Remembering Fiduciary Responsibility

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As we watch the mortgage market continue to evolve each week, we take note of increased foreclosure activity, tightening of credit requirements, new legislation and ironically the attempted resurgence of sub-prime lending. Granted there are not many sub-prime lenders in the current market and guidelines have been improved but the bottom line is it is sub-prime.

As I do a great deal of Third Party Originations, needless to say many of my brokers are quite interested in the program simply because they can get loans closed fast and as they say “make more money”. The sub-prime lenders that we have relationships with do underwrite their own business so nothing is underwritten in house, but even given this, quite a few of my brokers still insist that for them it is the best way to go and I am sure that given the profit margin for the broker, it is. The bigger question here however is what about the borrower. Is it really the best option for them?

Over the past week, I have received three Pre-qualifications from my sub-prime manager. The cases were faxed to him for the purpose of pre-qualification and after review, he felt that the borrower would be done a much greater service if the cases were originated and closed using FHA. When he brought the cases to me, he said it looked like they would qualify and the interest rate we could provide would be at least 3% less then any sub-prime rate he could provide. I looked at each case and he was correct, 2 of the 3 where FHA approvable with far better interest rates then they would have received going sub-prime. I completed the pre-qualifications and faxed them to the brokers just to have one of the brokers call us to state that he still wanted the case to go sub-prime, like I said easier and he would make more money. What a shame for the borrower.

After 22 years in the mortgage industry, 20 of them underwriting I have decided that there are two kinds of mortgage professionals. The individuals who unbeknownst to them are really only here for the short term, will make as much as they can and will be ultimately selling cars in five years and the other mortgage professionals who believe that they not only have a fiduciary responsibility to the company that employs them, but also to the borrowers for which they provide a service to.

Fiduciary responsibility is defined “a relationship imposed by law where someone has voluntarily agreed to act in the capacity of a caretaker of another’s rights, assets and/or well being.” In short, the fiduciary owes an obligation to carry out these responsibilities with the utmost degree of “good faith, honesty, integrity, loyalty and undivided service of the beneficiaries’ interest.” While I agree that one’s employer could be defined as the beneficiary of such actions, I will also assert that I believe in the case of mortgage lending, the borrower could also be defined as such a beneficiary.

As we have seen the ultimate outcome of placing otherwise deserving borrowers into mortgage programs that they could not afford, I think it is time that we remember that we do have a fiduciary responsibility to our clients. I will agree that I think all loan originators or brokers do deserve to be paid a fair fee for their services, I also think that they need to look at the long term consequences of unconscionable lending practices which quite frankly we now face each day. Declining property values, spiking foreclosure rates and the collapse of financial institutions will not serve any mortgage professional in the long term, not even the individuals who feel no responsibility towards their employers, their clients or the industry as a whole. Without ethics in lending the mortgage industry will continue in the state that it is currently in.

Remember, the best compliment any loan originator or broker can receive is a referral and that will not be received if a borrower feels financially raped after closing. With that said, I say that we all work to treat our clients with the financial respect they deserve and behave in the capacity that we have been in trusted with. This will promote future business opportunities for all of us as well as more stability within the mortgage market as a whole.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.