The Ready Way

How we got in this mess. Another view

Author: Administrator

We have all heard the basics as to how the housing crisis happened. Wall street got greedy, banks turned a blind eye and loan originators pillaged people. That is more or less the sweeney toddesq version.

One of the huge problems is that in order to be a loan consultant 5 years ago, or even at some places today, you did not need an education or really anything beyond the ability to “sell.” This lack of requirements led to a industry of salespeople who did not understand the long term consequences of the products(loans) they were “selling”.

Loan originators are often blamed for tricking people but a large portion of them really believed the bogus loans they were selling were great. They did not know any better and did not have the aptitude to recognize the potential long term problems.

I got into the loan business at the tail end of the “glory days.” The stated option arm was the go to product. It was sold to me as “Jen, this is a great way for borrowers to manage their money. Why make a full payment, if you can live in your house, make a low payment, and write off the interest?” My response was the loan balance is growing, and when it adjusts the borrowers payment will jump and they are going backwards. To which I got “prices are just going up,just refi them before it resets.” At that time that was true but my concern was that refinancing is expensive and it did not make sense to do the Option Arm due to the potential issues. The response to that concern was “if you do not do it the client will just go to the lender down the street.” yikes.. I did one Option Arm and it haunts me to this day.

Here’s the thing, if a loan consultant understands what bad things a loan can potentially do to someone they are less likely to push it. Now here we could get into a ethics debate, but if a loan consultant does not even realize the product is bad they have no ethical dilemma. The product looks good, the bank wants them to sell it so they sell it. Client loses, market tanks etc…

If the loan consultant understands the product has potential devastating effects at least they have to have the inner ethical debate before they sell it.

It would be great if a consumer group put together a test that all loan consultants had to take that tested their reasoning ability. Seeing if they understand cause and effect through a bunch of hypothetical multiple choice questions. Like

Q: If Bob chooses an option arm loan and makes the minimum payment while his value decrease dramatically and his rate adjusts what can Bob do?

A) Refinance into another option arm

B) Accept the new higher payment or face foreclosure

C) Try to modify his loan or short sale his home

D) B and C

The answer is D.

q: If you state Bob makes $10,000 per month so that he can qualify for a $400,000 house but Bob really makes only $5000. Can Bob really afford his house?

a) No

b) Yes

Obviously A is the answer. It may seem like a silly question today but just a few years ago thousands of people answered b by their actions and that is a big reason why we are in the mess we are in today.

Bottom Line: Loan Consultants deal with large financial transactions. They should be able to reason and understand cause and effect. This is not a just a sales job, we are helping people frame their financial future.

This entry was posted on Wednesday, January 13th, 2010 at 7:05 pm and is filed under Call for action, What the media is saying. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.