How Much Info Can Your Mortgage Originator Share – Part 2

I asked Jillayne Schlicke of CE Forward to chime in on a question (below) that I received from one of my readers.  I’m happy to say, she wrote an entire page and therefore, I’m sharing this post, written by Jillayne with you.  Part 1 of this article, where I address the question, can be read by clicking this link.

As a loan originator, is it ethical to deny someone for a loan and then turn around and share not only that the loan was denied, but the EXACT reason the loan was denied (for example: too many NSFs, large deposit in checking account, hours cut back at work, etc.) with the applicant’s Realtor as well as the listing agent who in turn shares it with the sellers?

Jillayne’s response:

When trying to figure out an ethical dilemma, many try to oversimplify for purposes of being efficient such as, “do the right thing,” or “follow the golden rule,” or even “if I won’t be able to sleep at night I know it’s not ethical.” Some people turn to their favorite religious book for the answer. But with the above question, these tactics fall short. Not everybody agrees on the definition of the word “right.” Regarding reciprocal treatment, sometimes people want to be treated BETTER than how we treat ourselves and sociopaths sleep just fine at night while committing mortgage fraud during the day. There are thousands of different religions in the world so whose religion would we follow as a group of loan originators? For example, we like it when others treat us with respect but respect in action form can look different from one religion and culture to the next. So what can a loan originator do when facing an ethical dilemma? Here is a methodology loan originators can use to solve ethical dilemmas:

(1) Define the problem and frame the issue.

(2) Collect facts.

(3) Reframe the issue if necessary.

(4) Is there a clear statement of law that directly addresses the issue?

(5) Are you a corporate manager? If yes, apply managerial ethics.

(6) Are you a partner in a partnership? If yes, you have fiduciary duties to your partners.

(7) If you are a member of a professional organization with a written code of ethics, apply those principles.

(8) Identify relevant principles (in and out of the code), look at possible consequences, identify intrinsic values (for example, honesty, responsibility, respect, justice, compassion, etc. and examine the relation between these values and the person you want to become.

(9) Are there any formalized policies and procedures or a code of ethics at your mortgage company? If so, apply.

(10) Consider all alternatives. Make sure all relevant considerations are addressed.

(11) Assess the rightness and wrongness of each alternative. Provide reasons for each justifiable alternative.

(12) Decide justifiable alternatives.

(13) Act.

(14) Reflect. Consider whether anything was lacking in the resolution of the case. Discuss objections to reasons offered. Consider how this problem or situation could be avoided in the future. Could policy changes or better communication prevent cases like this one?

To solve the above ethical dilemma, we pause at step 4 and consider the Graham Leach Bliley Act, also known as The Privacy Act: 

“Except as otherwise provided in this subchapter, a financial institution may not, directly or through any affiliate, disclose to a nonaffiliated third party any nonpublic personal information, unless such financial institution provides or has provided to the consumer a notice”

Going back to step 2, does the loan originator have written permission in the file to share the details of this loan with the seller and Realtor?

Moving back to step 4 we could also check state law. In Washington State, if the loan originator works for a mortgage broker, fiduciary duties are owed to clients.

“A mortgage broker must act in the borrower’s best interest and in the utmost good faith toward the borrower”

But all loan originators are required to follow the federal SAFE Mortgage Licensing Act  See number 8 under 1502, Purposes:

“Establishes a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer.”

So this is not an ethical question, it is a legal question. Hopefully the consequences of having private information shared were not too severe for this consumer. Loan originators do make the mistake of believing the Realtor is their primary client. Having a direct, open discussion with Realtors about client boundaries and what a loan originator can and cannot do is important because this sets up a relationship grounded in respect. Licensed real estate brokers should understand this concept anyways because it is a part of their real estate agency relationship.

I am struggling to come up with a good reason when sharing private information regarding adverse action on a file would be in the best interest of a consumer or a client although I’m sure we could stretch and reach some outlier reasons. Since the home seller is in an adversarial position from the homebuyer and the homebuyer may wish to seek financing from another lender, it is best to keep private client information private.

Thanks, Jillayne!