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Who’s a Mortgage Fiduciary?

Are you ready for the next big argument about fiduciary capacity? It’s coming in the form of national loan originator licensing and it promises to be a doozy.

The Federal Housing Finance and Regulatory Reform Act of 2008 is proposed legislation that seeks to license anyone who quotes rates or fees to borrowers (among other things). It’s a political stunt, veiled as consumer protection that is yet another revenue racket for the government. It’s requiring a 20 hour pre-licensing course, with testing and national fingerprint registry.

Anyway, there’s a lot of talk about “acting as a fiduciary” to the borrower. The rhetoric leads me to this conclusion; it just can’t be done (at least under the current environment). A fiduciary is someone who subordinates her interests to her client’s. I just can’t determine how a mortgage banker can TRULY act as a fiduciary; they don’t have all the product offerings available.

Wells Fargo doesn’t offer negative amortization loans . Contrary to what you hear in the media, there are times when a negative amortization loan is JUST what the doctor ordered. If someone has a large amount of debt, it might be in their best interest to defer interest (at 6.75% pre-tax) so that they can free up some cash flow to pay down the higher interest debt (at 13% post-tax). In this flat housing market, it may be the only chance someone has to improve their credit score by swapping 13% money for 6.75% money. Many bankers can’t offer that product. Would they refer that loan out to a specialist (like an attorney or doctor would) or “sell” the client on the “in-house” loan program?

Conversely, would a Wachovia originator, who just cashed a check at Bank of America and noticed that they aggressively priced their 15-year loan, refer that loan across the street or write it at .25% higher?

Mortgage brokers, then, should be perfectly positioned to act as “true” fiduciaries. If transparent brokerage compensation was pre-negotiated in an exclusive right-to-finance agreement (much like a buyer brokerage agreement for REALTORs), mortgage brokers would be the natural choice.

Two problems arise:

1- Borrowers are contractually bound to one lending option – no more shopping.

2- The mortgage broker may be duty-bound to offer a loan program which might conflict with the timeline of the purchase contract.

Would a “mortgage fiduciary” be required to offer valuation advice? Oftentimes lenders cut loan-to-value offerings after an appraisal review. That’s done to mitigate market risk to the lender. Should the “mortgage fiduciary” insist on offering that valuation opinion to the client, so that they can instruct their REALTOR to renegotiate the transaction?

See where I’m heading with this?

The true fiduciary, in any real estate transaction, is the representing REALTOR.

REALTORs recommend financing experts based on pricing, service, and most importantly, performance. Is it a breach of fiduciary capacity to recommend a higher priced loan originator with superior performance? Not if the lower-priced lender neglects the contractual obligations which might lead to a higher-priced transaction (penalties or forfeited deposits).

REALTORs are the “pricing experts”, attuned to the machinations of the local markets. Their valuation expertise is granular by design and superior to the “ivory tower view” lenders have in with “computer-modeled” opinions.

This essay sounds like I’m glorifying REALTORs and bashing lenders- I’m not. The current system, in my opinion, offers borrowers the best opportunity to get competitive advice and financing, through an open market system. Suitability should be recognized in the underwriting guidelines and proper client disclosure. If lenders want to lend people money, why should an originator deny the client that opportunity?

Borrowers need to read their loan disclosures, do their homework, and seek good mortgage advice…all under the watchful eye of the only fiduciary in the transaction; the REALTOR.

Sorry REALTOR gang. I think it sends a mixed message to have two “bosses”. This ball belongs in your court.

Related posts:
  • Who’s the best enemy of your (illusion of) privacy? Uh, that would be you…
  • Can the NAR Improve a Buyer’s Financing Experience?
  • Look who’s talking!

  • 61 comments

    61 Comments so far

    1. Doug Quance June 1st, 2008 8:52 am

      “REALTORs are the “pricing experts”, attuned to the machinations of the local markets.”

      “Experts” only in the sense that an “ex” is a has-been… and a spurt is nothing but a drip under pressure.

      :lol:

      Seriously, you make an excellent point, Brian… but don’t ask ME, as a Realtor, to keep a watchful eye over YOU. I have enough to be concerned about without worrying about the latest loan product coming down the pike.

      Maybe the answer is to make all LO’s independent brokers…

    2. Brian Brady June 1st, 2008 9:51 am

      “Seriously, you make an excellent point, Brian… but don’t ask ME, as a Realtor, to keep a watchful eye over YOU.”

      Isn’t that part of your job, Doug? Would you prefer that the fiduciary responsibility be give to originators?

      “Maybe the answer is to make all LO’s independent brokers”

      That’s the plan, Doug…sort of. If all originators are licensed, then they all owe a duty to the client first and their employer second.

    3. Thomas Johnson June 1st, 2008 9:58 am

      Banks will have Bernanke kill this off. The last thing they want is even more fiduciary responsibility to ignore.

      All those pension plans they stuffed with MBS’s, CDO’s, SIV’s and all that other alphabet soup are governed by the Employee Retirement Security Act. Those pesky trustees are fiduciaries for the plan participants. This last round they got the rating agencies to slap AAA ratings on this stuff so that the trustee “fiduciaries” could buy it. Any other misgivings on the part of the trustees are handled by center court tickets or nice new sets of Callaway irons. The last thing the bankers want is a bunch of bank tellers putting their stock options at risk by not sending originations.

