Why your mortgage broker never touted his test score

I had high hopes on Monday for a Milken Institute global conference panel on "the future of the mortgage market." Turned out to be more of a look back at all that went wrong. But there was a testy and entertaining exchange between two of the panelists -- Ethan Penner, a securitization-industry pioneer who now is executive managing director of CB Richard Ellis Investors; and Ellen Seidman, who directed the federal Office of Thrift Supervision from October 1997 to July 2001 and now is an executive of the New America Foundation.

Seidman was making a point about the incentive a mortgage broker had for getting a borrower the biggest possible loan, regardless of whether the person could afford it. "The whole compensation structure was make a loan, take a fee, take a bigger fee if you make a worse loan -- a loan that's worse for the borrower -- and you have no responsibility after that," she said.

She blamed, in part, the fact that mortgage brokers weren't subject to any significant government regulation.

Penner then interjected: "Is it really right to regulate salespeople?"

"Yes," Seidman shot back. "Yes. Securities brokers are regulated by suitability rules, and these guys might also be too." (The suitability rule means a securities broker has a responsibility to be sure an investment is suitable for a client.)

"Let me just give you a really simple example of how bad this was," Seidman said. "In the state of Illinois they put on a regulation that required mortgage brokers to take a really simple examination -- you know, sort of, when bond prices go up do interest rates go down or vice versa, that kind of affair. Half of them didn't show up, and a significant portion of the ones who did failed."

In case there still were any questions about how it was that, during the boom, truly anyone could get a mortgage.

Posted April 29, 2008

Comments

[Wayne]

I have both been a stockbroker and a loan officer for a couple of mortgage brokers, and it shocked me that there were NO standards for becoming a loan originator (other than the ability to sell) as opposed to being a stockbroker, where I had to pass both a Series 7 and 63 and all phone calls were monitored...

[lefty]

guys watch out, loan people will increase your rate at the last minute with a vague comment like 'best we can do...', they sound so innocent lol ! even to a guy who checked rates at bankrate.com they added 1/4%! anyway back to the main subject: if you want a good price in a nice location in wonderful metro L.A., do it now!! as they say in mexico, "ahorita!" and buena suerte :)

[Iceman]

Take some responsibility for your own choices people. If the public didn't cry so loud that their payments were so high on mortgages, then Banks wouldn't come up with these creative programs. Funny how the Consumer loved their loan to begin with, even after signing a mountain of disclosures and paperwork explaining exactly what would happen when rates adjusted. Mortgage lenders are held to many standards unless they are a mom and pop shop that is running ahead of the law. These places are fewer and fewer as we speak. The glutonous times are past and these people (FORMER LENDERS) are now working at STOCK brokerages throwing darts at stocks and telling people they are a professional.These are definitely places to AVOID!. Do yourself a favor, do your homework, check around, and verify some of the things these lenders tell you. I find it hillarious that people think that the Banks owe the consumer a free loan.