New federal law requires states to have licensing laws for loan originators or they will fall under a HUD back-up system. Hawaii introduced a new state law to take effect July 2010 (Senate Bill 1218, SD2, Act 32). It exempts Bank employees but covers almost everyone else. A nice thought but a long way from what is needed.
In my opinion anyone who originates a loan in the state of Hawaii should have to be licensed by the state; banks included.
- They should be required to complete an education process, pass a test and have continuing education requirements. To have a license they need to demonstrate at least a basic understanding of the process and laws.
- They should be held to a standard of honesty. No deceiving business practices allowed.
- Bank employees should be held to the same standards. Even though they are federally regulated, consumers should have local recourse.
- Mainland lenders should have a loan officer or a broker with a state license and knowledge of our state laws. When a consumer signs a contract, someone should be there to explain it that is knowledgeable and accountable.
I have seen way too many dishonest and incompetent loan officers out there. It is like the wild west when you try to get a mortgage and that should no longer be tolerated.
I think a great starting point would be to hold mortgage loan officers to the same standards as real estate agents. When a consumer has a problem with a real estate agent, they have several local courses of action they can take.
- The local Board of REALTORS® has a few avenues if the agent is a member of the Board.
- Professional standards complaint.
- Ombudsman service
- The state of Hawaii has a few more avenues through the Department of Commerce and Consumer Affairs.
- You also have the court system.
Real estate agents are required to have a basic knowledge of the process and laws before they are even eligible to get a license. Loan officers have no education requirements in the state of Hawaii. Many working at the banks or out of state lenders do not even need a license. In many cases loan officers exercise dishonest practices while breaking no laws, leaving the public little or no recourse. Our state license law for real estate agents on the other hand has specific language about honesty and disclosure. When a more egregious instance with a bank loan officer happens, the consumer needs to file a federal complaint. Wow that will slow you down.
Here are a couple of the practices I see on a regular basis that if something similar was done by a real estate agent, a consumer would be able to go after them locally. In fact our own industry through the Board of REALTORS® would assist the consumer.
- Bait and switching. Offer a ridiculously low interest rate to secure the client. Then at the last minute when they do not have enough time to shop elsewhere stick them with a much more expensive loan. (Higher interest, bigger down payment, much higher closing costs, and pre-payment penalties). This practice is commonly used to steal clients from other lenders and brokers.
- Bogus loan approval letters.
- Issuing a loan approval letter to a buyer that is not credit worthy. The seller is then tricked into removing their home from the market. The seller incurs costs such as surveys, termite inspections, repairs, carrying cost (mortgage payments, utilities, insurance, taxes, association fess, etc.) and escrow fees. The buyer pays lender fees, appraisal and home inspection costs. The buyer and seller have also made moving plans. I have seen a few examples where the seller moved, sometimes out of state. The loan officer then shops around trying to find someone to take this loan. If they are successful they hit the buyer with any or all the things listed in item #1. If they fail the loan officer walks away and leaves the buyer and seller devastated. In a couple of cases I have seen, the buyer now is without a home and has to scramble to keep from being on the street..
- Placing consumers in less than attractive loan programs. Taking a client with excellent credit and placing them in a loan product that has higher closing costs and pre-payment penalties, because it is more profitable for the lender or the loan officer.
- The one that makes me sick is where they take a buyer who is VA eligible and tell them they either do not qualify for a VA or they have a better program and put them in a very expensive product with hard per-payment penalties. If the buyer is active duty and gets deployed or transferred, they are stuck! I saw a case where they were hit with big pre-payment penalties on two ARM mortgages that the rates were climbing and they have no way of making the payments. (The original interest rate and closing costs were much higher than they could have gotten from a local bank on a VA loan at the time). Nice way to treat someone defending our country!
- Having buyers falsify loan applications, allowing the loan officer to sell them a product they are not qualified to get. (This one is getting some folks put in jail, thank goodness)
I am currently working with a couple of my area state legislators to introduce legislation this next session to begin to tighten these standards. I am sure it will not happen in one session, but we need to start.
Please don't tell about bad real estate agents as a defense for not improving mortgage licensing laws. I have always been an advocate of tougher standards for real estate agents and have written many times about that topic. I feel that if you are going to represent a consumer in the most expensive purchase of their life, you need to be competent, honest and held to the highest standards. In other words you should be a professional.
Randy L. Prothero, REALTOR®
Broker-in-Charge, ABR, AHWD, CRB, CRS, e-PRO, GRI, MRP, SFR
Team Leader - "The Prothero Group"
Randy Prothero is well established as an expert in working with military / VA clients and first time home buyers. His home seller's (listing) campaign is one of the most aggressive marketing programs in the area. His luxury home listings sell faster and for more money.
Based out of Mililani, Hawaii. Randy services the island of Oahu (Honolulu County) Performs mediations and ombudsman services for the Board of Realtors. To improve overall professionalism in his area Randy also offers classes for real estate agents.