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 Read more