America's #1 Mortgage Broker

I have been enjoying this banter about fiduciary capacity in the real estate transaction as it related to lending.  Clearly, this has been a fun "academic discussion" for me today and probably a pain in the patootie for many other posters in the Active Rain Real Estate Community.

A brief history:  Lenn Harley wrote a nice blog yesterday about The Evil Press. Normally, I would agree with Lenn that members the press are drama seekers with a lack of imagination and an inflated sense of self-importance.  Actually, I retain the opinion about the press.  In this instance, Lenn paraphrased an article about suggestions from a member of the press to steer clear of Realtor referred lenders.  I disagreed with her as you will see by my first comment.

I guess Lenn and I both slept on the thought because we simultaneously published blogs this morning about our positions.  Hers was more successful and received a gold star and numerous comments; mine was not. Comments included suggestions: (1) that I may be bitter because I am not on Realtor's preferred lists, (2)  Realtors are the best positioned to provide such referrals (over the buyer's primary financial advisor),  (3) and even a suggestion that the buyers don't have a primary financial advisor so the Realtor MUST assume that role in a vacuum.

The point of my blog was that Realtors overstep their boundaries when acting as a sub-agent to a particular lender. Referring to a "preferred" lender they potentially breach their fiduciary capacity.  A Realtor's interest is primarily to the transaction,  as is evidenced by the comments from Realtors in Lenn's subsequent post. I believed that to be a breach of fiduciary duty. After careful consideration, I am publicly capitulating to the thought that the Realtor should accept the role as a primary financial advisor as their fiduciary responsibilty. 

Do you want to know why?

Loan Originators have absolutely no fiduciary responsibilty to a borrower other than we should make loans that are consistent with published guidleines. The only responsibilty we owe is to our employers to make money and the lenders to prepare a complete an accurate loan package.  Now this will most likely upset my good lending friends here on Active Rain.  I hope I don't do that because I think there are some darn sharp lenders here.  Lenders who have advanced loan advisory to be a complete financial planning process.  I agree with them in principle. However, and this is a big HOWEVER....Direct lenders owe the borrower nothing.  Mortgage brokers establish that we have no fiduciary responsibilty in the "Mortgage Loan Origination Agreement" as published by the National Association of Mortgage Brokers.

Could a form be created that establishes a fiduciary capacity for mortgage brokers?  Of course.   Jack Guttentag, sometimes referred to as the "Mortgage Professor" of the Wharton School at the University of Pennsylvania created the idea of mortgage brokers as a fiduciary agent.  His "Upfront Mortgage Brokers Agreement" defines a  fee for brokerage services and puts the borrower and mortgage broker on the same side of the transaction.  Gone is the double dealing the mortgage cartel is famous for.  Fortunately, The Mortgage Profesor explains to the consumer that a four figure fee is not uncommon for arranging a loan.

I am grateful for the blogs here because it provides us a tremendous opportunity to engage in academic discussions to better our service offerings.  I have known about the Upfront Mortgage Brokerage Arrangement since The Mortgage Professor created it in 2002 and liked the idea of establishing a fiduciary agency to shop for the best loan for my borrower.  I believed then that it would eliminate the "double applications" that are so prevalent in our industry and increase my stature as a professional in Realtors' eyes.

If a Realtor were referring to an Upfront Mortgage Broker, they could make referrals based solely on fee comparisons and be assured that the mortgage broker was working in the buyer's best interest. My Realtors told me that it would be too confusing; they liked things the way that they are.  Oh well, it's 4 years later so maybe we can get that fiduciary duty off of your back and onto mine. 

My shoulders are broad enough.

Brian Brady is a NOT an Upfront Mortgage Broker ...yet.  He can be reached at (858)-699-4590

I am continually amazed at the misrepresentations mortgage brokers use on their advertising:

Lender411.com uses terms like "best" and "lowest" rates for their mortgage shopping portal.

AAXA Discount Mortgage offers the "best rates possible" and tells us that if we're "searching for the best possible rate, our search ends right there"

LoanSnap is my personal favorite.  It tells me that the dispayed rates are "today's best mortgage rates" 

Finally, in my home state. e-mortgages tells me that they have the "lowest rates in California" 

So why am I so worked up about this ???    Here's the answer:  It  is absolutely impossible to advertise that you have the best rates or lowest rates, truthfully. 

