My response to Hillary Clinton's mortgage crackdown

I read Hillary Clinton's blog today about what she wants to do to "crackdown" on the mortgage industry for causing all of the new foreclosures.  While I agree that the mortgage industry has some problems and I don't believe government will solve them.  I wanted you to see my response to her.

Hillary's comments from her blog are below (in blue) and my response follows.

Crack Down on Unscrupulous Brokers:

• Require mortgage brokers to disclose to borrowers that their compensation rises when borrowers' mortgage rates and mortgage fees are high. 
  

• Work with states to develop strong licensing standards and require federal registration for mortgage brokers. 
  

Crack Down on Mortgage Lending Abuses:

• Eliminate prepayment penalties on mortgage products. 
  

• Require mortgage lenders to include the cost of taxes and insurance in the underwriting assessment of higher-risk mortgages. 
  

Help Reduce Foreclosures:

• Establish a $1 billion fund to assist state programs that help at-risk borrowers avoid foreclosure. 
  

• Expand Fannie Mae's and Freddie Mac's Foreclosure Prevention Efforts. Hillary would expand the goals of Fannie and Freddie, the government sponsored enterprises (GSEs) that help stabilize the mortgage markets, to include helping a larger number of at-risk homeowners avoid foreclosure. 
  

Expand Affordable Housing:

• Establish a $1 billion fund to provide federal support to housing trust funds established by state, county, and municipal governments. 
  

My Response:

First, I want to say that I have been in the mortgage business for 15 years.  I teach people about their money and have written a book for "Working America" titled, The Money Thing Made Easy.  I have seen thousands of people’s finances and I have documented many commonalities in both those that handle their money well and those that don't.  The mortgage problems we are facing now are completely centered on those that don't handle their money well.  I don't want to say that it is not their fault because I am a proponent of personal responsibility.  However, there is no place for people to go to in order to learn how to handle their money.  People are on their own and they have to be taught that.

The banks will only help you if you want to borrow money and the investment people only help people that already have money.  So who teaches "Working America"?  I contend that the mortgage industry is the prime place where this education could take place.  At this point, that cannot happen because many of the people in the mortgage industry don't understand money themselves and they are giving advice to people who are borrowing huge amounts of money. 

While people need to be proactive in seeking good advice when they are borrowing money, many borrowers are seeking advice from unqualified mortgage people.  You probably would not hire an obese person to help you get your body in shape, you would not hire someone who cannot read to tutor your children, yet many people are turning to people who do not handle their own money well to get advice on a mortgage.  These people have proven that they are not yet ready to offer advice on mortgages and finance.  The sub-prime meltdown is proof.

Sub-prime loans are made available for people who have had credit issues.  The goal of a sub-prime loan is to allow people to get into a house, and then take that two-year time frame with a fixed rate of interest to fix the problems that got them there in the first place.  The people that I have seen that have or are losing their homes, they didn't do anything to fix the problem and on top of that, they did not seek help when the problem started to get worse.  What I mean by that is that if people would just seek help immediately when they start to get behind, most of those people would have kept their homes.  It is the inactivity in the early stages that is usually caused by embarrassment or the lack of a good source of information on what to do.  Good mortgage people can help.  Inexperienced, unqualified or those that just don't care, are not a good source for people to turn to when things get tight.

In terms of your ideas on solving the problem, here are my comments:

1. Requiring brokers to disclose every penny they make is neither a good nor a bad idea.  For example, If you need a truck and you get a great deal on a motorcycle, what have you really accomplished?  You still did not get what you needed.  If the consumer focuses on the lowest price, the consumer will probably get hurt in the end.  The issue that most people should focus on is strategy and product, not the lowest price.

2. If we are going to focus on licensing standards, don't focus all of the standards for mortgage people on how much they know about regulations and products.  While that would be an important part of any future standards.  I believe that mortgage people need to be financially solvent personally.  This does not mean that they should be wealthy, but they should be on stable ground financially.  I would never want anyone I know to go to a mortgage person with bad credit.  If, for example they are in bankruptcy themselves, they should not be allowed to practice on the public.

3.  Prepayment penalties are not always bad.  If you eliminate prepayment penalties, rates and fees will go up.  Due to the costs of providing loans, lenders need to keep loans on their books for a period of time in order to break even.  If they don't know that they are going to be able to keep them long enough, they will simply charge more upfront in rates and fees.  This really won't help.

4.  The issue of taxes and insurance included in the payment calculations is incorrect.  In every case, when the borrower is evaluated for affordability, taxes and insurance and even flood insurance is included in the calculation.  The problem lies in the scenario where the lender does not collect those fees in the monthly payment.   People get behind because they do not budget well or they just don't take care of it.  I want to say again, all lenders already calculate the cost of taxes and insurance in the affordability ratios when underwriting a loan.  Unpaid taxes and insurance can affect the collateral for the loan. 

5. Throwing money at the problem will only help this immediate situation with people in trouble today.  If you want to help people avoid this scenario completely.  Spend money teaching people how to handle money.  What they are in for in the future and what steps they can take to be responsible.  Usually government does not spend money on these types of programs because it preaches personal responsibility. 

I realize that I have ranted on at length here but this is a topic that I have devoted my life to.  I want to teach "Working America" that they have to do things differently and with a good plan and some time they can succeed.  This mortgage issue is the symptom of the larger problem, it is not the problem itself.

Comments

[Matina]

I too believe in personal responsibility and so I feel conflicted about the government helping to bail people out who have made bad decisions. You are absolutely right in saying that money would be better spent on education. I took me many years to figure out how to budget my finances and I'm still learning! I wish I had learned years ago.

[Howard Bono]

Matina,

Thanks for the support. I am on a mission to help people understand that with a few simple changes, anyone can redirect their entire financial lives.

I am doing a free workshop at the History of Flight Museum at Paine Field in Everett on October 16th. I want to invite you to come and bring any of your friends and clients that might benefit from this talk.

I will tell you the secrets of
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3. What the highest paid people in the world do that everyone should do.

This workshop will be from 6:30-8:30PM and we expect this will be the last free workshop that we do for the public. In the past we have only made them available to our client and on a referral basis.

I hope you can make it. We expect a full house, so please call and register at 425-252-1121.

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