FHA Mortgage Guide

Over on Lenderama, columnist Gina Gardner says that if borrowers feel abused by lenders they have significant opportunities to obtain relief.

“If lenders misrepresent a product,” says Garner, “the borrowers have recourse already. And they’d be exercising it if they were in fact defrauded.”

Let’s see: If you check Google for the term medical malpractice you get 1,970,000 hits.

The expression legal malpractice gets you 1,920,000 hits.

And lender malpractice? That will get you a whopping 23 hits.

If a lender overcharges for a product — if a lender sells a subprime loan to a borrower who qualifies for a lower-cost FHA mortgage — that’s perfectly legal. That is not lender malpractice.

Lenders do not have a fiduciary obligation to get the best possible rates and terms for borrowers. You can’t blame a lender for not doing a good job when, in fact, he or she is not your agent.

“Some have proposed,” says Harry Dinham, president of the National Association of Mortgage Brokers, “that a fiduciary duty standard should be implemented and mortgage originators and their loan officers should act in the ‘best interests’ of the consumer. NAMB remains opposed to any proposed law, regulation or other measure that attempts to impose a fiduciary duty, in any fashion, upon a mortgage broker or any other originator.”

“A lender underwrites, approves and funds the loan,” according to John Robbins, Chairman of the Mortgage Bankers Association. “The lender does not hold himself out as an agent of the borrower. While a lender must serve its customers fairly, and the industry has done much to assure high professional standards, a lender owes a duty to its shareholders and investors. A borrower knows a lender offers its own products and does not offer to shop for borrowers.”

For its part, the FBI does not report a single prosecution for predatory lending in it’s 2006 Financial Crimes Report to the Public. Why? While virtually every large federal lender is “regulated” under the federal government, there is no federal law against predatory lending.

You could, of course, have claims under Home Owner and Equity Protection Act (HOEPA) but it is largely a disclosure law — and one which doesn’t apply to most loans. As the FTC says, HOEPA “rules do not cover loans to buy or build your home, reverse mortgages or home equity lines of credit.”

Under HOEPA’s Section 129(I), the Federal Reserve has expansive powers to deal with unfair and deceptive acts or practices (UDAP) regarding ALL loans. As Michael Calhoun, President of the Center for Responsible Lending, says, “the Board has not used this authority.” If the government doesn’t define any lender actions as unfair and unconscionable then what claim can be made by borrowers?

As to advertising, virtually every mortgage ad I get in the mail is, to me, unfair and unconscionable — but not to the Federal Trade Commission. There are almost no actions taken against lenders who offer low-ball rates and lots of tiny type.

What’s missing from the mortgage marketplace is any realistic ability to hold lenders responsible for their actions — and non-actions. That’s why there is a need for licensure and fiduciary relationships.

Check out these FHA resources for more information

This entry was posted on Monday, October 29th, 2007 at 1:32 pm and is filed under , . 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.