| Looking for ethics in the mortgage industry |
In a newly-published book, a real estate attorney is taking a look at ethics in the mortgage industry.
“What Does ‘Right’ Mean?: Developing an Ethical Business Environment in the Mortgage Industry,” is a book by William Bost III, a partner at the North Carolina-based law firm Ragsdale Liggett PLLC in the business law department. His practice encompasses bank and non-bank financial services, mortgage banking, securities, mergers and acquisitions, real estate law, and corporate law.
Bost wrote the book to provide mortgage industry professionals assistance in developing an ethical framework in which to operate their individual and collective businesses. In the book, he assesses how ethical principles apply to the ever-changing mortgage business and suggests ways for businesses to benefit by clearly defining their ethical principles.
“No government is capable of promulgating rules that apply in all situations,” said Bost. “A determined person will always be able to find a loophole in a law or rule under which he may do something mean, self-serving, or dishonest. The truly ethical person is aware of the many ways he benefits from the order created by sensible laws, and does what he can to promote and maintain such order. Thus, acting ethically requires adhering to the spirit of the law, not just its clear provisions.” But Bost is not the only one seeking stronger ethics in the mortgage industry.
Mortgage industry: Police thyself
Timothy Fredrick of Florida-based Titan Lending says that “with government agencies across the country targeting mortgage fraud and abuse, it’s time industry leaders and associations kick self-monitoring and policing into high gear.”
Fredrick referenced the prosperous growth the mortgage industry has enjoyed in recent history, noting that the boom in loan volume brought a massive influx of professionals to the industry.
“As these wonderful things were happening, however, some mortgage professionals seemed to have lost sight of many of the principles that spurred this growth. There are grumblings about how out of control we have become, and they come from Capitol Hill, our local governments, consumer groups, industry partners and our own ranks. Did we forget why we are here?” Frederick asked.
He believes that “it is time that we all start to fight for our future. The problems are internal to mortgage bankers, mortgage brokers, banks and Wall Street. There are also problems with government and consumer understanding. We are all for making strides in reducing predatory lending, Real Estate Settlement Procedures Act violations and such. But we are destroying our credibility by allowing mortgage fraud to propagate freely.”
Further he says that Section 9 of the 1003, which lists penalties for providing false information, “used to be enough to scare anyone out of lying — mortgagor or mortgagee. But if you’re not originating government loans, little else can convince you that a little white lie won’t hurt anyone.”
Fredrick explained that Wall Street seeks recourse with lenders; lenders buy the loans back and then go after mortgage originators. Mortgage originators — including lenders, brokers and their employees — usually don’t have the capacity to repurchase the loans, and that’s the end of the story. “We all know that regulators and law-enforcers aren’t really putting anyone in prison. So what’s the worst that can happen?” he said.
“Essentially, it begins and ends with the loan originator. Loan officers can prevent nearly all fraud from occurring. But without proper motivation, prevention is last on the list of priorities. Unless fraud is detected, there are no real repercussions. There is also a great deal of money to be made; heck, loans are closing that wouldn’t otherwise close. Loan products and lender policies also seem to encourage fraud. Programs such as stated-income/stated-asset, no-income-verification and no-income/no-asset loans allow customers who don’t otherwise qualify to buy houses. These are great programs when used in the right spirit, and they promote low-income-housing goals and emerging-market growth. But they are often stretched to the extremes — by originators, not borrowers.
“We need to take a close look at why we are here and what we are doing,” Fredrick warned. “We also need to think about the long-term consequences of our actions. Consider a market in which all loan applications require upfront fingerprints (banks use them for check-cashing) and thorough background checks. Other things to consider are individual bonding of originators, notarizing initial loan applications and mortgage insurance for nonprime loans and second liens.”
He added that “enforcement actions, penalties and government sanctions are somewhat effective, but only in deterring people who are not ethically challenged in the first place. We need to educate the originators and borrowers. Stating an income that is not what you actually earn is fraud. Telling the borrower what to state is fraud, too. People not only need to know that what they’re doing is wrong but also what the consequences are. We need zero tolerance in this industry. Make yourself an expert. Read the regulations, take the classes and participate in the associations.” |
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