Commernist.

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At the time I lost my business in 2001, I started interviewing for a job. While looking for an executive position, I found that collegues were selling mortgages in the interim and making $200,000 to $500,000 a year as a broker.

I interviewed with three different brokerage and found one thing common to all of them. They gave bonuses for upselling prospects on rates. It was referred to as margin. It could be rolled into the mortgage with points, or just added to the rate. But points were the most common way to do it.

I stood strong on ethics in my interviews, and even when I slam dunked all the screening tests and had made a first impression that pretty much meant I was hired, I lost the job because I was concerned about ethics.  They were looking for less intelligent candidates that didn't have a sense of ethics.  They just wanted to make the most off of each loan as possible.

I don't believe it is a problem of a few bad apples.  Mortgage brokers are in it for the money, end of story.  There may be mortgage banks that are lending their own money that think differently, but not brokers.  Although there is an increase in selling mortgages to the secondary market, and those lenders are not as concerned about the long term performance of the customer - they just meet secondary market specifications. 

People are being intentionally fleeced, and I hope more people are realizing it.  Mortgage brokers are rewarded for it.

Jim Anderson

The Truth About Credit

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Evidently the broker is not now considered a fiduciary of the mortgagor--a point which I am willing to bet is about to be litigated (replete with a prayer for punitive damages) even as we speak.

I myself would love a shot at such a cause of action (you could probably certify a class...)

If Real Estate Brokerage is in any way apposite, it is worth noting that (at least in California)although the Broker gets her fee from the seller, she is nonetheless fiduciary to the buyer as well as to the seller, with resulting obligations of disclosure, etc.

Why be forced to compete with someone who cheats? And why not work to build a good reputation for mortgage brokers everywhere?

Elizabeth! You are not that naive. Commission business pits the broker against the best interest of the consumer. Used car salesmen and mortgage brokers do not make good money by being rigidly ethical. Come on.

In the day of S & L's having a monopoly on mortgages it was so so much in the bank and the banker's best interest to provide appropriate loans to appropriate customers; not sell off the loans after ripping a profit slice from them.

"Used car salesmen and mortgage brokers do not make good money by being rigidly ethical."

ethics are apostori determinations of correct behaviors-- morals are supposedly apriori determined behaviors.

anyway, since a business has to make money in order to survive, price gauging often becomes moral since surviving is a moral issue.

where the ethical line is crossed, in my opinion, is that businesses don't return part of their profits to their customers. for example, in the past, I've argued that Microsoft should act like a coop and return part of their profits to their customers after the bean counters determine that a profit was actually made.

the ethical problem is that the moral issue of survival turns into the ethical problem of "there isn't enough for the needy because of the greedy." (gandhi paraphrased)

To boldly go...

The make-work model is a viable choice, if people admit that this is the model they are using. I call it the Japanese rice farmer model. The Japanese put restrictions on rice imports so that the inefficient, small, rice farmers will still earn a living. Everyone pays a little more for rice, but the society has decided that this is worthwhile from an overall social benefit point of view.

In the US we do the same thing, but a) we lie about it and b) we don't do it rationally. If we said that we are going to deliberately have a health care system which overcharges by 30% (overhead and profit) so that the one million middlemen have a job then, fine. Everyone would pay more, but they would, in turn, charge more for their services to compensate.

The problem is that the inefficiencies don't provide the jobs to the extent that the overcharges would imply and that the areas where they are allowed to exist are a function of political power and not national planning. When the management team of United Health Care gets a package worth $1.8 billion, the inefficiencies are not been spread optimally.

The system also breaks down when the sheltered industries are open to foreign competition. The US doesn't believe in protectionism, or says it doesn't, which means that sugar growers get protection, but not washing machine factories. So the sugar growers get richer and Maytag move to Mexico.

The libertarians and free-traders like to claim that protectionism lowers the overall growth rate of the economy, but they don't do anything to stop it for favored industries.

--- Policies not Politics
Daily Landscape

"And why not work to build a good reputation for mortgage brokers everywhere?"

ummm, because people make their money any way they can. as a professor, you collect $$$$ now and $$ in retirement and thoes bills are paid for through endownments (which have margins-- rates of return) or through tuition and/or governmental subsidies. brokers would probably look at what you have and think: "what's fair is fair."

i.e. if you're not being charitable, why should they?

