Mortgage Morality.....A Rant.....

Picture this.....it's 1950, and you are going to see your banker to inquire about a mortgage. You get dressed up in your nicest suit, to make a good impression. You are a bit intimidated, but you see your banker as an authority figure. You get there, discuss finances, and the banker either approves or denies your request based on your merits, and how likely you are to be trustworthy to repay the debt. Your banker always acted with professionalism, courtesy, and most importantly ethics. They were professionals to be looked up to.


Flash forward to 2006. You want to buy a house, so you email or call a Mortgage Broker. The broker earns his living off of commissions only, so they will go to any length to get you a loan. You discuss finances, and if the broker can't qualify you based on your merits alone, they invent merits for you. "Oh, so you have been working at Taco Bell for 8 months now, correct? Let's say you are a manager, and list your income as.....oh, let's just say $8500/month. No money in checking or savings? No problem.....we'll get you into the house for no money. I would say you qualify for around $600,000 or so." The broker had no concern over whether you could actually afford the house. If you wanted it, by god you were going to get it! They were far more concerned in getting 2-3 points for closing the loan. After all, that could be $18,000 in their pocket for doing not much more than writing a small piece of fiction.


Then the bubble burst........


Mortgage Bankers are now regarded as about as professional as used car salespeople. After spending 15 years in this business, I think that is giving used car salespeople a bad rap. They are dealing with a relatively minor purchase. Your life would not likely be thrown into total upheaval because you bought a shitty car. If you buy a house you can't really afford, it can mess up everything!


Some people say that it's buyer beware, and that people should know what they can and can't afford. I say that those people rely on their Mortgage Bankers to be a guide and a voice of reason. Mortgage Bankers are the gatekeepers to home ownership, and should take this job very seriously. They are highly responsible for the success or failure of the American Economy, and the recent crisis is the proof of this.

Fortunately, many states have adopted licensing and continuing education as a requirement for Loan Officers. This is a step in the right direction, since it will discourage people in it for "a quick buck" from selling loans. The fees are just high enough to discourage the bottom of the totem pole.

Stated Income loans are also a thing of the past, which is great! But a new type of fraud has emerged as common.....Amended Tax Returns. When the loan officer reviews an application and finds out a self-employed borrower does not make enough money, they have them complete a 1040X Amended Return. They give us that as proof of income. I have seen several loan officers so brazen as to have the borrowers file those amended returns (so that they could be verified by an IRS transcript) and leave the borrower with a 10-20K debt to the IRS because of the increased income. Just to qualify for a loan.

As Mortgage Professionals, we MUST take our post seriously, with or without licensing, and remember that we should never put someone into a home we know they can not afford. We should not lead borrowers to do anything to jeopardize their financial situation. We are the providers of the American Dream, but we need to remember not everyone qualifies to live the dream right now. The blood of the economy is on our hands if we are not careful.