This website was just brought to my attention.  Fraud Problem has an updated list naming individuals who have been denied a Loan Originator License for the State of Washington.   DFI posts the same information.

The largest benefit of Washington State’s licensing law for loan originators who are employed by a Mortgage Broker is that the bar of entry has been raised.  It’s true that prior to this law, one just needed to fog a mirror to be a LO.  It didn’t matter if they were a felon, had committed fraud or if they were competent.   

Over the past month, I’ve had individuals who have received bad advice and have also relied on a "bad actor" instead of a Mortgage Professional for the financing of their homes.   Here’s a link, also from Fraud Problem, on what to do if you have a complaint from working with a "bad actor".  Here is DFI’s link to file a complaint.

Since mortgage brokers and mortgage bankers are regulated by different entities, it can be tricky and take some work to find out where your complaint should reach.

I want my industry to be cleaned up.   Helping people with the financing of their home and proper managing of their mortgage is a noble profession.

If you consider that 70 are listed on Fraud Problem’s site and there are an estimated 15,000 loan originators…simple math tells you that 0.5%* of the industry were unsavory.   I’m not defending the "bad actors" in any way, I am standing up for the 99.5% of us in Washington State who are good.   

*I’m sure this figure will increase as the background checks continue…however, the good will out number the bad. 

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.

I sent an email to the Loan Officer who contacted me last week wanting advice on how to create a referral business with a link to the post about him.   His reply is worthy of a new post…   

"Well I can’t say that I disagree with the message being sent by the post and I agree that people need to be made aware of the dangers that exist out there for potential borrowers. I appreciate you not using my name; I truly am an ethical mortgage originator. I always work in my client’s best interest and I will never give anyone a bad loan again. I was a novice then with regard to the lending industry. Now I constantly study and keep myself updated on market trends; I know exactly what is going on in the mortgage industry and I make a point of educating my borrowers properly so that they are never taken advantage of. I work from 9am to 7pm everyday then I go home and study mortgage publications (Scottsmans Guide/Orginator Times/The Mortgage Daily ..etc.).

I am well versed now when it comes to ethical lending practices, providing the utmost quality of service, and mortgage loan products. I am no longer “brainwashed” by my former employer, but everyone should know that there are still lenders out there preying on innocent people on both sides. When I began in this industry at the aforementioned company I was so excited to be a part of something so “great”. Something that people need to be aware of is that there is so much involved in our business. When I began my senses were overloaded every day of training; they piled so much information on me about how superior “we” were, how much faster we are than everybody else, how great our rates are, and how low our fees were. When people told me another company was offering them a better deal I did not believe that it was possible. I told them things like “we do over $100,000,000.00 per month in volume which affords us volume wholesale discount pricing” which was true. What I didn’t know was that the rates that I was selling based on macro enriched excel spreadsheets were not real. I didn’t know that once it hit processing everything would change; by then I was already on the next file (aside from “chasing stips”). Another thing that the company did was keep people burned out so that they couldn’t decipher what the hell was going on. They insisted that the magic number of OFA’s (internal reference meaning “out for appraisal”) was 10 per month in order to get 4 closings. That means that in a good month their entire staff of LO’s are chasing stips down for 10 files (at a minimum) while only closing 4 loans; That’s a lot of “busy” work.

Now in the last week I have really reached out to people in my community and across the nation for marketing advice and for advice on building strong referral partnerships. I do not need advice on how to operate ethically because as I said I operate with the highest level of integrity and I always have … That is why I lost sleep when I found out the truth about what was going on with my former employer and that is also why I left the company. Now I am well educated and I am truly “in the business that I am in”. I wanted to write you this update to clarify where I stand in this business. Now I will never be taken advantage of again and I work hard to educate my clients so that they will never be taken advantage of."

I’m sure this person has learned a lot from their past.  Kind of reminds me of when an ex-burglar becomes a security expert.  I do believe that this LO fell into the wrong company and is not a bad person. 

This is the difference between working with someone who is transactional vs relationship based.   If a LO is just looking at the client as a transaction, trying to make 10 files a month to satisfy production goals, they’re not focusing on long term relationships with a borrower.   Odds are, they do not provide the level of service that would encourage anyone ever returning to them. 

When someone is providing mortgage advice with the expectations of maintaining a relationship with the borrower beyond closing, it’s a much higher level of service.  If I bump into one of my clients at the grocery store, I want them to be happy to see me–not aiming a tomato at my head!   Mortgage Professionals who have a business practice based on retaining relationships will provide "long term" advice and will provide a level of service that they hope will not only encourage the borrower to return, but also to recommend their friends and family to them. 

This LO seems to have made a mental shift in his business practice after realizing that the company he was previously employed at was potentially harming borrowers.   I welcome more "good guys" to our industry anytime!