To boldly go...

my father told me: "1: look at how much it costs; 2: decide if it's worth the price; and 3: either walk away or buy it and, if you buy it, don't look back, be happy."

the problem is that people don't figure the costs and that's why problems happen.

To boldly go...

Blaming the victim is the first resort of the dishonest and the disinterested. And it's effective when the victim fails to follow good advice.

The good advice, in this case, is to shop around and be suspicious of people who work for commission. Not because they're necessarily dishonest, but because their rational and legitimate self interest is different from yours. You wouldn't go to the GM dealer for objective advice about Fords.

But failing to follow good advice that might have prevented misbehavior does not excuse the misbehavior itself. Ever. Mortgage brokers advertise themselves as people who find you the best rate. For them to do anything less is inexcusable fraud, no matter how much the consumer should've shopped around.

Right. Selling money is a business, like any other. You sell the fancy car first, you schmooze the well-dressed customer, and you add bells & whistles for two reasons: Business seeks profit, and sales people get paid on what they sell. What fool would promote a lending product scoring him $8000 over $12000?

That's just proof the free markets work though, see? If you only didn't need the money to begin with, you wouldn't have this problem.

I tend to think that society puts up with the likes of United Health Care because it's easier to hand over your money than go to battle.

It is always a temptation to a rich and lazy nation,
To puff and look important and to say:—
“Though we know we should defeat you, we have not the time to meet you.
We will therefore pay you cash to go away.”

And that is called paying the Dane-geld;
But we’ve proved it again and again,
That if once you have paid him the Dane-geld
You never get rid of the Dane.

--Kipling

Joe Monster, 

You've just given me a great example of the problem we have, not just in mortgage lending, but in our societies attitudes toward making money.  A great summary of this attitude comes from the movie "Wall Street" where the main character says that "greed is good."

In the 1980s, we had an insider trading scandal on Wall Street.  The issue was that many felt that insider trading didn't hurt anyone.  It seemed like a plausible enough argument.  However, since it was illegal, it raised a lot of questions.  After Ivan Boesky was convicted, business schools started offering business ethics courses.  Basically what we learned in these courses was that we have become so seperated from the ultimate consequences of our actions, we don't realize the damage we do with what we think are innocent actions. 

You are taking the position that it is okay to make whatever profit you can get away with.  That is what you think is a free market.  What you don't realize is the long term consequences of that attitude, if you act on it.  It is ultimately destructive to those who overpay, and reduces the freedom of those in the market.  One problem, however, is the question of what is a fair profit, and when is it too much?  I think that is the wrong question many ask. 

It isn't about the money, it is about a larger purpose behind what you are doing.  We are either making business all about the money, or all about making a contribution to society.  Unfortunately, because our schools are not teaching ethics, we fall into the thinking that the more money we make, the better off we are.  That couldn't be further from the truth.

You are sadly mistaken if you think that overcharging a customer is good business.  You do so with an unfair advantage in knowledge of the facts.  If you deprive them of the facts, and let them decide if you are worth paying more, then you are essentially stealing from them.  This is the principle behind the insider trading law.  Trading stocks on information that isn't known publicly is taking an unfair advantage of other traders.  Not that business must be fair, but you must be ethical.  Failure to follow a system of ethics that benefits society as a whole, builds the foundation for that society's ultimate destruction.

That is why you would choose making $8000 on a loan, versus $12,000 on a loan.  And in the long run, you'll make that back many times over because of how you have benefited society (thinking on a macro level).  As an individual, it might not make as much difference, but deciding not to respect ethical principles and do what everyone else is doing will eventually reduce our society to every man for himself.  The formula for death and destruction.  Doing the right thing will make you more allies, and give you an advantage when things come crashing down. (I can personally testify to this.)

You have to think it through to the ultimate consequence of your action.  There are courses on Systems Dynamics at MIT that study this from a more scientific point of view.  A great book on this, that makes it easier to understand is "The Fifth Discipline" by Peter Senge.  The brightest business executives understand these principles, and are ultimately much more successful.

Jim Anderson

The Truth About Credit

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I totally agree that "the highest priority of a business isn't to make a profit, but to survive" and that's why I'm a financial conservative since I don't always expect rain so, when it rains, I collect the water.

under my philosophy, droughts (out of business) are ok as long as I saved water during the rainy season.

of course, if you're "too greedy," your rainy season might be shorter than you expect....

To boldly go...