If one were to go back in time and review the sequence of events that caused the Federal Deposit Insurance Corporation and the Federal Savings & Loan Insurance Corporation to be formed, it might be eye-opening.
But you'd have to also consider the various bank and savings and loan association problems that caused it to evolve to what it is today.
Nevertheless, from almost the beginning, for a financial institution to be a member of the appropriate insurer, the institution had to be a member and pay dues based on its risk to the insurer.
If you owned a member bank that made lousy loans, you paid more in premium percentage than did the conservative bank of the same size.
So in essence what this meant was to be able to borrow Fed funds and insure the accounts of clients, each bank had to participate in the losses of the whole.
Perhaps the lack of membership by mortgage brokers in the federally-backed loans they broker is the fly in the ointment. Perhaps mortgage brokers should be required to be members of an insurance corporation that guarantee mortgage lending losses.
And perhaps that premium would be calculated and assessed on the default ratio of the mortgage broker.
After all, it's not very smart to allow mortgage brokers to generate income for themselves all the while knowing that they will not be held financially responsible for the loans they made that turn out to be burdens to the rest of the nation.
BILL CHERRY, REALTORS
DALLAS
1-800-314-7110
Copyright 2008 - William S. Cherry
All Rights Reserved
Very, very interesting point's you made. Nice post. I agree with you!
You gave a new perspective to an old problem. Thanks for making me think outside the box. What are the odds that this could happen?
Bill...maybe you should post this in some of the mortgage brokers groups? You should get some interesting feedback!
Very thought provoking post!
Bill, as a rule, buyers are the ones paying for mortgage insurance. Perhaps you're right - mortgage brokers should have to own stock in a mortrgage insurance company. Of course, then far fewer mortgages would be made. Which way is worse?
Bill - while I love most of your answers to Q & A and agree with your blogs, I will take a different stance on this one. If a client meets all approvals and then due to circumstances beyond their control - medical, unemployment, etc., etc. they lose substantial income, or the housing values decline and they are advised to just walk away, how is that the broker's fault? Perhaps the realtor, appraiser, inspector, and title company should also take ownership - as we were all in it together, doing our role, and due to circumstances beyond each of our control it went into foreclosure - and who would have ever guessed that possible?
And, whose to say that 99% of those mortgage brokers aren't already out of business so you would just be punishing the good ones - like me!
Private Mortgage Insurance is another sore spot with me. Those companies have been all but totally unregulated for years, and there is no way to know if they have a viable reserves formula that they abide by so they could pay mass claims.
I doubt any of them do.
Underwriting loans by a formula devised by three credit bureaus is also faulty in that it shifts the responsibility for screw ups from those who handled the making of the loans to a disinterested third party.
So my question is this? How many mortgage loan officers/brokers could do credit on a loan application without the use of the credit bureau magic numbers?
Well, my choice would be for those taking the applications and packaging the loans and then transferring the liability and loss risk to the government, to share some responsibility for losses.
It's Disagreement Day at Bill's Blog.
Thanks to Joyce, Joan, Paula, Brian and Karen for jumping in with their excellent thoughts.