I enjoy discussions here because it’s where consumers are. It is like a laboratory of information. One area that is of interest to me, in a large way, is what makes people do what they do. I’m speaking of three groups primarily: consumers and the two primary players in our business, the loan officers and agents.
2007 has been quite a year in the real estate world. Blogging and transparency has been one of the hottest focal points in the business. Because of the obvious turmoil in the real estate industry as a whole, being that the market is in correction mode and the mortgage/credit markets are stressed due to “writing down” Billions (code for losses) and continues to unfold, many industry-wide issues are at the forefront.
In lending, the recent issue of licensing (both locally and nationally) and the hot potato YSP (yield spread premium or equivalent terminology) topic has been debated heavily. Locally, loan originators have to take a competency exam and go through a background check. Agents have their exam and clock-hour classes to obtain and maintain licensing as well. But, should it stop there? Ok, fine, you say. Where are you going with this? What I’m suggesting is this: is the licensing at it’s face value all you would be satisfied with to work with a real estate professional or allied pro’s such as loan officers, title, escrow, etc…?
“Why not ask them to disclose whether they have had a bankruptcy, or foreclosure or heaven forbid, ask them to disclose their own FICO score? Do you really want people who have a history of making poor financial decisions assisting you with advice on buying, selling or refinancing? Or, is it more complicated than that and therefore is not fair?” – me, S-Crow
For example, over the course of the past four years, our small business has bumped into an opportunity or two or three to expand the business. In all the cases, we were approached by mortgage brokers or agents or both. In each circumstance we passed. Why? A bit of due dilligence revealing situations we were uncomfortable with led us to our decisions. Plus, what was the rush? Get rich, lol?!! (eyes rolling.)
I think the thing that caused the most pause for our counterparts was a question I posed to those who wanted to enter in a business capacity with our small business: “If you want to enter into a business relationship with us then reveal your entire financial lives, personal and professional and we’ll do the same.” As you can imagine, that type of transparency is what I’m after if people want to do business with me in opening other offices in a partnership. And, as you can imagine, it is quite the turn off. Someday, we’ll bump into like minded business people. So far, that hasn’t happened as people don’t want us to see the “naked” financials. You see, in escrow, you deal with money all day long, not quite like a bank, but loosely in the same framework. Therefore, you don’t want people who are in financial hardship running an escrow company or having access to trust accounts. Not a good recipe.
Escrow is highly complicated with lots of moving parts. There is a reason escrow firms follow banking hours, so to speak. There is a reason mortgage funders and escrow staff look at the clock all day long as we have to meet very tight deadlines. Because escrow is a regulated business and actually has audits from the Dept. of Financial Institutions that we have to pay for (thank you not very much), it is an arena where many of our colleagues who wish to open an escrow company find themselves wondering why they even tried. Some days we ask ourselves the same thing, but for other reasons I’ll keep to myself. :)
Anyway, back to my point(s). A few things to consider:
- Wouldn’t you as a consumer (existing homeowners in midst of refinancing, first time buyers, etc..) having to divulge most of your financial lives to the loan officer or agent want to know that you are being represented by those parties in a fiduciary capacity? In other words, wouldn’t it be a good thing to know that they are working in your best interests?
- This is the crux of the consumer driven push resulting in an issue Congress is meeting about. It is to get lenders & brokers to work on consumers behalf and address the hot potato issue of compensation in the form of YSP (yield spread premiums). One of the questions being asked is when or how is it appropriate to use YSP’s? For those that don’t know, YSP is a compensation mechanism that the lender/investor pays to the broker for originating the loan or loan program at a specified interest rate, or with terms such as pre-payment penalties. Generally, to trigger this additional compensation in the form of a yield spread premium (YSP), the borrower is sold an interest rate higher than would be if there were no YSP. Again, this is a general definition.
I ask tough questions of those wanting to do business with me in a partnership and sometimes the answers received either by my own investigation or their disclosure reveals information that helps me make an informed decision.
So, all that mumbling to say this: will you interview the professionals that are assisting you in your real estate endeavors? Do you have it in you to ask the tough questions? Can you imagine the fallout if, say, a 700 FICO score, was the low end benchmark to qualify for licensing as an agent, loan officer or other professionals involved in your transaction? Now that would have some teeth!
How’s that for a softball pitch to our industry!