Let me give you an example:

READ MORE HERE 

If you receive a notice of default (NOD) for your mortgage, you need to act quickly.   A NOD is a notification given if you have not made payments by the predetermined deadline (usually specified in your Deed of Trust).  It spells out repayment  (sometimes called curing) schedules and spells out  the foreclosure process and timeline.

You have until five business days before the foreclosure sale to cure the default. To cure the default you have to pay off missed payments, late charges, and fees for initiating the foreclosure. If you do not cure the default, the trustee can take steps to hold a foreclosure sale.

Four Steps You MUST take to prevent a Foreclosure in California.

So, you want to be a trust deed investor and earn double digit returns?  Let's see what I can tell you about investing in trust deeds in 3-4 paragraphs.  a more detailed explanation can be found here.

A trust deed is what we call a deed of trust or mortgage in California.  When you "invest" in a trust deed, you are the bank (or the lender).  We usually get you rates of 10-14% and 1-2 points on the deal.  Most loans are short-term in nature and have a term of one to five years,  The average loan we make is paid off in less than eighteen months.  The rate and points you make usually yield you a 11-16% return on your money.  You can invest through your self-directed IRA.

MORE INFORMATION HERE

Anybody who knows me will know that I ask that question a lot when it comes to getting borrowers approved for loans.  The second C of underwriting, capacity, from the Three C's of Underwriting, is fast overtaking the first C, credit, as the preeminent qualification for mortgage approvals.  Here's the reason why:

Stated Income loans, once a favorite of the self-employed and commissioned borrowers have been frightfuly abused in the past 3-4 years.  It used to be that these loans required above average credit and a loan-to-value of no greater than 80% (meaning 20% downpayment).  Wall Street, in its infinite hunger for yield, started offering to securitize loans for high credit borrowers.  Mortgage bankers appeased them and thus, the birth of "exotic loans".

It used to be that a borrower "stated" her monthly income to reflect what she makes today as opposed to tracking a two year payment history.  It worked well when she was starting to "break out of the box" in terms of income earnings but didn't want to wait two years to buy a home.  Today, stated income loans have become "liar loans".  Some of you may remember my ability to fund loans two years ago with just about anything "stated" on the application; frankly, that era in the business made me ill.

Today, the questions from borrowers are, "Can I get approved" rather than "Can I afford it?"   I have taken the loan application proces a bit farther with these borrowers by asking them, "OK, how are you really going to make the payment?"  Sometimes, they have a girlfriend/spouse/roomate who will be contributing but doesn't want to be on the loan.  That makes good sense.  Let me give you a good and bad example of this phenomenon:

I've gotten a good deal of business from brochures in barbershops.  This weekend, I'm working on a new project for my barbershop marketing:

Blog Books.  You see, not everyone reads the girlie magazines in the barbershop.  Some men actually read Maxim, just kidding.  Seriously, men always have to wait 10-15 minutes to get their hair cut.  When you get in the chair, you tend to read whatever you were reading while you were waiting.

I'm making up some blog books for the 8 barbershops I'm in right now.  I'm going to have 3-4 of them in each shop.  I bought some 3 ring binders and a lot of page protectors.  I'm going to fill up those books with pages of well-written blogs.....starring...YOU!  I'm going to update them every two weeks with new and improved content, authored by...YOU!

Real estate used to be a boring subject for the general public.  In the past three years, everyone talks about it here in San Diego County.  People love to read articles about real estate.  I am constantly asked two questions:  Is San Diego overpriced?  Where is the next hot city where I can buy an investment property?  YOU, good Rainers, will help me answer that question from now on. 

Barbershops get 60-70 people a day that visit there.  I just want ten to read the blog books.  In eight shops, that's 80 people a day or over 500 a week seeing my name all over the cover of the blog book that YOU, good Rainers, help author.

So, if any of you get a call from someone in San Diego, asking about investment properties in Vegas, or Miami, or Austin, or Napersville and they said they read about you in their barbershop in Solana Beach, CA, would you let me write the loan?