      Thanks a lot Brian, for shoveling more risk on my buyer side e&o. Plaintiff attorneys already want to make us liable for inspectors and even construction quality, now we have to analyze every loan product to give the buyer a green light? Only if your industry stops insisting that the seller compensate the buyer agent! If you want to shift fiduciary liability to the Realtor, well and good, but the lending industry has to start accepting buyer agent compensation on the HUD. And for this kind of risk, I do not think we are talking about a piddly little 3%. An Obstetrician carries liability for his work at birth for 18 years-to the age of majority for the baby. Realtors will be carrying that liability until the loan is paid off- 40 years in some cases. The buyers will not have the cash to compensate their buyer agent Realtor, so the lender will have to finance my compensation and assumption of fiduciary liability ABOVE the appraisal value. I am thinking 6-10% off the top of my head to insure myself against Wall Street MBA’s latest Mortgage Backed Magical Mystery tranche loans. And that may be low. I will have to run every possible loan through some kind of risk modeling program the same way the pension fund buyer of the loan does. But the key is: these additional costs will have to be built into the loan layered on top of the mortgage profits for the lender. Any guesses how that is going to effect the liquidity of real estate?

      I am sure that there will evolve Buyer Agents that will do transactions bare back with no liability coverage, but that is kind of like having unprotected sex in Haiti. Not a good idea for a long career.

    4. Jeff Brown June 1st, 2008 10:20 am

      What this all boils down to is the age old principle of doing business with those bringing high moral character, superior expertise, and the ability, in the end, to produce results.

      I often tell clients it’s much preferred to pay more but actually close, than to exist on the ever changing promises of those who couldn’t find their butts with both hands, a map, two guides, and a GPS.

      Nothing replaces integrity, performance, and expertise. It’s an unbeatable combination in the long run. It’s in the choice of lender where the agent shines for their client.

    5. Brian Brady June 1st, 2008 10:22 am

      Thomas,

      You don’t have to protect Wall Street- that’s my job. You have to protect your buyers from Wall Street…and me.

      “Thanks a lot Brian, for shoveling more risk on my buyer side e&o.”

      It’s already there.

      “If you want to shift fiduciary liability to the Realtor, well and good, but the lending industry has to start accepting buyer agent compensation on the HUD.”

      Have you tried this, yet? I’ve stated before that I’m willing to help anyone willing to redefine the compensation of buyers’ agents.

    6. Doug Quance June 1st, 2008 10:34 am

      “Isn’t that part of your job, Doug? Would you prefer that the fiduciary responsibility be give to originators?”

      While I do review the figures on a GFE, and will voice my concerns over fees and other costs that seem out of the norm, I am not the one who is responsible for arranging the financing.

      If my client uses one of my preferred lenders, I am confident that they will be given a good product to suit their needs. If they use some other lender, I can’t be held responsible if things don’t work out the way they had hoped.

    7. Brian Brady June 1st, 2008 10:43 am

      “If my client uses one of my preferred lenders, I am confident that they will be given a good product to suit their needs. If they use some other lender, I can’t be held responsible if things don’t work out the way they had hoped.”

      See, you ARE doing it now. You already have a “watchful eye” over your preferred lenders.

    8. Bob June 1st, 2008 10:51 am

      The true fiduciary, in any real estate transaction, is the representing REALTOR.

      I agree with this statement. However most lenders don’t. I understand and agree with your logic about when and how to use different loans for different goals and situations. Most lenders do not. For that matter, either do most consumers. They want price, even if they don’t understand the cost. As a result, many lenders pander or exploit the consumer, as opposed to treating it as financial planning because it as viewed as a one time transaction.

      The agent shares the blame because they don’t understand how to structure the transaction. Dishing it off to the trusted lender is fine, but they do so because they don’t have the ability to trust, but verify.

    9. Doug Quance June 1st, 2008 11:03 am

      While I do look for anomalies in the costs of what is paid, I am not qualified to determine which product would best suit my client’s needs.

      That task, my friend, is best left to a mortgage professional – not me.

    10. Mike Farmer June 1st, 2008 11:10 am

      What is the mortgage broker licensing like? I have often thought about getting licensed just for professional purposes.

    11. Thomas Johnson June 1st, 2008 11:29 am

      Have you tried this, yet? I’ve stated before that I’m willing to help anyone willing to redefine the compensation of buyers’ agents.

      Come on, Brian! Tell me which lender would accept say, 15% above the sales price (appraised value), in buyer agent compensation for me to perform my fiduciary duties on your loan and for me to accept 30 years of my liability for the results of your loan for the borrower. Furthermore, please refer me to an E&O carrier that would underwrite my risk. While it may be raining soup, as a Realtor, I am not really disposed to attempt to change your world with my next bowl of gruel.

      Here’s a nice start however: a nice set of Callaway irons(men’s right handed) and two sponsor tent passes with clubhouse privileges to next year’s PGA Master’s weekend in Augusta, GA; 1st class airfare; 5 star hotel and ground transportation included… This is nothing more than what Wall St. gives those who buy those “AAA rated” alphabet soup mortgage backed securities for their pension plans… ;-)

    12. Jeff Brown June 1st, 2008 12:26 pm

      Being a RE investment broker, my lender needs are very different, and often far more critical. I can’t say this any other way, but the lenders I use do what I tell them to do. There’s been one exception in my entire career, and that’s been Brian. He’s moved my food dish more than once, which has allowed me to back up, reassess and either make my case or shut up. Sometimes he sees his flaw, sometimes he shows me mine. (I’m happy to say for my sake there’s no record available.)

