The mortgage industry has experienced one of its most-prosperous times in recent history. Just 10 years ago, our field was one-sixth the size of what it is now. Since then, we have seen a boom in loan volume and a massive influx of professionals to the industry.
As these wonderful things were happening, however, some mortgage professionals seem 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?
I think 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.
The future starts with us
It seems like Section No. 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.
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?
Adding fuel to the fire is the fact that consumers are jumping on the bandwagon. They can make a lot of money and probably not end up in jail. They just have to do what their originator tells them, and they get the loan.
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.
How many borrowers know the guidelines? They learn things such as the amount of income or assets to state, the amount of down payment to "borrow" and how occupancy works from us. We are either directly committing fraud or teaching borrowers how to do it. Both are bad for our industry, and both are illegal.
What to do?
We need to take a close look at why we are here and what we are doing. 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.
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.