I’m currently working with two of my returning clients who opted to use another LO for their last refinance. I know that in spite of my marketing and efforts to keep in touch with the families I provide mortgage advice to, not all will stick with me. I can live with that. What gets me pissed (sorry…no other word for it) is when I hear that they were taken advantage of. ‘
Client A recently divorced and needed to refinance in order to remove his ex from the mortgage. He met a LO who suggested he do an option ARM and make just the minimum payments while investing the difference into an insurance annuity. She was kind enough to provide this advice along with a copy of Doug Andrews book, Missed Fortune. While this strategy may work for some people, it’s certainly not a one size fits all. Client A has perfect credit yet this LO managed to tack on a 3 year prepayment penalty which Client A only learned of when he was signing his loan papers at the escrow company. Watching his equity evaporate by the negative amortization made Client A very nervous. Many don’t have have the risk tolerance to use their home as an investment vehicle–I wouldn’t do this loan for me. Nor do I recommend it for my clients. Client A is now refinancing back into a long term fixed rate. I estimate the other LO cost Client A more than $20,000 in lost equity, prepayment penalties and refi closing costs…all in less than a year.
Client B is a similar story. I helped her with her financing for the purchase of her home. She’s a single Mom who’s ARM would be adjusting next summer. She began dating a LO who wanted to help her out with lower mortgage payments and convinced her to refinance with an Option ARM promoting the low payments. He failed to explain what would happen to her equity if she opted for the low payments. With the deferred interest (negative amortization) and a second mortgage, she has little to no equity to refinance at this time. Oh yeah, this LO was kind enough to give her a parting gift of a prepayment penalty as well.
Note: a 3 year prepayment penalty equals approx. a point in your LO’s pocket if you have an option ARM. Plus, with an option ARM, the higher the margin is, the more money the LO is raking in. This compensation is in addition to any points or fees that are being charged.
I am thankful for new business and my clients…it does sicken me to see how damaging a bad LO can be to a person’s finances. Every once in a while at RCG, Jillayne Schlicke and I will go around and around about how bad LOs are (she calls us Mortgage Retail Sales People and I prefer, Mortgage Professional)…I feel like I’m constantly fighting to bring up the caliber of my industry. Yes, there’s some bad actors out there. I’m ever hopeful that with our current market and licensing, many are flushed out for good.
This is a respectable business. I’m proud to be a Mortgage Professional and I don’t relate or associate myself with MRSP’s. I know plenty of other Mortgage Professionals in my industry…and I just wish that my clients, if they’re not working with me, would have wound up with a professional instead of a predator.
At some point, I will author a letter of recomendation to the new Wa State commission formed by Governor Gregoire, recommending that we elevate the minimum standards for becoming a licensed loan originator.
The Governor can’t do anything about federally chartered banks. She CAN do something about state chartered banks, state licensed consumer loan lenders, and state licensed mortgage brokers.
We have to start somewhere.
When the business picks back up again (many years from now) all those LOs will be right back here, answering ads that say “make six figures your first year…no experience required.”
How about a minimum level of required pre-licensing education. A one week class. I would write my piece advocating for a 2 week class, and then if we had to compromise on one week, that would be better than nothing.
A mortgage could be one of the biggest financial decisions of a person’s life. We owe our consumers more, and the industry owes more to its LOs.
Great post, Rhonda.
Thanks, Jillayne. The bar of entry to be a Mortgage Broker is higher than what it was. At least now one must pass a background check, state exam and take 2 DFI approved courses per year.
If a loan originator does not want to meet these higher standards, they’ll have to work for one of the mortgage-banks that the state (DFI) cannot regulate.