      The reason I prefer Brian is he actually HAS the knowledge, experience, and most of all expertise the others just think they have. I’m not being funny here. When an investor literally has more than a half dozen deals on the line, they want to know their lender can do the job. In Austin late last year, Brian closed loans the locals said couldn’t be done.

      My #1 gripe with lenders is their insistence on representing themselves as investment lenders, when in fact they can barely spell the word investment. Then some of them have compounded this by actually giving unsolicited advice to my clients. I had a case last year where my client knew more than the lender did.

      So many of these lenders are getting a false sense of their own knowledge level from the letters they now sport after their names.

      More than once last year I’ve provided entertainment for my son and I by instigating conference calls between wannabe investment lenders, my son and I, and Brian. There’s almost always that point when you realize the other lender knows he’s not playing AA ball any longer. :)

    13. Thomas Johnson June 1st, 2008 12:46 pm

      You don’t have to protect Wall Street- that’s my job. You have to protect your buyers from Wall Street…and me.

      Brian: Agreed. If I am going to accept a 30-40 year liability for the outcome of your loan and properly protect my client from you and your Wall Street buddies, I will have to have a Bloomberg and a loan origination data feed on all in house non-wholesale loans available from every lender in my market on my desk, someone to run it on my payroll(since I am on the hook for your work-trust but verify). With this increased overhead, my fees will be a heckuva lot more compensation than the 3 points for the house buying services and they will have to be paid within the financing package you propose, on the HUD and added to the loan balance. Anything less, and I have violated my fiduciary responsibility regarding the loan.

      In theory, my preferred lender can buy me the information systems and pay the overhead with soft dollars the same way pension funds buy services now, but all this is hardly viable for a small broker shop such as http://www.ERAHouston.com or http://www.BloodhoundRealty.com. A small shop wouldn’t generate sufficient origination soft dollars in a decade to pay even a month of this kind of overhead.

      If you want Realtors to take the fiduciary liability off the originator, it looks like you are talking about a Realogy buying out all its brokers, and hiring the whole enterprise as employees and putting a mortgage compliance floor on staff so that the enterprise can assume the fiduciary liability for the life of the loan.

      This compliance floor would have to be at least as well staffed, as competent and comparably compensated as any MBS trading floor on Wall Street in order to properly assume the kind of liability you want to shift on us. Do you really want your loans run through a trading floor before origination? How would you deal with the lag between origination and my compliance “clear to close”? Can you imagine getting anybody on this staff to say yes to any loan? If my compliance floor finds a better loan for your borrower, should you be paid? All this stuff paid out of the buyer’s loan? We haven’t even bought the house yet!

      My point is this: Certifed nice guy originator on Zillow won’t cut it if you want Realtors to take on decades of liability. You are asking for a retooling of the home selling business to a securities model. NASD, SEC, SIPC type institutions. You would have to abandon the independent contractor model. Heck, maybe you and I could share a cubicle in a nice bank branch somewhere for a salary!

      I don’t think the NAR lobby team will much go for this.

    14. Denise June 1st, 2008 1:08 pm

      I agree with what Brian said. If my clients go through one of my preferred lenders, then I make it a point to see that they are taken care of.

    15. Brian Brady June 1st, 2008 1:30 pm

      @Mike:

      Not real easy but not real difficult:
      http://www.mortgagenewsdaily.com/mortgage_license/Georgia.asp

      Licensing for lending/mortgage brokerage is only for ownwr-occupied loans; all investment and 2nd home loans don’t require licensing (which makes a lot of sense).

      @Thomas:
      “While it may be raining soup, as a Realtor, I am not really disposed to attempt to change your world with my next bowl of gruel.”

      You misinterpreted what I said. I’m willing to help YOU redefine how buyers’ brokers are paid. if you want to take a swing at lender-financed, divorced commission, I’m willing to present it.

      @Bob @Jeff

      I think you two follow where I’m going with this.

    16. Brian Brady June 1st, 2008 2:23 pm

      @Bob and @Jeff

      I think you guys understand where I’m going with this

    17. Jeff Brown June 1st, 2008 2:26 pm

      It’s all about team with me. :)

    18. Brian Brady June 1st, 2008 2:33 pm

      @Thomas and @Doug

      REALTORs already have the responsibility; you exercise that responsibility when you choose trusted lenders.

      @Thomas

      If you want to take a swing at the divorced commission (financed by a lender), I’ll give it a go

    19. Doug Quance June 1st, 2008 3:02 pm

      While I am taking the responsibility to an extent when referring a lender – I can’t take responsibility when the buyer chooses another lender.

      I have been in some contentious situations when that bridge is crossed. In one recent case, the LO said that we couldn’t add some items to be paid to contractors at closing “because that’s just not done”.

      Bull.

      All I could tell my client is that his lender has no clue as to what he is talking about. Meanwhile, after being challenged repeatedly – the LO made it look like he summoned God to make it happen for him, because it isn’t normally done.

      In the end, we got our checks cut to the contractors at closing just like I insisted… but it was an annoying waste of my time.

      That’s one of the reasons why we refer our clients to our preferred service providers – to make the process run smoothly.

      I really hate it when we deviate from that plan.

    20. Bob Wilson June 1st, 2008 7:50 pm

      Doug, if you document the “your lender has no clue”, you have done your job. I think one thing Brian is hinting at are agents who look the other way because they don’t care how the deal gets done as long as it gets done.

