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How to Strangle What You Mean to Save

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  • Time4change | | 27 Jun 2012, 03:57 PM Agree 0
    Good article, and right on the money! For those of us who've been in the industry for 10 yrs or more, it is not recognizable anymore. Excellent points about what caused the collapse, default rates and why the government mortgages are priced better. We could use some common sense.
  • William Matz | | 27 Jun 2012, 05:10 PM Agree 0
    I agree fully with your point about innovation. We need the multiplicity of mortgage products because borrowers are all different. I use the phrase, "There are no bad mortgage products, only bad matches between mortgage products and the wrong borrowers."

    With that said, the mulitplicity of mortgage products only works if the borrowers have competent advisors to help them wade through the confusing array of choices. And that has been the weak link, in that there have been no substantial education or training requirements for originators. Hence few brokers (and fewer bank mortgage officers) have even basic education and training in financial planning so as to be able to help borrowers (and their other financial advisors) select the mortgage program/terms that best advance the overall plan.

    The lack of education and training led to (e.g.) former pizza deliverymen "advising" on mortgages and being seduced by four pt rebates on option ARMs. How many originators know that in 2002-03 jumbo 20- and 30-year fixed mortgages were available at rates as low as 3.5-4%? That's what most of my clients were getting. But they got those mortgages because those mortgages fit their overall financial plans. And now they are laughing at the mortgage crisis, some with mortgages half paid off.

    The data I have seen shows that GSE mortgages are defaulting at about 25% the rate of other mortgages. And if portfolio mortgages include the many Option ARMs, portfolio performance is troublesome.

    Sadly, consistent with what the article reports, many of the "reforms" have hurt borrowers, decreasing qualification, raising costs, and narrowing mortgage choices. Amazingly, most reforms have affected only brokers, leaving the much greater body of bank LOs free to abuse consumers. So much for consumer-friendly legislation and regulation.
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