live and work in a state trying to lead the nation on mortgage reform (more appropriately called “regulation”). North Carolina has been a trailblazer for years in regards to the mortgage industry. We were one of the first states to prohibit prepayment penalties on loans of less than $150,000. We were one of the first states to limit mortgage company fee “junk fees”. We were one of the first states to require background checks and licensing for individual loan officers as well as their employers. All of those regulations I support, but this year things have gone too far. Now the state is in the process of eliminating all broker and lender originated subprime loans, stated loans, adjustable rate loans, yield spread premium (which will cost borrowers more out of pocket), as well as interest-only and other hybrid products. All of these restrictions are on brokers and lenders yet banks are somehow exempt. I guess a 9-5 bank un-licensed loan officer is more likely to help the average consumer who needs some extra assistance with their loan while a licensed mortgage broker, who works longer hours and provides a greater range of products is out to screw everyone? Yeah right. The need for mortgage brokers was created by the void left by banks. We are open longer hours because our customers work for a living. And we don’t turn our nose up at you if you don’t have a $20,000 CD or the perfect job and 2.4 kids... we work with people, sometimes for months or years to help them improve their financial position. We often work nights, weekends, and often at less cost to our consumers. But we are the ones who need to be regulated because the banks decided we have taken too much of their business.
But all of that hasn’t even kept me silent this week. What has kept me silent is the absolute inability to find time to write as I try to comply with my state’s overbearing new regulations on my industry. You see, our small, family-run company received an audit questionnaire earlier in September, and we had just a short amount of time to complete it. Some of the items we had to provide include:
- a spreadsheet detailing personal info, ssn, credit score, loan amount, etc. of every person we have ever spoken with whether currently active, funded, denied, or withdrawn by the customer. EVERYONE.
- 15 months of bank statements, credit card statements, and a list of all assets
- tax returns
- personal details (ssn, etc) of all employees past or present since opening, including their education and license history, phone numbers, and reasons for termination
- every marketing piece every produced since opening
- and much more
- OH. And they pulled my credit, without my consent.
Read that. No probable cause, just a random search with apparently no right to privacy for ourselves or our customers. I am to provide phone numbers, socials, credit scores, loan-to-value ratios, and other documentation about you that the government has no legal right to. And I have to provide it in a very small period of time, in an excel spreadsheet, that I am supposed to send them via e-mail.
I can’t even begin to discuss the privacy issues of e-mailing a government agency that kind of data. You hear stories about government hard drives missing and laptops disappearing all the time. If I was that careless with my customers’ data, you can be sure I would be sued... but when its the government... no big deal.
But just forget the privacy hurdles to providing all of that data. Imagine a small 3 person company having to go through all of its paper files and gathering that data on 650+ different people while still trying to manage a business during a down turn. We've changed software, changed locations, and reduced our staff over the past three years. While we keep great paper records in every file... they were in every file and loan files can be huge. Needless to say my wife didn’t see me very much over the past few days.
This is not stuff they told us we would have to provide when we got our license three years ago. In fact, some of the information they are asking for didn’t even have a legal definition until late March... yet that doesn’t stop a government body who wants to enforce regulations retroactively and investigate you without probable cause just because “your number came up”.
I’m disgusted by the whole thing and fail to see the rationale or even constitutional basis for such investigations without cause. And lest you think we have done something wrong to warrant such a search let me tell you clearly the contrary. After 650+ files and at one time 10 employees, we have had only one customer complaint (from a person who decided not to make their mortgage payments). When we refused to lie on their behalf they made a complaint against us that has long since been dismissed as having no standing.
But that doesn’t matter. An overbearing government has to do something to earn its budget... and right now increased restrictions and a witch hunt on mortgage businesses are both popular and politically advantageous.
For the past few weeks my life and my business was put on hold in realization of that very fact.
And now we come to Presidential Candidate Mike Huckabee, the support of whom I am currently re-thinking. You see, I submitted a question through Governor Huckabee’s website a few weeks ago. Unbeknownst to me during that past week, Governor Huckabee answered my question. I found it tonight... and then I began to blog.
Click here for the question. I won’t quote the whole thing or the whole answer. Read it for yourself and make your own judgments. This post is already long enough. But please pay attention to the segment of the Governor’s response I will quote below:
My sympathies are not with the billionaire hedge fund managers, but with some of the folks getting foreclosed on. These people qualified for normal mortgages, but their mortgage brokers steered them to these sub-primes with teaser rates because they got bigger commissions. Now credit standards have been tightened, and they no longer qualify for traditional mortgages. I don’t think the government – meaning we the taxpayers -- should bail them out, but I think lenders should be pressured to refinance these loans so that the rates rise more slowly and affordably. Some people did buy houses they knew they couldn’t afford, and I don’t have much sympathy for them.In the above selection and the totality of Governor Huckabee’s response he has shown either a complete misunderstanding of what a mortgage broker does or a brazen attitude about their livelihoods. I take offense to the Governor’s response personally, and I ask him to cite any studies that, weighing all detail (such as job stability, equity, credit score, documentation provided, assets, etc), suggest that there is a large contingent of consumers who have been “steered” into loans below what they actually qualify for. I also object to the notion that mortgage brokers “steer” consumers into sub-prime loans for the purpose of making bigger commissions. Being a broker of both prime and non-prime loans, I can not think of any reasonable occurrence where a borrower could be unwittingly steererd into a subprime loan as opposed to a prime loan so the loan officer could make more commission. Assuming a broker has equal access to prime and subprime lenders, it is easier to make yield spread on a prime loan so why would a broker steer a borrower to a subprime loan if a prime loan was available? Now I can accept that a borrower may get a subprime loan when they could have otherwise received an FHA loan... but that problem is due to the extremely high barrier of entry for a mortgage broker to have FHA access (approximately $10,000 in annual audit fees).
We need increased regulation of the mortgage industry to get rid of things like ridiculously low teaser rates and stated income loans where borrowers don’t have to prove they’re qualified.
Furthermore, I can’t stress enough how much I object to eliminating “stated” loan products. We live in a time where people change jobs frequently, are more likely to become self-employed, and have more than one source of income. Ending stated loans will seriously diminish self-employed individuals from obtaining homeownership, at least in the short term. Why would someone who supports the FairTax also support eliminating the ability entrepreneurs to own a home? The IRS is already burdensome enough, but ending stated loans will give the IRS even greater effect. Imagine a small business owner just starting out, not claiming legitimate business expenses because their Adjusted Gross Income would decline and thus they couldn’t qualify for their full documentation mortgage loan. That is the exact result you would find in a world without stated loan products.
The Governor concludes by calling for additional regulations on the mortgage industry. Governor, I have just cited for you what my small family business is experiencing in the face of increased mortgage industry regulation. What additional regulation and restriction on my customers ability to choose their mortgage loan would you propose? What additional regulation and restriction on my ability to earn an income would you propose? In what circumstance can you cite where increased government regulation on an industry and a lack of consumer choice has actually worked in favor of consumers? I can think of none.