    21. Thomas Johnson June 1st, 2008 8:50 pm

      @ Brian:
      “If you want to take a swing at the divorced commission (financed by a lender), I’ll give it a go”

      Brian, I understood your courageous offer. Even in boomtown ERAHouston: 2008 #1 City in the US according to Kiplinger
      http://agent21.featuredblog.com/?p=23 I am simply reluctant to burn a buyer(my bowl of gruel) tilting at windmills reforming real estate.

      We have 50 different statutes defining real estate agency across the US, how can I expect a lender to bend underwriting guidelines for one of my piddly little loans that they would have to hold in portfolio because the loan value exceeds appraised value or underwriting guidelines?

      Most of our stuff is FHA(less than $271,000, FHA loan limit for ERAHouston) is probably 80% of our MLS), owner occupied and we sweat every appraisal because the buyers have no extra cash to bring and the sellers are, well, sellers.

      You mentioned that we Realtors are already on the fiduciary hook. I totally agree. However, the Realtor as all encompassing fiduciary for the house plus the loan model is not priced either by our compensation, our transaction risk or our e&o transaction coverage. If the lenders want to lay off the fiduciary risk of underwriting the buyer on us, OK, but let me know how I can protect myself from that liability for 40+ transactions a year for 30 years. Do I have an ongoing premium to pay, as long as the loan is in force? Do I have to pay a one time premium for every transaction? If a loan goes into litigation, how do I prove that I did everything possible to protect the borrower from you and Wall St.? It looks to me that Realtors would have to have the equivalent of a Wall St. MBS trading floor at their disposal to analyze every loan that you propose for the buyer, and then compare it to every other loan available to the buyer just to be sure that we don’t get sued for neglect of fiduciary duty ten years down the road because Billy Bob’s Credit Union had a 1/16% better rate at the time you locked the loan. Then, being a prudent man,I would also need an attorney to sign off on your loan docs, so that at least I have somebody standing with me in front of the judge.

      Since we are about to see all the bag holders from the credit meltdown parading around trying to pass the bag to the next bag holder, I am sure that my reservations are well in line with what would be required for a Realtor to represent a buyer with a statutory mandate of fiduciary responsibility for both the house and the loan. My best guess is that lenders will get stuck with the loans, not the Realtors.

    22. Don Reedy June 1st, 2008 9:50 pm

      Brian,

      Sorry I got into this so late, and my comment is not a follow up to any of the posts here, but I think I’ll miss an opporunity to discuss this should I put it off.

      All this talk about fiduciary duties, and not a single word that I see about the fact that the lender is NOT A PARTY TO THE CONTRACT, and thus completely without almost any duty insofar as I see it.

      In California, since the lender is not a party to the contract, of course there is no fiduciary duty. All the talk in the comments above are related to the way we “should do business.” Likewise, you seem to be saying that lenders should be able to loan to an informed clientele, but in the end you want the Realtors to have the only “duty” to the client.

      I have had my fill of bad lenders and this concept, and I will tell you that what needs to be done is to make the lender a party to the contract, and in so doing, the lender will then shoulder the same duties and responsibilites that we Realtors have. Sure, this is going to give clients recourse against bad lenders, unscruptulous lenders, and downright lying lenders. But the Federal government wouldn’t have to get involved if we simply made the lender (arguably a pretty darn big piece of the transaction, yes?) a party to the contract.

      When the lender fails to perform, even though the Realtor has performed all the fiduciary duties on the part of either the buyer or seller, the transaction fails, and the failure of the duty to perform lies only with the lender.

      You say “Borrowers need to read their loan disclosures, do their homework, and seek good mortgage advice…all under the watchful eye of the only fiduciary in the transaction; the REALTOR.” Why not make the lender a party to the contract, increase the service and knowledge base provided the borrower, and stop the shill game of thinking only the Realtor, and not the lender as well, should bear fiduciary duties?

    23. Erion Shehaj June 1st, 2008 9:57 pm

      Maybe I’m missing something… but what’s so wrong with holding originators accountable after all? I understand the current legislation may be nothing but political pandering but why do we need to get away from the idea that loan originators will need to be held accountable much like mortgage brokers are? Some originators I come into contact with should not even be given a library card, let alone a license.

    24. Brian Brady June 1st, 2008 10:58 pm

      “Why not make the lender a party to the contract, increase the service and knowledge base provided the borrower, and stop the shill game of thinking only the Realtor, and not the lender as well, should bear fiduciary duties”

      Okay. I’m game, Don. I would love to have exclusive rights to finance and eliminate loan shopping.

      “why do we need to get away from the idea that loan originators will need to be held accountable much like mortgage brokers are?”

      We already are. Bob Wilson would hold me accountable.

    25. Bob Wilson June 2nd, 2008 6:48 am

      The problem with the lender as the fiduciary is that they do not represent the buyer. They are simply a vendor selling a product – money.

      It is ultimately up to the buyer to determine whether or not their purchase of the product is in their best interests. I have no problem with the agent taking the position that the mortgage part of the purchase is not their responsibility as long as they stop promising or inferring that they are watching the buyer’s back.

      @Thomas – from the ERA Houston web site:

      Whether you’re looking for your first home, your dream home or an investment property, I’m committed to providing you with the highest quality buyer service. When making the type of investment that buying a home requires, you deserve to have all the latest market information and the very best advice, both of which I can provide you with.

