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April 21st, 2010

Fixing the Mortgage System…In One Week?

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Nationally-syndicated columnist Peter G. Miller writes, “Fixing the mortgage system is crucial if we’re to prevent another financial meltdown.”

Miller offers six steps to fix the system; six steps that he says can be done starting this week. Let us take a look at a few:

Second, lending rules must be changed so that loan officers have a fiduciary obligation to borrowers, in the same way that lawyers have an obligation to clients and doctors have an obligation to patients. 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.

Fourth, have HUD set the interest rate and points for FHA loans — and post that information daily online. 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.

Sixth, 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.

Click here to read all of Miller’s suggestions of how borrowers, lenders and government officials can help improve the mortgage system.

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6 Responses to “Fixing the Mortgage System…In One Week?”

  1. Vernon Appenzeller Says: April 21st, 2010 at 4:45 pm

    None of those asinine ideas would do a thing to prevent ‘meltdown’. If there were no choices for the consumer and everything is a total doc, 20% down 30 year fixed (Atlas Shrugged) that would be one step in the authors direction as no resets of payments means no payment trauma. As to what originators make…if they are allowed to charge the same hourly rates as doctors and lawyers (his example, not mine), regardless of the outcome of the endeavor…then I’m all for it. I’d be able to retire in 5 years.

    This fellow doesn’t recognize the fact that ‘do good’ legislation to expand homeownership promulgated by Congress several years ago created the dragon that they are now trying to slay. Businesses self regulate or perish. Government intervention over regulates and destroys.

  2. Tim Manni Says: April 21st, 2010 at 5:23 pm

    Vernon,

    Thanks for commenting. We would love for you to provide your suggestions of how we can improve the system — perhaps we could make it into a guest blog post. Interested?

    Thanks,
    Tim

  3. Vernon Appenzeller Says: April 21st, 2010 at 9:53 pm

    Blog posts can be good things if they don’t get too heated with politically motivated rhetoric. I’ve been in the mortgage biz for 40 years (10 at FNMA) and have seen all manner of ups, downs, crises, mayhem and meltdowns…but none to equal the cause/effect and knee jerk overreaction of this. Most all of my experience and feedback will be from the pointy end of the spear (originating) and background from the management end. If you think others may have an interest in my humble opinions (not fettered with elaborate financial machinations but simple observation) I’ll be happy to opine.

    My one overreaching observation would be that the system (devised by private industry over decades since HUD & FNMA/FHLMC) worked very well…until political pressures were brought to bear to coerce the system to accommodate risks that it was not designed to bear (see original response). Even with that, if the newly introduced risks were slowly adapted and servicing portfolios properly monitored for performance, instead of the wholesale embrace of all manner of bizarre lending practices/programs (with a little self monitoring and restraint from the industry) the outcome would have been, at worst, quite muted from what we’ve witnessed.

  4. Kris Taraz Says: April 22nd, 2010 at 7:09 pm

    I agree with the fact the every loan officer should have his or her client’s best interest in mind first. The problem with the mortgage industry as a whole is that whenever the regulatory bodies try to protect the consumers, they in fact make it much more difficult for consumers to understand the process. Simplifying the process is the key to make it easier for borrowers to comprehend things than presenting them with a large stack of paperwork. For example the new version of the Good Faith Estimate and other disclosures immensely confuse the borrowers. I can guarantee that 90% of borrowers do not understand the new version.

    A mortgage originated by a loan officer is not something that can be compared to a doctor’s or lawyer’s job. There are many variables involved which make this comparison without substance. There are a significant number of loans which were properly underwritten and are in default due to job losses, divorce, illness and other events in life.

    Presently however, there are many good low risk borrowers who are unable to get a loan. We are losing a large segment by making it more difficult for them to borrow with overly restrictive lending guidelines. On the other hand, there may be a bubble being created by lending to borrowers with 3% down payment up to mid or high $600K with credit scores as low as 620 and sometimes lower.

    I think the author’s suggestions may be helping the trial lawyers and the law enforcement more than the ordinary borrowers.

  5. Mary Boyer Says: April 23rd, 2010 at 1:33 pm

    I am not sure why you want to come down on the Loan Officers, when it was the Banks & Wall Street who came up with the loan products and every Tom, Dick & Harry decided to get into the business and rip people off. In the early 90’s when 125% loans were being offered and the market turned for the worse and those lenders went out of business. So when 100% stated loans and negative amortized loans came about and lenders were offering up to 4 rebates to loan officers, what do you think was going to happen? The loan officers who have no morals and were in the business for the money only, now have hurt the long term good people just trying to survive these times with laws that make no sense and have created total HAVOC in the industry. Have you even worked in the business to see what everyone is struggling with right now, just trying to stay afloat because of the new rules regarding the GFE & HUD 1? Until you have tried it I suggest you don’t speak until you go through the nightmares we are dealing with right now. Amazingly, the banks who got us in this mess now only have to “register” with the NMLS, but the brokers who have to play by the banks rules, have to register & pass more exams. It saddens me to say that after 30 years in the mortgage business helping people that I do not even like it anymore. It use to make me feel good to help people, not it is just a total stress mess.

  6. Tim Manni Says: April 23rd, 2010 at 1:54 pm

    Mary,

    Thank you so much for your response. I’m trying to collect responses from those in the mortgage business to gain their perspectives on the current state of the market. I want to know how mortgage professionals think the recent changes and reforms and housing preservation programs (HAMP, HARP, etc) have impacted/changed the market for better or worse. I also want to hear their suggestions for how to make the mortgage market better.

    If you could explain to us what your official title is, how long you have been in in the mortgage industry and what kind of business you do, then elaborate on how you feel about the mortgage market — what’s wrong with it, how we can fix it and what the Federal changes have done to the system, that would be greatly appreciated.

    We’re really interested in presenting the “other side” of the story. We write a lot about consumer reactions, now we want to hear from lenders!

    Thanks for commenting, hope to hear from you soon,
    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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