When you bought or refinanced your home, what was your experience like? Was it confusing or frustrating? The experiences of borrowers likely depends on when they bought their home and what company they hired to help them.
Starting in 2008, the mortgage industry underwent much reform, with most rules taking effect in 2010. Most of this reform was designed around the idea of the borrower having clear, accurate information and loan officers being educated, qualified, and ethical. Some argue that the regulations of recent years are too restrictive and are hindrance to borrowing.
I recently sat down with Anita Padilla-Fitzgerald, president and CEO of BBB Accredited Business, MegaStar Financial Corp. to get her take on what’s new and what she thinks about it all. I began by asking her about the Good Faith Estimate, a document that is now required to be disclosed to the borrower.
Megan Herrera: What is a Good Faith Estimate and how is it helpful to consumers?
Anita Padilla-Fitzgerald: A Good Faith Estimate is a document that the RESPA (Real Estate Settlement Procedures Act) requires and the purpose of the document is to explain to consumers and outline the costs associated with obtaining a mortgage loan. The change with regulation is that in the past, lenders could issue a good faith estimate with no rule that said it needed to match the final settlement statement, the HUD. So, customers would go to closing and there would be a large variance from what they were expecting [to pay] so with all of the new regulations, the government came in and said, this has to be accurate. So it’s been a really good change for the consumer.
MH: “How is a consumer assured that their costs will not change after receiving their Good Faith Estimate?”
APF: ”They’re assured that they won’t change because the rule is: they can’t change. Now, the costs can change if there’s a valid change in circumstance. So let’s say for example the customer went out and bought a car, or the customer didn’t make their mortgage payment – there’s a plethora of things that could happen – and their credit score changes. Or their parents had agreed to give them a gift of 20% down and now their parents are saying ‘oh well, now we can only do 10%’ – things like that would create a valid change in circumstance by which we would have to re-disclose.”
MH: “Loan officers are now required to be paid on a fixed commission under a new law. Explain why that is, and how it helps consumers.”
APF: ”What happened with the mortgage meltdown is a lot of consumers complained that they didn’t understand their mortgage program, they didn’t understand option ARMs, they didn’t understand negative amortization; they didn’t understand a lot of things. So when the government looked at the market, and looked at some of the private labels, products that were being offered, stated incomes, stated assets, types of loans – they noticed that those loans being offered through Wall Street firms and banks paid the loan officer more than a 30-year fixed for example. So there was an incentive for the sales person to steer you toward one product verses another product. The government has made the rule that loan officers are paid one amount only, so that there is no incentive for the them to steer the consumer toward one product or another. Also, all loan officers have to be licensed and bonded and carry E&O (Errors and Omissions insurance). So there are education requirements to adhere to and it’s much, much more stringent than it ever was.”
It sounded to me like all of these new rules and requirements were put into place to help stabilize the real estate industry and try to eliminate the abuses that caused the meltdown. The reform also appears to be largely advocating the consumer but Anita says it has been beneficial to mortgage companies as well.
APF: ”All of these rules have really been very good for the consumer. Now some people will argue that they’re too restrictive and there’s not enough lending going on, however, we’re seeing record volume originations so you have to believe that they’re not that stringent because everybody’s so busy they can’t see straight. I believe the changes that have been made have been very good because people who were in our industry who weren’t serious about the business, who were making a lot of money but didn’t really study and understand the products aren’t in the business anymore. Because the business has been lifted to a much, much higher level. So the mortgage bankers, have to know your rules, have to study, have to know your regulation, and have to run a clean shop or it’s just tough out there. There are still some characters out there trying to get around the rules, but the CFPB [Consumer Financial Protection Bureau] is really out in force, auditing and looking at what’s going on so my feeling is just do what’s right and operate with integrity, and you’ll always be ok.”
Honesty is always the best policy, right? I agree with Anita in that integrity will always prevail. I also like her point that the regulations have essentially weeded out a lot of those in the industry who weren’t doing the right thing. It seems that regulations, especially in an industry that has had so many problems, was long overdue.
What do you think? What have been your experiences – either on the consumer side or business side?