    26. Sean Purcell June 2nd, 2008 11:37 am

      Brian,

      Disagree with you on who has what obligation. If someone believes that you are acting in their best interest, relies on your expertise & discretion and you accept that belief, you have most likely created a fiduciary obligation.

      Like it or not, mortgage originators already have a fiduciary obligation to their clients… they just break it quite often. Similar to when agents take both sides of a transaction. The fact that so few people take fiduciary obligation seriously does not negate its existence.

    27. Brian Brady June 2nd, 2008 11:50 am

      “If someone believes that you are acting in their best interest, on your expertise & discretion and you accept that belief, you have most likely created a fiduciary obligation.”

      Not legally, Sean. The NAMB Mortgage Origination Agreement specifically discloses otherwise, in Section 1.:
      http://www.namb.org/namb/Model_Disclosure_Form.asp?SnID=2

      I’m being misunderstood. This isn’t about “ripping off clients”, it’s about “who’s ultimately in charge of the client’s well being”. If REALTORs want to willingly offer the client’s financial well-being to originators, I’m game. But just as Bob Wllson says this, today:

      “They are simply a vendor selling a product – money.”

      I would say this, tomorrow:

      “They are simply a vendor selling a product – property.”

      The agent with the risk receives the reward.

    28. Bob Wilson June 2nd, 2008 12:31 pm

      Not sure I understand who you are referring to in your vendor statement Brian.

      I don’t sell a product. I sell a service. In my state, that service is agency representation which carries with it a fiduciary obligation.

      If the buyer gets screwed by a “preferred” lender, does that open one up to liability?

      The question is, “what does fiduciary encompass in a transaction?”. As Thomas points out, that is probably defined (legally) 50 different ways.

    29. Sean Purcell June 2nd, 2008 1:01 pm

      Brian…

      Come on… are you really going to hide behind this “let’s-cover-our-ass-while-we-rip-’em-off” piece of nonsense from NAMB?

      That document is designed to try and alleviate the very point of this discussion. The originator has, by definition, a fiduciary obligation. Does that change by having the borrower sign a disclosure saying: Hey, any assumption on your part that there is a fiduciary obligation between you, Mr. twice a lifetime borrower, and me, the supposed expert, however obvious, is mistaken?

      This same documentation of all that is wrong with our industry goes on to let the client know any asumptions they had about how we get paid should be checked at the door as well. Any document that tries to pass off YSP with this language:

      For example, in some cases, if you would rather pay a lower interest rate, you may pay higher up-front points and fees.

      is dead before it ever gets out of the gate. Let me rephrase what they just said: “If would want a lower rate than I am quoting, you will have to pay extra.” Any normal person would equate that with “buying down a rate” and they’d be wrong. The literal NAMB translation here would have to be: “if you would like to actually pay the par rate, I will have to charge all my fees up front for you to see… and we don’t want to do that now do we?”

      I know this is getting off track from your original post, but it is one my hot buttons. A fiduciary obligation exists based on action, not disclosure.

    30. Jillayne Schlicke June 2nd, 2008 1:04 pm

      Couple of points:

      F-duties does not mean you must guarantee that your client receive the “best” rate or the “lowest” fees.

      There’s a growing body of case law on the books now. Sean Purcell is correct, no matter what nambie’s agreement says.

      Brian, can you do me a favor and point out the page number or section number in the proposed legislation that would mandate f-duties for all? Thanks.

      I believe that we’ll see all LOs owing a fiduciary duty to their client, no matter where they work. The banks have already begun to fight it. We’ll see if they can pull this one off.

      I believe NAR would not be interested in advocating that Realtors take on the additional liability of becoming fiduciaries in a mortgage lending capacity. In fact, the Code specifically directs Realtors to refer to others with that level of expertise.

      There CAN be two fiduciaries. One for the real estate side, the other for the mortgage side.

      Here are some examples of two professionals with F-duties working side by side: A doctor and a nurse; a CPA and a tax lawyer; a financial planner and an estate attorney; a Realtor and a real estate attorney; a doctor of one specialty (say, OBGYN) and a doctor of another specialty (say, critical care infant pediatrician).

      Both must and can work together. So can Realtors and Mortgage Brokers with fiduciary duties.

    31. Sean Purcell June 2nd, 2008 1:16 pm

      Jillayne,

      F-duties does not mean you must guarantee that your client receive the “best” rate or the “lowest” fees

      Amen and absolutely. “Best” rate, etc. is a pipe dream and has almost nothing to do with fiduciary obligation.

    32. Don Reedy June 2nd, 2008 1:22 pm

      Brian,

      I, too, don’t want to extend off track, but I SO agree with Sean that I have to at least pile on. Both legally and ethically, a fiduciary duty ARISES out of actions taken by two or more parties. Yes, you can mandate a fiduciary duty, as we do with our Agency disclosure, but my beef with the lending industry all along has been that they do in fact create a fiduciary relationship by holding out expectations and promising action, and that fiduciary relationship has no backbone with which the client may fight back against lenders who violate that duty.

      If you live on the Realtor side of the equation, then you just have to know, or at least hear, that our clients are creating fiduciary relationships with their lenders, and when lenders hide behind NAMB criteria for that relationship, our side gets pretty hacked off.

    33. Brian Brady June 2nd, 2008 1:25 pm

      @Sean: you are off track from the original post.

      @Bob- you sell properties; that’s a product. When you act as a buyer’s agent, you are compensated through a cooperative commission offered by a broker hired to sell a home.

