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Professionalism in Mortgage Originating October 29, 2007

Posted by shaferfinancial in Uncategorized.
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Those who know me, understand I am on the bandwagon for the professionalism of mortgage originating.  I think it is obvious to those of us in the industry that as long as loan officers are hired on the basis of having a pulse that the consumer will have little respect for loan officers.  Less obvious is the damage done by these amateur loan officers.

Take the sub-prime crisis for example.  Anyone with a little perspective, understands that a variable rate loan that recasts at year 2 or 3, is a dangerous loan for folks who have demonstrated little financial responsibility.  Let me make it a little clearer.  The  sub-prime market services those who have in the recent past failed to pay bills.  No matter what the reason was behind the failure to pay debts, these people are not financially stable enough to take the risk of rising mortgage payments.  Yet, few were even offered the fixed rate option, let alone had loan officers who encouraged it.

My first sub-prime loan was to a friend who was coming out of bankruptcy.  When I went over the options with him, he insisted on taking a fixed rate loan even though the rate was .5% higher and his credit scores were rapidly improving.  During the discussion a light bulb went off for me.  He was right, he could not afford something else to happen to him raising his mortgage payment.  Even though it turned out that he could qualify for a conforming loan in a couple of years, that was not a guarantee.  He took the fixed rate option and still has the same mortgage and his home intact.

Since that “light bulb” moment, I have insisted on my sub-prime clients taking the fixed rate option.  It has cost me many deals.  But, I have never had a client lose a home to foreclosure either.

Had all loan officers encouraged a fixed rate sub-prime mortgage would we not be better off?  Of course we would.  There would be less foreclosures, the investors would have less losses on their mortgage backed securities, and the loan officers would have happy clients that might be able to refinance into a conforming loan soon.

So when I get on my bandwagon about the hiring practices of lenders, it is not just self interest, but what is best for the industry and the consumer.  Unfortunately, it is clear that lenders have no intention of changing their “hire anyone with a pulse” mentality anytime soon.

Therefore it is up to the consumer to find a professional and trust him/her enough to take their advice. 

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Comments»

1. Andrew - October 30, 2007

Quote: “Take the sub-prime crisis for example. Anyone with a little perspective, understands that a variable rate loan that recasts at year 2 or 3, is a dangerous loan for folks who have demonstrated little financial responsibility. ”

Definitely a very sobering post. One should always understand their own financial situation and credit standing as well as the uncertainty of the market when committing to such loans – especially long-term ones. As a personal case study, a friend once took up a mortgage loan with a variable interest rate. When market conditions turned the other way, the interest rate shot up. He had to service mortgage payments which were significantly higher than before. Fortunately, he had enough funds to clear the principal amount so that he did not have to keep servicing higher interest payments.


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