he mortgage crisis sparked numerous regulatory
changes that addressed actual and perceived
causes of the crisis. The effectiveness of these changes
varied widely. Some have helped, while others actually
hurt lending. We have not seen reforms to one part of
the system, however — reforms that actually would
have prevented the crisis. All attempts to hit that
particular target have failed. >>
Did
By William P. Matz
Attorney and broker
MISS the Mark? MISS the Mark?
Did
MORTGAGE
REF O RM
MORTGAGE
REF O RM
T
Focusing on loans instead of education
and responsibility did not fix the problem
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temporarily withdrawn that proposal to study in light
of broader changes to financial regulation, if advisers
on plans with as little as $10,000 to $20,000 should
have a fiduciary duty, should not loan originators —
where the typical loan size is more than $300,000 —
be held to the same standard?
Education without a fiduciary duty is as ineffective
as a fiduciary duty without financial education requirements. Too often during the bubble, California
brokers — who had a fiduciary duty — put borrowers
into inappropriate programs without even realizing
it because of their lack of financial education. For
origination reform to be truly effective, substantive
financial education and training requirements must
be coupled with a fiduciary-duty standard — and this
dual requirement must apply to all loan originators.
n n n
The limited focus presented here should not in any
way be construed as minimizing the magnitude of
misconduct elsewhere in the mortgage system — in
loan documentation, marketing, underwriting and
securitization — which contributed to the housing
crisis. Rather, the point has been to assert that had
borrowers been advised by educated fiduciaries, most
of the inappropriate borrower-loan matches — and
resulting defaults — would never have occurred. Thus
origination reform is the single-biggest step we can
take to prevent another mortgage crisis. n
Although mortgage brokers must obtain licenses
in all states, the prerequisite training does not cover
matching loan products with borrowers’ financial
plans. It is more about mortgage laws and compliance.
The Nationwide Multistate Licensing System and Registry added testing and continuing education requirements, but those deal almost exclusively with the
technicalities of loan programs and processing, and
bank loan officers remain exempt.
There are no requirements that originators learn
even the basics in areas such as accounting, taxes,
estate planning, financial planning or insurance.
Unless originators obtain their own financial education, their usefulness to the financial-planning team is
greatly reduced.
No amount of education will help, however, if originators do not have the obligation to apply their expertise
for the benefit of borrowers. That is why we also need
a fiduciary-duty standard for all loan originators. While
that standard already applies to some originators, such
as brokers in California, loan officers remain exempt.
Even though borrowers may think they are being
professionally advised by their originators, most of
these mortgage professionals have no duty — let
alone a fiduciary one — to their borrowers. Most
originators remain free to sell whatever loan will
generate the largest commission.
Significantly, the U.S. Department of Labor recently
published a proposed new requirement that advis-
Even though a home mortgage is the single-largest
financial transaction most Americans make, loan orig-
inators still have no financial education or training
requirements. Thus, few originators can speak know-
ingly to borrowers or other financial professionals
about what loan programs and options best fit a bor-
rower’s financial plans.