      @Jillayne Healthcare providers don’t have fiduciary duties. Doctors take a Hippocratic Oath and nurses take a Nightingale pledge. You’re confusing the issue here. Of course mortgage originators should operate in a “best care for the client” environment with consistency in pricing. The current environment and the proposed legislation doesn’t provide for it, though.

      @all- Can you see where I’m heading with this? We need one of two things:

      1- abolish all licensing; mortgage and real estate (then the consumer will really perform due diligence)
      2- specifically defined contractual obligations

      I’m arguing that REALTORs already have the best positioning to do this correctly and that the mortgage legislation is bunk.

    34. Sean Purcell June 2nd, 2008 1:43 pm

      Brian,

      @Sean: you are off track from the original post.
      AGREED

      1- abolish all licensing; mortgage and real estate (then the consumer will really perform due diligence)
      AGREED

      2- specifically define contractual obligations
      AGREED (although not necessary to define fiduciary obligation)

      the mortgage legislation is bunk
      AGREED

    35. Jillayne Schlicke June 2nd, 2008 1:53 pm

      Hi Brian,

      Please refer to the American Medical Association’s Code, number XIII

      http://www.ama-assn.org/ama/pub/category/2512.html

      There is an airplane hanger full of case law to back this up.

    36. Brian Brady June 2nd, 2008 1:58 pm

      Jillayne- that doesn’t define a “fiduciary duty”; it defines the AMA code.

      Please stay on topic

    37. Jillayne Schlicke June 2nd, 2008 2:01 pm

      The proposed mortgage legislation is absolutely not bunk. It is a grave error for the mortgage industry to ignore the direction of the winds in Washington D.C. All signs are pointing towards elevating a mortgage LO’s duties to his/her client, more licensing requirements, higher pre and post education, and so forth.

      Abolishing all licensing and making Realtors fiduciaries in charge of mortgage lending?

      Come on. I fail to see how these two ideas have even a tiny chance of becoming law. You’re paddling upstream and all the snow in the mountains is melting.

      Mortgage LOs have specifically defined contractual duties right now and where did that get us?

      Ride the wave of change, mon.

    38. Sean Purcell June 2nd, 2008 2:24 pm

      Jillayne,

      I was going to bow out of this after agreeing with you, yet I can’t help but respond. All the legislation in the world will not create fiduciary obligations for lenders. This is an ethical problem and you can not legislate morality. Look at real estate. The fiduciary obligation is actually established there and yet we not only see agents represent both sides of a transaction, it is codified by NAR!

      Abolishing all licensing laws is quixotic, no doubt. But I rally for it every chance I get. These laws do nothing to actually improve the level of service, integrity or fiduciary obligation of its intended participant. (You’ll notice this truism again in the field of real estate.) They do make politicians feel good though. :)

    39. Brian Brady June 2nd, 2008 2:24 pm

      “The proposed mortgage legislation is absolutely not bunk. It is a grave error for the mortgage industry to ignore the direction of the winds in Washington D.C. All signs are pointing towards elevating a mortgage LO’s duties to his/her client, more licensing requirements, higher pre and post education, and so forth.”

      I’ve accepted the fact that we are ideologically different, Jillayne. You see gov’t as a solution, I seee them as the problem. This legislation is a tremendous bonus to someone like me but it is morally corrupt.

      “Abolishing all licensing and making Realtors fiduciaries in charge of mortgage lending?”

      You’re trying to twist my words, again. I never said that.

      I’ve accepted the fact that you and are completely opposite in the way we approach things

      “Mortgage LOs have specifically defined contractual duties right now and where did that get us?”

      Over 60% homeownership rate; highest in the world. I see the glass as half full, Jillayne.

      “Ride the wave of change, mon.”

      Cute. Ok, JS- I’m in. Eliminate my competitors for me!

    40. Jeff Brown June 2nd, 2008 2:30 pm

      Sean — Would you also abolish licenses to practice law?

    41. Sean Purcell June 2nd, 2008 2:36 pm

      Jeff,

      YES!

      For the same reasons. Licenses to not mean you are capable of the thing for which you are licensed – only that you are able to pass a test about the subject matter.

      Currently, the only valid purpose of a license is to facilitate punishment. E.g.: if you do something wrong we will revoke your license and you will lose your livelihood. This could be accomplished with a simple registration rather than misleading the public or operating to fill public coffers under the guise of public welfare.

    42. Jeff Brown June 2nd, 2008 2:52 pm

      Sean — Let me be more extreme. Would you do away with the licensing of physicians?

      The point: It’s how high the bar is set that matters. You can’t legislate morality, true. But you can ensure a minimum level of actual professional knowledge. Nobody would dare compare a RE agent to a doctor in terms of relative expertise at entry level, right?

      Eliminating licensing is a bad idea, more fit for Utopia. :)

    43. Jillayne Schlicke June 2nd, 2008 3:00 pm

      Hi Sean,

      Professional licensing does way more than just facilitate punishment and collect fees.

      It’s a two-prong approach: It protects consumers AND ALSO helps promote confidence in the industry.

      It is not the job of ANY legislature to regulate morality of a profession. Instead, that’s the job of THE INDUSTRY and if the industry doesn’t do this, then the federal or state government has to step in and do it for that industry.

      Brian, how long have I been saying this now? At least one year on this blog, at least six years in other forms of media. It’s happening: mortgage lending is facing harsher state and federal laws nationwide.

