Sleazy lenders gaming the system, again...

It appears that some ever-resourceful mortgage lenders are working hard at staying one step ahead of government regulations and gaming the new GFE rules through the use of new and unregulated “worksheets” and “fee estimates”. The reason that the new GFE rules were put into effect was to corral wayward lenders who essentially lied to their clients on the GFE and then surprised them at the last minute (often at the closing table) with new or larger fees. Who hasn’t had that happen?

The problem isn’t with the majority of lenders and their agents; it’s with the sleazebags in that industry (and most of us know who they are locally). Now these sleazy operators have turned to the use of something not specifically mentioned or prohibited by the new GFE rules – so-called worksheets or fee estimates. These are presented as not being officially a GFE (after all that would have to be done under the new rules and possibly subject the sleazebags to penalties later), rather as “close estimates” of the borrower wil end up paying for the loan. Yeah, right!

Of course the regulators have taken note of the new practices and have said that they will look into it and issue new guidance, as needed. Now, I will admit that something is needed or some review of the current rules at least warranted. There does need to be a way for borrowers to get a good, honest ballpark figure from their lender about what it might cost them for a loan. The issue seems to be the “within10%” portion of the new rules. Lenders claim that they don’t always have enough information about the eventual deal to make GFE’s within the 10% allowed by the rules. That relatively narrow allowed leeway, along with the required timetable rules about changing GFE’s before closing is what the lender claim are the main issues with the new rules.

The real issue may well be that there is no reasonable enforcement mechanism for more flexible rules. If HUD had the ability to review each case for abuse or violations BEFORE each closing, then they might be able to write more flexible rules. They don’t have the manpower for that, so they have to write onerous rules for everyone, just to try to deter the few sleazebags in the business. The industry has unfortunately also shown HUD time and time again that it cannot police itself. Greed is apparently too strong of an influence and easily overcomes honesty in the sleazy operators. We shall see if the new laws requiring lender agent licensing has any effect. A few de-licensed sleazy lenders hanging from the yard arms might work wonders.