What, you are not on Twitter yet?
If you aren’t on Twitter, you are missing out on millions of conversations being had right now – and you might be surprised to find out how much you can learn just by listening to the conversations that you are interested in.
Say you were in the process of getting a mortgage. You might be surprised to learn that your loan officer is not your friend. Or agent.
Local loan officer Steve Lines announced:
And I find that many people are surprised to learn that a loan officer works for the bank, he does not work for you.
In Real Estate, the concept of agency and fiduciary responsibility are commonly used when speaking about clients – and because a Realtor has a fiduciary responsibility to their client to represent their best interests, I often see people assuming that the loan officer has some kind of fiduciary responsibility as well.
But they don’t.
I agree with Kristin LaVanway, it can be scary.
A loan officer is working directly for a bank or acting as a broker – and in either situation, they are trying to maximize profits. In simple terms, the way to maximize profits is to buy low and sell high – or in banking terms, borrow at a low cost and lend at the highest possible cost that you can still attract customers.
And like it or not, this is the way the mortgage business entire banking system works and has for decades.
What is the solution to this? Steve did a great job of articulating the three basic options:
And my answer to “what *should* happen to help the consumer?” is officially:
The first thing that is going into place effective January 1, 2010 is there is a new Good Faith Estimate that will be used. My personal opinion is that the new Good Faith Estimate is probably only a first step as to what new regulations will take effect – all in an effort to protect consumers, increase transparency and regulate financial institutions that are (or will be) deemed “too big to fail”.
Will the new regulations help protect consumers? I think they will help but in my experience, you can never fully protect ignorance. If you are in a situation where you are educated enough to become a homeowner, I highly recommend becoming at least slightly educated about the process of getting a mortgage.
As does Steve:
Steve went on to say that in the mortgage process, the borrower is asking for the bank to lend them money. The bank offers the borrower terms of a loan. The borrower can then choose to accept, decline, negotiate or continue shopping.
But perhaps the most important thing to keep in mind is that no matter how much you like him, no matter how good he looks in a blue shirt, no matter how much you just plain trust him…
Your loan officer is not your friend and not your agent.
So be sure to educate yourself, shop and always read the fine print.
About the Author: Justin McHood is a mortgage broker with VanDyk Mortgage Corporation. You can find him at Arizona Mortgage Team, on the Zillow’s Mortgages Unzipped Blog, and at most East Valley Friday Nights gatherings. He’s the one in the blue shirt.
The Phoenix Real Estate Guy was started by Jay Thompson, and I have a little blogging problem... he liked to say...
So true and good stuff!
I had a post on AR years ago in response to an Agents post saying that the financial crisis was the LO's fault. It grabbed a few hundred comments and had a very interesting thread going between Ardell and a LO who mis understood the concept of Fiduciary Responsibility.
Sadly, so many others will miss the concept as well.
Here; come the Regulators!
@Mike,
"Here come the regulators!" So true.
Man, I am glad I didn't put this on AR, the comments would have killed me.
Thanks for stopping by and commenting!
Justin
"Here come the Regulators" is right on…
I imagine each state is different in their LO licensing and definitions of what an LO is. In AZ the regulators have defined that the LO cannot have a fiduciary responsibility to the borrower. Yes, I said "cannot". Big changes coming down the road here in July of 2010 with the AZ licensing, including the fact that the LO will no longer be "in the business" of originating loans… That would be a good conversational post to write Justin…
@Paul,
Great point.
I need to make sure I gather up all the "right" information about all the changes before I crank out some headline-grabbing piece… and I have my full time legal staff of 3 working on that now!
Thanks for stopping by, hope you (the Best Mortgage Originator in Tucson) rock on into 2010.
Justin
Justin – It is very refreshing to see this important point being talked about by a LOAN OFFICER…
Maximizing profit is rarely discussed when I hear people talking about getting a mortgage. The industry has done such a good job getting consumers to think about credit scores and approvals and this doc or that doc that the average consumer has no clue how banks make money. Thanks for opening some eyes, Justin…
@Bill,
Thanks for stopping by — what doesn't every loan officer talk about this stuff?
Justin
Justin – it is an important distinction for a buyer to understand
thanks for the post!
@Irene,
I am amazed at how many times people don't understand this – even some of the newer Realtors don't know this.
I sometimes use the analogy of "the fox guarding the hen house" to make it easier to understand.