      Pay the government or pay a professional association and probably become prepared to pay both, like doctors do.

      The reward is higher pay and higher level of respect from the general public and from your clients.

    44. Sean Purcell June 2nd, 2008 3:04 pm

      Jeff,

      Ensuring minimum levels of professionalism is easy. Out of school you join a firm (or people could hang their shingle solo and go out of business quickly). But if you want to be hired by Brown & Brown Medical Practices (or Law Practices or whatever) you will have to demonstrate very high levels of professionism to Mr. Brown. That’s how his firm became so successful to begin with. The free market… catch the wave, mon.

      BTW: Utopia? You going somewhere with this cowboy?

      I’m off to a Little League championship game. Happy commenting!

    45. Sean Purcell June 2nd, 2008 3:07 pm

      Jillayne,

      I am ALL in favor of an NASD style industy group. Have talked about it on this blog many times.

      As for the government, I will leave it to greater minds than mine to explain the law of unintended consequences and why the legislature stepping in is always a bad idea.

      I am off to a Little League championship game. Happy commenting!

    46. Brian Brady June 2nd, 2008 3:36 pm

      “Pay the government or pay a professional association and probably become prepared to pay both, like doctors do.”

      No…like their patients do.

      The reward is higher pay and higher level of respect from the general public and from your clients.

      Oh, brother.

      The higher pay is because you’ve narrowed the eye of the needle and reduced competition. I have self respect- the rest is a result of that.

    47. Jeff Brown June 2nd, 2008 4:21 pm

      Sean — What about those uninterested in learning under proven masters? They’re the ones who’ll fleece the public at an unstoppable rate.

      Chaos is the Utopia to which I referred. It’s a fantasy no less than what Uncle Karl proposed. His idea failed and so will removal of licensing under the guise of everyone signing up with masters of the trade.

      Those relying on systems based upon the good nature of Man are doomed to failure.

    48. Jillayne Schlicke June 2nd, 2008 5:02 pm

      Brian says, “Cute. Ok, JS- I’m in. Eliminate my competitors for me!”

      I just did and now you’re complaining?
      :)

    49. Brian Brady June 2nd, 2008 5:14 pm

      “now you’re complaining?”

      Naw…you’re too much fun- thanks for coming by.

      You drive me nuts but at the end if the day, we both want the same thing; we just want to get there different ways

    50. Greg Swann June 2nd, 2008 5:37 pm

      > They’re the ones who’ll fleece the public at an unstoppable rate.

      How? In a marketplace where competition for reputation is the only way to build market share, how will people who have no reputation at all or nothing but a bad reputation “fleece the public at an unstoppable rate”? Fraud of any sort is an artifact of information inefficiency. Is it your impression that the flow of information is becoming less efficient?

    51. Tom Vanderwell June 2nd, 2008 7:31 pm

      Sorry I haven’t had time to throw my thoughts in on this before, but it’s been a busy day. Here’s my take on the whole issue:

      1. As a preface, I’m a mortgage lender, not a broker. I work for a super regional midwest bank with a funny name (Fifth Third) and I’ve worked for banks my entire 20 year career. So that does “shape” my perception of it.

      2. In reality, what do I do? I sell money for a living. People need money to buy or refinance their house and they go shopping. They talk to their Realtor, their friends, their family and get recommendations but they also go online, etc.

      3. My job is to help potential customers get the right mortgage for them and to persuade as many of them as possible that the right mortgage for them is a mortgage that they get from me.

      4. Do I currently have a legal obligation to my prospective clients? No, I don’t. Do I have a legal obligation to my employer? Let’s just say that if I violate the rules of my employer or the rules of the secondary market, I could get in big trouble, so yes I do.

      5. Do I have a moral and ethical obligation to my prospective clients? Yes I do. I don’t know if everyone feels that way, but I know that if more mortgage lenders and brokers felt they had a moral obligation to the potential buyers, we wouldn’t have as much of a mess as we do. Frankly, and some might get upset at me for saying this, I couldn’t sleep at night if I charged as much for writing loans as I hear many brokers are being accused of charging. I make a very good living, I live in a 4000 sq. ft house in a nice neighborhood with 6 bedrooms and an inground pool. But I’m able to do that and look my clients in the eye if I meet them at a ball game or the store because I didn’t over charge them. Is that a fiduciary relationship? I don’t worry too much about what it’s called, I just know it’s the type of attitude and treatment that has made for a very successful career so far.

      6. What’s the best way to generate new business under those assumptions? It’s actually pretty simple: 1) Keep your customer’s needs and wants in the forefront. 2) Don’t overcharge but also don’t be ashamed of making a profit. 3) Act with honesty and integrity throughout all of your dealings 4) Inside the framework of your organization (bank) be as creative as possible so that your potential customer sees that it’s in his/her interest to work with you.

      7. Does government intervention in the mortgage industry scare me? Not from the sense that I’ve got something to hide, it doesn’t. I don’t believe that government intervention is what it is going to take to solve things from the origination side.

      What’s it going to take?
      1. I think it’s already happening. People are realizing that they need to work with trustworthy, honest, ethical, experienced people and not just your stereotypical used car salesman types. I think that’s a large part of why my business is up this year from last year and last year was up from 2006.

