These are my comments to the Florida Legislature and the Florida Supreme Court
EDUCATING CONSUMERS IN MORTGAGE MATTERS
Through the shady dealings of un-professionals, there has been the creation of a class of uneducated borrowers. Education is needed that clearly explains the important financial obligation a borrower is undertaking when borrowing money. Un-professionals are allowing these borrowers to sign on the dotted line on mortgages, all the while knowing these people may not be able to afford their payments. Independent consumer education must be a major base from which the housing market will recover. Plus, without the complete explanation of rate and terms, these new homeowners cannot truly understand the risk and rewards of homeownership. Also, the advantages of renting versus owning must be explained. The entire mortgage process must be explained to prospective borrowers AND understood by prospective borrowers.
RAISING THE REQUIREMENTS TO ENTER INTO THE REAL ESTATE AND MORTGAGE FIELDS AND MAINTAIN A LICENSE
Florida Statute Chapter 494 has increased the requirements to become a mortgage originator. The requirements to become and to continue to be a mortgage originator, real estate agent, title agent and appraiser should be raised. This would serve many purposes.
First, there would be enough professionals to have healthy competition, but not too much competition to drive people to commit fraud in order to obtain business. The following table shows the tremendous increase in mortgage brokers in Florida:
Year Active Mortgage Brokers
2001 28,140
2002 30,282
2003 41,211
2004 46,092
2005 59,896
2006 67,266
2007 81,895
2008 63,993
2009 65,692
These 65,672 mortgages represent one mortgage broker for approximately every 98 Florida households. This does not include mortgage orginators that work for mortgage lenders and banks. Assuming there are between 100,000 to 150,000 total mortgage professionals soliciting the 6.4 million Florida households then there is 1 mortgage professional for every 43 to 64 Florida households. This is an oversaturated mortgage professional market.
Second, the regulatory authorities would be able to investigate and monitor licensees more efficiently with a more manageable number of licensees.
Third, increasing the continuing educational requirements would help create professional individuals.
GIVING FIRST TIME HELP FOR FIRST-TIME HOME BUYERS
A lot of people in the real estate industry have put their recovery hopes on first time homebuyers. In fact, there is a first-time home buyer tax credit for 2009, but there is no requirement that the first-time home buyers have any understanding of what homeownership entails. All first-time home buyers, whether they receive a tax credit or not, should attend a home ownership educational seminar.
RETHINKING THE AMERICAN DREAM
The program of the American government and the government sponsored entities highly promotes homeownership. Clearly, homeownership provides the basis for strong neighborhoods and cities hence, this will create a strong citizenry. Homeownership is not for everyone, though; however, it is blindly promoted as the “American Dream.” In some cases, the dream can be a nightmare. Homeownership can be a heavy financial burden on an individual. Other factors may indicate that homeownership is not the proper choice in a scenario. Renting provides more flexibility to move than homeownership.
MODIFYING A LOAN MODIFICATION
Where to start with the issues of loan modifications? There are honest, ethical and conscientious loan modification professionals; however, this industry has grown from zero to overpopulated with unethical people. Reviewing of Florida’s Attorney General Bill McCollum’s website will provide ample examples of individual loan modification companies.
The loan modification industry is dominated by mortgage brokers. These same mortgage brokers were pushing borrowers into the mortgages that they could not afford. Many times an attorney appears to be handling a case, but the case is actually managed by a loan modification company, unbeknownst to borrowers. This illegally circumvents the law that allows attorneys to receive loan modification payments up front, but prevents a loan modification company from collecting a fee prior to performance. This hurts everyone: the borrower, ethical attorneys and home loan modification companies. Also, a loan modification specialist needs no specialized training. In Florida, they need to be only an attorney or simply have a mortgage broker license.
BANKING THE FUTURE AWAY
Lenders take way too long to make a decision. Many times, lenders make decisions based on the impact on their financial statements. This is only “smoke and mirrors.” A bank unwilling to address what a property’s actual market value and a borrower’s real ability to pay only prolongs the mortgage monster. Rather then make the right decision and recognize the loss, currently the bank tries not to recognize the loss. If banks were to financially recognize and address the problem, the problem would be over sooner. The bank’s net worth would be reduced or eliminated. This would force the FDIC to take over or find buyers for many banks. The shareholders would suffer, but we would be further down the road to recovery. Additionally, decisions made by bank employees are in the best interest for the employee’s need for continued employment and not in the best interest of the bank, the borrower, the state or the national economy.
FINDING STRONGER BUYERS FOR A STRONGER RECOVERY
The mortgage market has dried up except for government programs and limited portfolio products. Most of the government products provide loans with less than 5% down- payments and some allow the seller to pay up to 6% of the closing costs. A borrow who is only putting 5% down and paying very little closing costs usually is not a strong borrower. There is very little financial incentive to continue to make payments in case of a financial set back. Many low down payment borrowers do not have the financial ability to even make payments if they were to have a small financial set back. By allowing such low down payments, we may be sowing the sour seeds of a second mortgage collapse.
UNCLOGGING THE COURTS BY PUNISHING COURT ABUSERS
When a borrower receives word that their home is in jeopardy of being foreclosed, often times they will step up and try to make an agreement with their current lender. If no terms can be agreed on, in order to fight back against the lender, many times a borrower will hire an attorney to assist in saving their home. The attorney may honestly have the ability to challenge the validity of the debt. To the borrower’s benefit, during the time the legal fight is occurring, they are allowed to continue to stay in their home without paying their mortgage.
Unfortunately, some unethical attorneys have filed frivolous and deceitful defenses. Their only objective is to delay the foreclosure because the borrower has no intention or ability to pay the mortgage. The lender has done nothing wrong, but the lender has to spend an inordinate amount of time and money pursuing the meritless defendant cases. This clogs the state’s courts system needlessly.
Additionally, immediately before the courthouse foreclosure sale, a bankruptcy attorney may file a bankruptcy on behalf of the borrower. In the majority of cases, the borrower’s case is dismissed and no payments are ever made during the bankruptcy. This clogs the federal courts needlessly.
Many times the borrowers cannot pay yet the system allows for delays. The current system promotes this abuse of the courts. Cases that unnecessarily clog the court system should be promptly dismissed. Attorneys that have a practice and a pattern of abuse in the court system should be firmly reprimanded, sanctioned or disbarred. Lawyers have an obligation to be honest and ethical officers of the court.
SUMMARY
The mortgage industry will continue to flounder if no action is taken to solve the festering problems. Persistent and rapid efforts to correct and address these issues created by mortgage un-professionals will aid in the national recovery.
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