Mortgage brokers face challenges

MAMB convention to focus on training and professionalism

1,000 come to Baltimore

Leaders seek to repair industry's tarnished image

April 02, 2000|By Robert Nusgart | Robert Nusgart,SUN REAL ESTATE EDITOR

When the Maryland Association of Mortgage Brokers decided on "Laws of the Jungle" as the theme for its annual convention, the title seemed quite appropriate -- the past year has been survival of the fittest within the industry.

Rising mortgage rates and an ebbing of refinancing activity have driven out those who got into the business when interest rates sank below 7 percent almost two years ago and the housing industry began to soar.

In the past year, the industry also had to defend itself when state and federal authorities began to investigate the abusive "flipping" of properties in Baltimore, where unsuspecting or naive buyers received mortgages for homes sold to them far above their value.

And there has always been the image problem. Mortgage bankers have usually held the high ground in perception vs. the upstart mortgage brokers, whose industry came out of the savings and loan scandals and failures of the 1980s.

So when approximately 1,000 brokers and loan officers come to the Baltimore Convention Center for their two-day convention beginning Wednesday, they are going to see an emphasis on education and professionalism.

"You are going to see a weeding out of the numbers, and the people that are going to be remaining are quality people that are going to do a better job for the customer," said Thomas C. Shaner, executive director for the MAMB.

"We can certainly say that there are some bad apples out there, absolutely," he said. "As an industry, we want to get rid of those bad apples more than anybody does. We know laws are passed for bad apples, and that can have a negative impact on everybody."

Two years ago, the MAMB took steps to require its members to take 20 hours of continuing-education classes in order to maintain their state licenses. But a loophole in the legislation permitted licensees to go four years before fulfilling the requirement. That is on its way to being remedied in this year's session.

"Part of our message in this meeting will be that in the future, you must be here [at the convention] or somewhere to get your educational credits. Every two years they are going to need 20 hours," said Shaner, adding that there will be mandatory classes for ethics, fair housing and legal update.

And now that continuing education is required, Shaner said the next step is "prelicensing ... that is where your biggest problem is.

"The loan officers that go to work for the brokers don't necessarily need any requirements. They came over with grandiose ideas of making a lot of money. And as long as they had a strong broker who was really reviewing everything for them," loans closed satisfactorily, Shaner said. But "there was always a chance of harm being done. They didn't know, in many cases, the laws, and they could have made many mistakes in the process.

"You ought to know what you are doing. It's like a real estate agent or anybody else, you've got to meet some standard to come into this business. That's the industry's position, we want to make sure the consumer is protected.

"Generally speaking, if you are out there doing loans, you better know what you are doing."

Shaner said the MAMB has also considered instituting a pre-homeownership requirement. The notion was born partially out of the flipping scandals that have troubled the industry and the high foreclosure rates for federally insured loans made to minority and low-income applicants in some city neighborhoods.

"We have very mixed feelings about that," he said. "On one hand, it would help the new homeowner understand his responsibilities. On the other hand, I have members who don't want anything to slow up the process, and I understand the balance."

The issue of flipping properties -- buying a property at a low price and turning around and promptly selling for a higher price -- has put the mortgage industry on the defensive.

But Shaner and Neil Sweren, former president of the MAMB, said the fault lies with the appraisal process. An attempt by the General Assembly to license appraisers died this session.

"There certainly is an opportunity for greed to take over in this business," Sweren said. "But a large part of the problem is who's there to police it? When an appraiser can give you an appraisal for $50,000 over the property value, and there is no one there to take his license away, what am I supposed to do? As a lender or a broker, how am I supposed to control that?

"There is nothing illegal about me buying a house for $5,000 in the morning and reselling it to you for $40,000 as long as it is worth $40,000. The problem is that it is worth $20,000 and I am selling it to you for $40,000 and I actually got an appraisal for $40,000 and the lender [lends] $30,000. That is the problem," Sweren said, acknowledging that there are mortgage brokers who have had a supporting role in the scandal.

"Everybody is playing their part in this property flipping thing," he said. "To me, the ultimate in financial loss will come with mortgage lenders.

"They keep talking about the lender taking advantage of people. And the brokers taking advantage of people. But [some] brokers are really taking advantage of their lender. And that is who ends up going out of business. That is who ends up with $10 million worth of loans and $5 million worth of property."

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