      2. I think the increased transparency that Web 2.0 and the social media marketing are providing are going to help as well. In the last 2 weeks, I’ve talked or e-mailed with people in Virginia, Florida, Colorado, Illinois, Michigan, Arizona and New York about mortgages. That wouldn’t have been possible two years ago and it gives consumers the opportunity to interact with professionals who act with integrity even if they aren’t geographically “related.” I have to say that my opinions of Realtors has gone WAY up since I’ve started hanging out at BHB. You guys are extreme professionals and act in a way that does your profession proud.

      Okay, I think I’ve rambled on long enough. Thanks for listening to my thoughts on the matter.

      If I can help you navigate through this real estate and mortgage market, give me a call.

      Tom Vanderwell
      (616) 292-7559
      Thomas.vanderwell@53.com

    52. Tom Vanderwell June 2nd, 2008 7:37 pm

      Oh, I had one other thought. I’ve had a number of local agents tell me that they only refer their clients to lenders where that lender sends referrals to the Realtor as well. In otherwords, if I don’t send Joe Realtor some of my “preapproved” customers who don’t have a Realtor already, then he’s not going to recommend me to his clients.

      Is that a situation where the Realtor is really putting the needs of their client first?

      Am I, as a lender, acting in the best interests of my customers if I’m recommending they go to Joe Realtor because I know that means Joe will send me loans, even though I really feel they’d “fit” better with Sally Smith?

      I’ve actually sent some of my customers to a Realtor who’s brother in law is a lender at my bank. I know I’m not going to get any business from him for as long as his brother in law works at “my” bank, but it was the right thing to do.

      The Right Thing to Do. We should all do that more often.

      Tom

    53. Jeff Brown June 2nd, 2008 7:52 pm

      Greg — info age or not, folks were fleeced right and left with loans in the last decade. In my opinion the thought that eliminating licensing instead of making it more valuable through far higher standards is laughable. Only in Greek times did that work, as the culture promoted excellence.

      As an example we only have to go back to deregulating the S & L industry. That certainly turned out well.

      One can only imagine what would happen if anyone could declare themselves a doctor without license to practice. The idea has no merit whatsoever in these times, IMHO.

      And please have mercy on me, ‘cuz I still gotta write tonight’s post. Debating the ins and outs of ancient Greek culture ain’t on the agenda. Thanks in advance. :)

    54. Bob June 2nd, 2008 8:46 pm

      As for the government, I will leave it to greater minds than mine to explain the law of unintended consequences and why the legislature stepping in is always a bad idea.

      Like implementing child labor laws because industry didn’t mind exploiting minors for a profit? Yep, that was a bad idea.

      Absolutes tend to be dangerous.

    55. Brian Brady June 2nd, 2008 9:56 pm

      “Okay, I think I’ve rambled on long enough. Thanks for listening to my thoughts on the matter.”

      No, you haven’t. You’ve captured the legal/moral argument I’ve been trying to explain for 18 months. keep talking about it.

      It is a GOOD BUSINESS PRACTICE to operate LIKE we were fiduciaries but mot a legal obligation. I still believe that legal obligation is best left to the designated and contractual fiduciary.

      In summary, I don’t think legislation is going to necessarily distinguish those of us who operate LIKE we had a fiduciary duty to the customer from those who don’t. It WILL, however, protect the bad apples.

    56. Greg Swann June 2nd, 2008 11:12 pm

      I said: “In a marketplace where competition for reputation is the only way to build market share…”

      You said: “…folks were fleeced right and left with loans in the last decade…”

      Ignoring everything else, is it your belief that mortgage lending now and “in the last decade” was based on competition for reputation?

      When you baby people, they act like babies. This should not be surprising news. Some people will always behave like babies. This is not a valid reason to infantilize people who behave rationally.

      Yet again, with emphasis: In a marketplace where competition for reputation is the only way to build market share, how will people who have no reputation at all or nothing but a bad reputation “fleece the public at an unstoppable rate”?

      The fleecing you are complaining about is caused by government — specifically by the government inducing people to be lax about their own self-interest.

      > One can only imagine what would happen if anyone could declare themselves a doctor without license to practice.

      The mania to license everything is less than 100 years old in the United States. The sole purpose of licensing is to create cartels — limiting entry to a business in order to raise prices. It’s crime, plain and simple, and the costs occasioned by that crime are far worst than the supposed perils that are its justification.

    57. Jeff Brown June 2nd, 2008 11:21 pm

      The market where reputation is the only way to build market share doesn’t exist. I’d prefer that world too.

      I”m the last guy looking for gov’t solutions to our problems. But until the preferred world materializes, a modicum of control is preferred to the alternative.

      We live in an imperfect world.

    58. Tom Vanderwell June 3rd, 2008 5:32 am

      Brian,

      Thanks for bringing this up and thank you for your kind words. Very thought provoking.

      Tom

    59. [...] On Monday, Brian Brady posted a commentary about the pending legislation that people are throwing around in regards to licensing of individual loan officers and the potential fiduciary duties that might involve. You can read his post and all of the comments right here. [...]

    60. Bob Wilson June 4th, 2008 5:54 pm

      we are seeing people die here from a bovine strain of TB. A strain that difined by health experts as ‘ancient’.

      The cause? Cheese. Queso fresca, a popular Mexican cheese. More specifically, homemade or “bathtub” batches of queso fresca sold at farmers markets and swap meets.

      The reason it isn’t a widespread problem with cheese is due to government licensing and oversight.

    61. Brian Brady June 5th, 2008 6:28 am

      Bob,

      I don’t understand the metaphor.