Yesterday on NPR I heard a story about a housing advocacy group in Ohio who was dedicating a large amount of money to help bailout people facing foreclosure.  In that report a lady cried that her "Mortgage Broker" lied to her and that was why she was in trouble.

Well, I wasn't there and I can't tell you if what she is saying is true, but I can tell you that it's federal law that she was disclosed to.  She should have received a truth in lending statement which she would have had to sign and a Good Faith Estimate, which she also would have hand to sign, from the broker (if it was indeed a mortgage broker who originated this mortgage - more on this in a sec). If the loan had an adjustable feature, she should have also received an "Adjustable Rate Disclosure" form as well. 

The Truth In Lending document, which is a bit confusing, would have outlined the terms of her loan and if it had an adjustable feature.  The Good Faith Estimate is supposed to be accurate within$200.00 and would have outlined the fees and charges associated with her loan and the Adjustable Rate Disclosure would have disclosed the specific terms of her ARM loan.  This disclosure would have included how much it could go up or down at the adjustment and when that adjustment would occur.  The Adjustable Rate Disclosure would have also given her an example of the historical performance of her index (the rate that her loan was based upon) and told her what her margin was (the amount above the index that she would be paying).  

If that wasn't enough disclosure for her, more than likely, the lender who was underwriting and funding this mortgage probably sent her another copy of these disclosures with their name on it.  If that wasn't enough disclosure for you, then when she got to closing she would have had to sign another Truth In Lending Disclosure, as well as another Adjustable Rate Disclosure.  Wait, that's still not enough disclosure for you?  She would have also had to sign the note, an adjustable rate rider to the note and the mortgage or deed of trust. 

Was she not paying attention?

The mortgage industry,while not without its downfalls, is one of the most heavily regulated industries in the country.  Can you imagine going into a car dealership and them having to tell you how much they were making on the sale of your new car?  As a mortgage broker I have to tell you that ahead of time (Banks and Mortgage Banking companies are exempt from this disclosure for some reason, even if they are brokering the mortgage themselves???).  As pointed out above, a person applying for a mortgage is disclosed to over and over again.  

The other thing that bothered me by that article was the way that they blamed mortgage brokers for this problem.  "My Mortgage Broker lied to me!"  "My Mortgage Broker Didn't tell me" Etc.  Well, I've noticed that the term Mortgage Broker is used almost as a generic term for mortgage lender.  It's just as likely that the woman above was dealing directly with a Mortgage Banking Company or even a bank who was brokering her mortgage.  Sub-prime mortgages are originated by all three kinds of mortgage lenders.  If you don't know the difference between the three, please read my post Mortgage Banking 101, which goes into detail on the differences. 

Even if this mortgage was originated by a Mortgage Broker, the program was developed by, underwritten by and funded by an institutional lender, such as a mortgage banking company, a bank or an investment company.  That loan was pooled together and sold on Wall Street in the form of a Mortgage Banked Security.  To lay the blame for the current Sub Prime mess at the feet of Mortgage Brokers is simply irresponsible.

Does the government need to step in here?  To help these people, maybe.  To regulate the industry more, I don't think so.  The borrowers have no excuse other than stupidity to say that they were not disclosed to and as some comedian said once, "You Can't Fix Stupid!"

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.