Justin
This post is making me think about what various originators call themselves in order to give the public a certain image or opinion of what they do for a living…including: loan officer, mortgage planner, mortgage specialist…just to name a few. I think I've called myself those various titles at various stages over my mortgage career. I've recently gone back to "Mortgage Originator". Why? Because that's what I do. I'm not an "officer" at our company; although I provide advice and information–I'm not sure that "planner" is the correct term to use. Without a doubt, I do originate mortgages and help people with that process. I think our industry needs to have this type clarity and not be ashamed to be a mortgage or loan ORIGINATOR.
@Rhonda,
I like that description: "Mortgage Originator".
I am going to start adopting it by training my kids to say it when someone asks what their dad does for a living.
Justin
Great Article and information, Thank You! I learned something like this when my wife and i tried to find a home. the rates and timing seemed pretty standardized. are there places to negotiate that i just didn't know about? i assumed the loan officer was giving us all the data. the housing market was so bad that the homes we contracted to buy had secnd and third loans and could not get clearance to sell so we took a break. we'll start shopping again after the holidays. Thank You.
@Pete,
Thanks for stopping by —
i assumed the loan officer was giving us all the data.
Without knowing anything about your mortgage originator that you were working with, I am guessing that you probably didn't have all the information.
But the good news is that starting January 1, all mortgage originators will be required to use the new Good Faith Estimate which does a better job of getting you the important information you need.
Justin
Speaking from a Realtor's position, this is a good example of why I have developed good working relationships with several local loan officers that I can send my clients to and know they will be treated honestly and fairly. True, they do work for the lender, but past experiences go a long way to know how trustworthy and dependable they may be.
@Shea,
Great point.
An interesting test you may want to put into play is the next time you are talking with your mortgage originator partners ask each one of them "how much money they need to make on a loan" and I suspect that you might be surprised at how 1.) fuzzy and 2.) different their answers are.
You may (or may not I guess) be surprised at how much you will learn by asking that single question during a one-on-one conversation.
Thanks for commenting!
Justin
Excellent post! Loan officers are much like real estate agents working model homes for builders in this regard. It doesn't mean they can't offer a very high level of professional service, but they are ultimately NOT looking out for the best interests of the borrower. Nothing wrong with this – BUT it is something that every homebuyer should UNDERSTAND so they can make the best decisions!
@Jeremy,
Agreed! Thanks for stopping by. Be sure to spread the word, many consumers are still confused by this.
Justin
I knew it, I knew they were never my friend!
Its so hard to trust anyone these days when greed drives our decision process. I think it would serve the consumer great if they were required to read a brochure or pamphlet of some sort written by a consumer advocacy group and the LO should be required to explain how they get paid. This way the homeowner will have a heads up that the LO will be presenting them with the loan product that will make the LO the most money, not represent the consumers best possibility.
Great article! You can’t tell if your loan officer is telling you truth or lie and if they are misleading you but there are also quite a few good loan offices out there that are honest and ethical in their profession. You sharing this will make the public aware of this. Thanks for sharing!
Great Article! This is one of the main reasons that the regulators are mounting up and cracking down on the Mortgage Industry! We always have had a full disclosure policy, where we tell the customer how much we are making on a loan. The new GFE's will fix alot of this problem!
.-= Redding Mortgage´s last blog ..Mortgage Fees Explained! =-.
That's good information for all of us as we assist our buyers in getting pre approved. I always encourage buyers to shop "rates and terms" and compare apples to apples. I realize we all have to make a living but honesty and transparancy go a long way. Real Estate Agents need to be up to speed on current mortgage information so we can better advise our clients.
That’s good information for all of us as we assist our buyers in getting pre approved. I always encourage buyers to shop “rates and terms” and compare apples to apples. I realize we all have to make a living but honesty and transparancy go a long way. Real Estate Agents need to be up to speed on current mortgage information so we can better advise our clients.
Good Twitter conversation. Loan officers are interested in making money just like everyone else and for the most part will do what it takes to write the loan. So they are not your friend regardless how nice they seem to be or how often they compliment you. With some of the changes in favor of the consumer after the crisis they now have more protection, but consumers are consumers and many are easy to influence.
In a couple of years when the economy is booming we wont hear the words transparency and honesty as much. It's amazing how much we overlook when things are going great.
Thanks for the post and good conversations do take place on Twitter.
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