I recently received an email from a Loan Originator who wanted some advice on how to develop a "referral based business".   Having a referral based business means that you have provided such a high level of service to your clients that they feel compelled or at least comfortable in recommending you to the people they care about.   My business is dependent upon referrals from my clients and professional relationships.

I have mixed emotions reading this gentleman’s email.   I’m angry that consumers could be prey to someone who is not properly trained and suffer by possibly losing their home or at the very least thousands of dollars.   I almost feel bad for this person who really seems to have had no idea (he seemed almost brainwashed) at what he was doing to consumers with his former employer.   

""I have been in the mortgage industry for nearly 2 years. So I guess in the scheme of things I am relatively new …or maybe not the way that things are currently going. Anyway, I started at a mortgage company that I will not mention here for fear of being sued. It was an extreme predatory lender. I didn’t realize then how much so; I was given 2 weeks classroom training and thrown on the floor to sell. They taught me enough to sell the mortgage but not to properly qualify borrowers, so the rates, fees, etc. always changed.

I really knew nothing of the mortgage industry at the time. That particular company really keep the LO’s separate from the process. You sell the file, pass it off to the processor, and sell another one. Also act as a liaison between the borrower and the company. I was required to call them up every day to let them know that everything was fine then take the fall when the mortgage program completely changed.

The company that I am speaking of really had me sold on them for a while. I really had company pride and truly believed that my rates, programs, and ease of use were superior to any other mortgage company out there. I slowly began to realize that none of this was true. I studied relentlessly for several months on my own time. The more I learned about the industry the more I realized that the company that I was working for was horrible. I began to lose sleep over the fact that all of the “wonderful” mortgage loan products that I had been providing my clients were really the worst deals they could’ve gotten.

Needless to say I left that company when I realized what was really going on…."

When you are considering a mortgage or mortgage advice, please do select your Mortgage Professional carefully.   Don’t let them select you by "cold calls" or deceiving junk mail.   

Hat tip to Tim at Rain City Guide for the photo.  We’re not sure if he’s either a victim of a bad mortgage or if he’s an unemployed subprime Loan Originator.   What do you think?

Update:  Don’t miss America’s Mortgage Broker, Brian Brady’s response to this post:  The Difference Between Right and Wrong.

I feel it’s important to continue to share with you the junk we receive in the mail from mortgage companies with amazing offers.   Seems like the new trend is to go after people who may be facing foreclosures or who have adjustable rate mortgages.   

Let’s take a peak inside these great offers!   

The first one has red letters on the upper right corner stating:

"FINAL NOTICE OF RATE INCREASE".  The next line: "RE:  Mortgage Master Svc Corp.".

Wow.  Looks pretty official and they must know about us because we did get our mortgage at Mortgage Master (where I work).   Once you tear open this important looking notice, it appears to be a check from the "funding department" for $375,000.   That is our mortgage balance and we do have an ARM.    The letter states they have "reviewed our original mortgage loan" and that we "qualify for a Low Cost Refinance or a No Cost Refinance…your new rate could be 4.125% (APR 6.439%)".   

The second letter has big bold black says "FINAL NOTICE-Notice of Overpayment".   Yikes…we don’t to be overpaying anything!  This gem states that "according to their records, you may be making larger than required payments on your home loan" and is offering us a fixed rate for five years at 1.75% (APR 7.012%).  Huh?  I thought we were making the payment due according to our lender. 

The purple envelope really cracks me up.   It’s hand addressed on the front and the back of the envelope even has a little smiley sticker.   This must be from a dear friend.   This is not a mortgage offer, instead they say "We’ll buy your house…even if the stairs are missing".   It’s a two page letter with testimonials and reasons not to use a real estate agent…they’ll help you do everything no matter what condition your house is or how desperate you are to sell.  RUN!  I checked out there website and there is no information about this organization or more importantly, the people who are behind it.   Are they licensed?   Smells fishy to me.   Maybe it’s the smiley sticker.   If you need to sell your home and you don’t have a real estate agent to work with, please contact me and I’ll try to help you with a referral to one.

If someone needs to send mail (or do "cold calls") to strangers to stay in the mortgage business, it’s because they do not provide the level of service that would create referrals from their clients.   They treat their business/clients as "transactional" instead of "long term relationship".   If you’re working with someone who is "transactional", they’re only planning on working with you once; you probably won’t want to return to them for your next mortgage.   

I don’t appreciate scare tactics and I hope you don’t fall for their gimmicks.  Ask for referrals from people you respect and trust if you are in need of a mortgage or real estate professional (or read their blogs).

PS:  If you receive a misleading offer in the mail that does not disclose APR or that appears to be from the government (you know, the gold envelopes with an eagle on the outside usually sent around April so you think it’s a tax refund) and you’re in Washington State, please send it to me.   If it’s a violation, I’ll forward it to DFI.