More Mortgage Industry Punditry ... and a loaded question

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Real Estate Services

It was about eighteen months ago that a friend of a friend called to ask if I would glance at a settlement sheet.  Chris, a busy woman executive, was scheduled to close a refinance loan the next day and sensed that something wasn't quite right after learning the amount of her new (proposed) monthly payment.

Chris, I later learned, had responded to a letter sent to her house by an industrious mortgage broker.  Her intentions were to lower her interest rate while pulling out a little cash.  It sounded reasonable enough considering Chris' lending profile.  She is highly educated and a successful executive for an international spice company.  I'd been to her waterfront home once, or twice, for parties and knew that it had to be worth more than a million dollars. A loan amount of $450,000 certainly seemed non-problematic to me.  Also, Chris struck me as the type of person who would maintain an impeccable credit rating.  As it turned out, I was right!

At first blush, the HUD-1 appeared heavily laden with fees.  There were a couple of points showing along with a generous display of junk fees.  Most disturbingly, the broker was walking away with a yield spread premium (YSP) that totaled $19,000.  I asked Chris for permission to discuss her loan with the loan originator.

Initially, the woman was congenial and talkative.  She became defensive only after I questioned the YSP.  I suggested to Chris that she post phone closing until someone could explain why she was paying a premium spread.  The next day, I heard from the loan originator's manager who accused me of trying to steal the deal.  It was, of course, a ridiculous and unfounded accusation.  I am nothing more than an unlicensed industry observer these days. 

But, make no mistake, I've been around this business long enough to know when someone is being screwed.

A long story short, Chris settled about two weeks later with a different mortgage broker.  The fees and charges came to $4,000 or so.  The interest rate was much lower than that proposed by the original broker.  There was no YSP charged.

Do I believe that mortgage professionals are deserving of their fees? 

I do, but there are limitations to reason.

Repeated studies have concluded that women with above average incomes and credit scores are likely to pay more for mortgage money than men with less favorable lending profiles.  Women of color are most likely to suffer lending abuses and least likely to realize financial security through the traditional path of homeownership. 

The YSP is almost always a factor when predatory lending practices are at play.

 I reluctantly accept the need for the YSP in residential transactions.  It is of considerable value to homeowners when employed by honest, well-intended loan professionals.  We know, regrettably, that this is not always the case and that the YSP is all too often used to victimize trusting consumers.

I'd like to make this post a bit more interesting
by asking a hypothetical question!


Let's assume that I was still a title company owner and didn't know Chris personally. 

Let's also assume that the loan was referred to my title company by the original mortgage broker that attempted to charge a $19,000 YSP.


As a licensed title professional: Did I have an obligation to the consumer to question the obviously exorbitant fees being charged?

Would it have been inappropriate for me to question the fees?

What's your professional opinion?

 

Note:

The original post read: Do I believe that real estate professionals are deserving of their fee?

I decided to make the question more specific by revising "real estate professionals" to read "mortgage professionals" because the generic nature of the phrase was questioned by a number of readers. 

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Tags:
predatory lending
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Rainer
98,280
Ed Rybczynski

Fran

It's an interesting dilemma that you raise.  I've met many title professionals who feel that they're under no obligation to question anything.  There's also a dangerous tendency to rely solely on the garden variety disclosures provided by title underwriters and lenders.

I suggest that title agents prepare disclosures for everything.  I certainly would have one signed whenever a YSP is charged.

People need to understand that title agents have more legal liability than any other player in a transaction.  The feds hold you to the same professional standards as a doctor or a lawyer.  There's no making excuses when something goes wrong. 

December 16, 2007 04:46 PM
Rainmaker
628,952
Fran Gaspari
"The Title Man" - Title Insurance - PA & NJ
Patriot Land Transfer, Inc.

Ed,

As an aside, when RESPA was introduced in the mid 1970's, someone was astute enough to number each line on the Hud-1...that presumably would make it easy to track and analyze data on a national or regional basis by computer...over 30 years later and with high speed computer capabilities, someone has dropped the ball...where is all that info??? RESPRO!!! I'm telling you, there's too much clout there...and it's not consumer friendly!!! Thanks,   Fran

December 16, 2007 05:11 PM
Rainer
69,662
Bill Nazur

It is our personal and professional responsibility to step in against this very behavior by those 'alleged' professionals in the business who capitalize on the very consumers that we are entrusted in serving.

Your personal experience alone should serve as a testament to others who imagine prosecution would never happen to them.

Thank you for blogging as much as you do. You share some powerful words and lessons.

December 16, 2007 08:38 PM
Rainer
9,996
Dawn Rodriguez
HomeRun Title - Title Insurance Company
HomeRun Title

Ed - I cross reference everything I possibly can in the transaction. I'll check the property appraiser site and Zillow to see what the property is worth. I'll then compare it to the appraisal and immediately know if something is fishy. In dealing with the lenders you begin to know off hand what kind of rates and fees they charge. Of course I don't get the credit report so I can't tell if what they are getting is good for them. However, I do look at the fees being charged and again, I'm not one to say what you can charge but I do know what is preposterous.

Like you stated, they send it to a title company that is looking only to please the broker and/or lender because they want their business, so they look the other way. I'm sure even their fees were enormous. 

Curious, did she close with the same title company?

December 17, 2007 04:10 PM
Rainer
98,280
Ed Rybczynski

Dawn

Chris absolutely did not close with the original title company that was selected by the original mortgage broker.  I wouldn't have allowed it.  The title company is always involved in predatory lending abuse of this type.  Always! 

December 17, 2007 04:31 PM
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Rainer
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Ed Rybczynski

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