NY Mortgage Brokers to Be Registered

A story appeared in the NY Times about a new law requiring individual Loan Officers to be registered with the New York State Banking Department. This is an excellent idea. There will be minimum educational requirements so that we can at least hope to have a base level of expertise in our industry.

The angle of the story is that those who perpetuate fraud won't be able to move to another state to continue defrauding consumers. That may or may not be true, I can't say. But I think that the vast majority of mortgages originated here in New York City are on the up and up.

I like the law because it will serve to create expertise in mortgage lending. Right now if you can fog a mirror and are over the age of 18, you can be a Loan Officer. My competition is anyone who fell into the position, or saw some easy money a few years ago. Mortgage originating is a complicated business that in which there are many variables that need to be juggled effectively in order to close a loan properly and professionally. It's not simply selling, nor is it entirely knowing lending guidelines or understanding the housing types and the economy in general. It's a combination of so many different abilities, that a license might help keep those out of the business who aren't willing to put in the time to learn what it takes.

This is a business that requires specialization and constant updating of one's skillset to be proficient. I think it's time that it was recognized as such.

"Toxic" Mortgages -- The Next Refi Boom

It's everywhere. The magazines are running cover stories, the news is full of reports, the powers that be are holding hearings. Consumers are shaking in their boots. They will want to refi before their monthly adjustable ARM eats their house like on the cover of Business Week.

Now the mortgage originators are ready to refi these mortgages into fixed rate mortgages. The borrowers will be safe..or will they?

What were the motivators for accepting the payment option ARM in the first place? Some may have been seduced into it by their Loan Officer (yeah I said it). Some may have tried to buy more than they could afford with a fixed rate mortgage. Some borrowers may have thought that we weren't going to live in the property this long- that it was a prime flip. Some may have been thinking about freeing up capital to put into another investment.

It's not a no-brainer to immediately think that this is the next refi market. It's necessary to know what the initial motivation was when the borrowers purchased the property. I didn't originate many of these mortgages, maybe 2 or 3 out of a few hundred mortgages in the last few years, so I can't just immediately assume that these are all refi fodder. Also do these borrowers now owe more against their home than they initially borrowed? What is the prepayment penalty? One reason why I stayed away from these pay option ARMs was the steep prepayment penalty would have prevented the borrower from refinancing their mortgage down the road should rates drop. That would have prevented my doing another loan with them, bad for business in my opinion.

These borrowers are going to be hard to refinance. They may not qualify for a fixed rate mortgage that will increase their payments, most pay the minimum payment option resulting in negative amortization. The higher payment even if only interest only is going to be much more than they are used to paying each month. I think that we as Mortgage Brokers need to spend a little extra time, work with the borrowers to find the best solution and provide more education about what a mortgage entails and the responsibilities inherent in borrowing mortgage money.

Trending Toward Fiduciary Duty To Borrowers

The trend among regulators in states such as New York, New Jersey, Ohio, and others is to make the mortgage broker, in essence, have a fiduciary duty to the borrower, according to E. Robert Levy, executive director of the New Jersey Association of Mortgage Brokers. Speaking at the group's annual convention in Atlantic City, Mr. Levy said the burden would therefore rest with the mortgage broker to select the loan product for the consumer. As a result, the mortgage broker could be held liable for making the wrong choice. He said consumer advocates are in favor of this position. Mr. Levy, who is also chairman of the advisory council of the American Association of Residential Mortgage Regulators, said it became clear in a meeting of that council that regulators were enamored with the "suitability test." However, Mr. Levy reminded the audience of New Jersey's experience with the original version of its predatory lending law, which contained a "net tangible benefits" test. That test closed the secondary market for loans in the state, and was eventually removed from the law.

Of course, this type of relationship should exist in some form. For the Mortgage Broker it only makes sense in order gain referral business. Certainly with Mortgage Brokers working within a community, such as New York City, it makes sense to fit the borrower to the mortgage if you want to keep working in the field. Perhaps some of the national lenders who rely on TV commercials to generate business will be opposed to actually knowing who their borrowers are.

The IRS Is Going High Tech.....Finally

The Internal Revenue Service plans to return transcripts summarizing mortgage applicants' income and tax data to lenders in an electronic format within two business days, starting on Oct. 2. As a result of the change, mortgage lenders should no longer cite the slow, paper-driven process of faxing 4506-T requests to the IRS as a reason for not verifying the income of borrowers who intend to take out "stated income" and other mortgages requiring limited documentation. "This is going to be light-years ahead of where the IRS was before," says Mike Summers, vice president of Veri-tax.com, a third-party vendor in Tustin, Calif. The move by the IRS also could have a big impact on curbing mortgage fraud, considering that many problem loans have falsified income tax filings; however, it will also mean that lenders will have to pay $4.50 for each tax year covered in a 4506-T request, whereas the service was free in the past.

It's about time that there was an efficient way to verify tax returns. And it may even generate revenue which is their middle name.