Sick and tired of bad mortgage brokers, bait and switchers, constant hounding and sales pitches, horrible loan rates and hidden fees, a consistent lack of integrity, a complete absence of ethics, excessive incompetence, and not knowing who you can trust to do right by you with your mortgage or home loan? Read on...
Disgusting... That's the one word I think every American can agree on when contemplating this massive economic disaster we're in the midst of, and how unethical mortgage brokers and lenders played a HUGE role in getting us here. Let's face it, there's plenty of blame to go around. You can go all the way back to the Community Reinvestment Act forcing easy money and bad loans on the books of our financial institutions. It's not a Republican problem, it's not a Democrat problem, and it's not a Wall Street problem, it's an American problem with guilty parties all around.
I'm a Fee-Only CERTIFIED FINANCIAL PLANNER(TM) by trade, 14 years in the field. This is the first time in my career I've had to look across my desk at clients and actually utter the words "It's a sad time to be an American". As a husband and father I cringe just thinking that thought. Even those individuals and families who did everything right are being devastated by this mess. It is a sad time indeed.
I even get calls from "potential new clients" who have a decent job, savings and investments, and can make their mortgage payments asking if I can help them save their investments and protect their credit if they walk from their house. "Walk from your house you say?" Why would someone do that outside of the obvious and legitimate reasons such as loss of income or other serious financial hardship? They answer "Well, I figure at 7% per year growth from here it will take me 10 or 15 years just to break even, and the hit on my credit won't last but a few years - so why not walk - I'll come out financially ahead in the end!"
I explain "I have a huge moral issue with your objectives, I'm not the right advisor for you, and if you're not part of the solution you're part of the problem". So much for a new client...
Back in the day we had what was called "T+5" settlement on stock purchases. Someone could call into (my then employer) Dean Witter Reynolds, give me their information, place a trade to buy 100 shares of "XYZ" stock, and not have to pay for 5 business days (hence the T+5 = trade date plus five days to come up with the cash). If the stock was down before settlement, some people just didn't pay. I was out of the loop after that - but it made me sick to my stomach.
What's going on now is no different than those thieves who made investments and didn't pay for them. If you walk from your house simply because you'll come out ahead financially in a few years, while honestly having the income and means to make your debt whole over time - then bully for you! You've just defrauded the system and caused excess heartache and pain for the rest of us making our mortgage payments on time, even though we don't want to either. You are part of the problem, not the solution (NOTE: As I mentioned I'm referring to those in good financial condition, NOT those who found themselves under severe financial duress to no fault of their own).
I ask my clients, "Can you imagine our parents or grandparents even contemplating doing something so sinister?" Sinister may seem a strong word, I don't think so - it is sinister. My grandfather's generation wouldn't ever have had that thought enter their mind. If they took on a debt, they paid for it. Today's generation thinks differently, it's all about "ME... ME... ME!".
The sad part is the crisis is so widespread that credit bureaus and lending agencies will likely not punish these crooks for as long or as harsh as they should, because "everyone is doing it". Even worse, the people pulling this trick likely are right, and will probably come out far ahead of the rest of us financially. Think of it this way, if they owe $400,000 and walk from a house worth $250,000 now - they literally just made $150,000. It's like a gift, or as good as one, from the rest of us (that's right, you and I - where do you think the bailout money is coming from?). Divide that by the seven years max their credit report shows the default and they earned an extra 21K a year!!!
I'd LOVE to earn an extra 21K a year, how about you?
To make things better, the geniuses in Washington allowed for an "insolvency exclusion" on the forgiveness of debt tax. Meaning in the example above, if they were able to make themselves insolvent (sell everything, grab your cash and stick it under the mattress), the debt forgiven isn't even taxable. Not only did they essentially "earn" 150K, they did it TAX FREE!!! This just gives people MORE incentive to walk from their debt, not less!
Shouldn't that debt forgiveness be taxable regardless? Shouldn't they be held accountable for an indefinite period of time?
At the core of the economic mess is the real estate crisis - plummeting values kicked this off! And the greed and corruption that ensnared so many in the real estate and mortgage business lies at the heart of it.
With low rates and easy money, the ranks of mortgage brokers and other lenders exploded in the early 2000's! I know, I had some as clients. They made more money than they could spend (yet somehow still found a way to live beyond their means) through predatory lending practices and a complete abandonment of any form of integrity or ethics. They pushed interest only option arm (adjustable rate mortgage) "pick your payment" negative amortization stated income pre-pay penalty loans to maximize their commission checks.
Naive borrowers, assuming their realtors and lenders were honest and fair, fell for it hook...line...and sinker! Rates adjusted, loans became fully amortized, and people found out they really COULDN'T afford the homes they were in. They have been in a world of hurt for the last couple of years and real estate prices reverted to more normal valuations. Hence the economic slowdown, and the incentive to walk away from the debt obligation.
From 2005 (when I went into private practice) through 2007, not a day went by when I didn't get cold called or snail mailed by a mortgage broker. They all wanted me to open up my client book. "Have your clients pull out their equity and you invest it - we both win!" they said.
To understand WHY I pushed back on this concept you need to understand my core clientele - retirees - and the planning that makes sense for these clients. Simple planning practices would and should call for a more conservative portfolio DURING retirement than PRE-RETIREMENT. So if my expected long term portfolio returns were in the 5% to 7% range, it didn't really make sense to pull money out of their homes at 6% +/- (at that time) to invest it, taking risk in the process (thank goodness I didn't fall for this with the recent market meltdown, can you imagine having told your retired client to mortgage their house and invest it in the markets, only to see their portfolio drop by 20% or more?). And since they're mostly retired, they're by-in-large not itemizing deductions on their tax return so they don't even get much if any benefit of the interest deduction!
As I've watched these events unfold over the last year and a half, my disgust for these unethical mortgage brokers and lenders has led to contempt and anger. I mentioned I'm a Fee-Only financial planner. Fee-Only means my firm does not, and can not, accept ANY form of commission or hidden fee for selling a product, and that I am a FIDUCIARY to my clients first, acting in their best interests only to the best of my ability. If you know nothing else about Fee-Only financial planners, you should know that ethics, honesty, and integrity are paramount to every client interaction. I'm a fiduciary to my client (focusonfiduciary.org and napfa.org napfa.org are great references), I put their interests first at all times.
Where is the fiduciary responsibility in the lending industry? There isn't any. There aren't any formal or even informal standards for ethics.
That isn't to say every mortgage broker or lender's representative is bad. There are in fact quite a few good ones who do care about their clients interests first. In fact we should consider ourselves lucky, as more of the ethical ones survived the meltdown than the "rip 'em and quit 'em" bad ones.
That fact alone doesn't solve the inherent problems with getting a mortgage or home loan, there are still plenty of brokers and lenders who are acting in their own self interests - not yours! But it is nice to see so many of the fraudulent ones fail. I hate to find solace in anyone failing financially or career-wise, but in this case - I relish that fact!
LoanEXA.com Mortgage Rate Quotes is an online home loan and mortgage rate quote system created by the author Greg Phelps for use with his clientele. The platform puts the power back into the borrowers hands by allowing a borrower to anonymously shop the best rates available for any given point in time - all for a flat fee. Borrowers can review each lenders background and profile as well as prior borrowers star rankings and reviews.
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