As onerous as the new regulations in place may seem to loan originators, an alarming number seems to justify them.
According to the Federal Bureau of Investigation’s Mortgage Fraud Report, of the Top 10 Prevalent Schemes per FBI cases opened for fiscal year 2010, an astounding 62 percent of them involved loan origination schemes.
The kinds of mortgage fraud varied and were creative. Because of them, it has created a mess for the 38 percent who have been doing it the right way all along.
The new regs, designed to police industry and protect consumers, may have scared away the unscrupulous loan originators — the ones most responsible for home mortgage business implosion. But left in their wake are those who have been legitimately working hard with consumers to get qualified buyers into homes. They are the ones taking the hit in industry perception and in their pocketbooks.
“It just sucks the joy out of what we do,” said Jonette Moss of Community Trust Bank. “I understand there are bad apples out there. But those of us who have been in this for more than 20 years, we’ve watched the (regulatory) pendulum swing back further than it has ever been.
“What [the new regulations have] done is throw us all into the same bucket with the ones who were doing it the wrong way. A lot of those people, the ones looking to make a quick buck, are gone. But the rest of us, we’re still here. We’re the ones following these new regulations and doing things the right way, and we’re the ones paying the price. The thing is, even with the new regulations, the ones that were the bad apples will find a way to doing it the wrong way.”
To try to prevent that, the government now has the Consumer Financial Protection Bureau (created by the Dodd Frank Wall Street Reform and Consumer Protection Act). The bureau in turn attempted to assist consumers with the mortgage qualification process by streamlining the process. Applicants would no longer get a two-page Truth in Lending disclosure form and a three-page Good Faith Estimate form. Those forms would be combined into one.
The rationale behind this was the two current forms have overlapping information and can be confusing to consumers. They reasoned that presenting both forms needlessly drive up costs and the regulatory burden on lenders, so they are combining the two forms into one, for the sake of simplicity for everyone.
Nice, but misguided, try.
“They were trying to make it easier for consumers, but it hasn’t made it easier at all,” said Regions Banks’ Todd Chapman. “With the new paperwork, (consumers) have to figure out what their number (money) at closing is. A lot (like points, fees, seller’s costs) is left out and (the new forms) leaves a lot to be desired. But it is what it is.
“These new things are for a reason and we understand that. You just do your best for consumers. You give time to them to help them understand what they are doing. That makes it, on the whole, a very good thing.”
What hasn’t been a very good thing is the housing market as a whole. The rate of homeownership has dropped from an all-time high of 69.2 percent in 2004 to 66.4 percent in the first quarter of 2011. That reflects a decline from unsustainable levels to something closer to historical averages, according to a recent study by Mortgage Banker’s Association’s Research Institute for Housing America (RIHA). Additionally the study indicates that while the homeownership rate may have bottomed out, it could fall another one or two percentage points, because of tightened credit and other factors, and maintains that following the housing market crash, homeownership rates have largely reverted to the levels of 2000.
Given the downturn in the market, and the economy and the new regulations, has been a perfect storm for mortgage originators. They’ve lost money for sure, but determining which factor was most significant in those lost wages is problematic. What is known is a correction in the industry has taken place, and that isn’t necessarily a bad thing.
“There has been a cleansing,” said Bill Edwards, president of BancorpSouth Mortgage. “You can’t stay in this business if you can’t do it right. There was a learning curve and there was some additional training we needed to do. We have an outstanding technology department that has changed over the software for the forms and overall, I think we’ve transitioned to the new laws well.
“I think (the application process) has slowed down a little bit. I don’t know how that has really affected us because of so many other things. But it’s made it harder on the consumer. It’s more confusing today. (They government) thought they were doing things to help (consumers), but they’ve made it more complicated.”
This makes those in the industry longtime, those in it prior to the boom years, more valuable to homebuyers because of what they offer to them.
“Those (bad loan originators) have gotten out,” Edwards said. “We’ve always been here. When I got into the business, we were taught that it was our responsibility to explain everything to the consumers and be knowledgeable. But, when people were just looking to get into houses, and people were just putting them in houses, that wasn’t as respected. Now, people are more careful and that expertise is more valuable to them now.”
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