Looks like a nail in the coffin for greed

Wednesday, January 27th, 2010

As we all know the market is changing.  It has been rapidly evolving for the last 2 years as the economy has crumbled and moved around it.  One of the big issues that led to the rash of foreclosures beyond loan programs destined to fail was fraud and greed.  Fraud would be the inflating of income, distortion of facts or the “anything to make it work” attitude of the past.  Greed is one of the more hidden aspects of the business that gets highlighted from time to time by the media but then gets quickly swept under the carpet by breaking news on Brangelina or Twilight.

Greed,as we know is one of the 7 deadly sins, and the mortgage industry for many years fostered and protected greed.  I know  loan  consultants who have made $16,000 off a $400,000 loan.  That is 4%  That is a ton of money for a loan and trust me when I say, if the lender is making that much the client is getting taken to the cleaners.  The average amount a loan consultant makes on a deal is 0.7%.  I have heard from Realtors that they work with “Mr X” who charges 2 points(2%) but is totally worth it.  There are rare individuals in this business that truly deserve 2 points.  They are the “rainmakers” and the truly dedicated loan consultants that know guidelines inside and out and have relationships to make deals happen where others cannot. They are few and far between and the industry needs them.

Last Friday Bank of America announced that they would no longer allow “Overage.”  What this means is that the BofA  loan consulatants cannot charge you more or give you a higher rate to make more $ for themselves.  THIS IS HUGE.   What this will most likely lead to is the other banks following suit.  They have to.  As a client, who wants to go to a bank that can pillage you if you can get a loan where you know there is no pillaging allowed. After the banks follow suit the correspondent lenders will and then finally the brokers.

  This will lead to less greed in the industry but I have a feeling that it will not be all rainbows and sunshine.  For the “rainmakers” who warrant 2 points will they be as motivated to go the extra mile? Will this even the playing field or will it create a lower level playing field?

 The difference in time it takes to structure and close a loan between a W2 borrower and a self employed borrower with 300 pages of tax returns and multiple businesses and properties is huge.  Will these more complicated deals get kicked to the side? 

Without overage it will become a volume game so what happens to the borrowers that have harder and more time consuming loans?

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