Anti-Steering in 2011

Representative Barney Frank, co-architect of t...
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To consumers, obtaining a mortgage must at times seem like a maze replete with booby traps, quick sand, ninjas and mythical monsters all of which are determined to prevent them from reaching the exit.  I’d like to think of Loan Officers as elite mortgage Sherpas, gently guiding consumers through the maze and helping them avoid pitfalls and danger.  Based on recent regulations and laws, it’s clear that the regulators have not always viewed us as such.  Instead, in their eyes we have been a corrupt and selfish group, purposefully leading our charges over a cliff but not before picking their pockets and stealing their wallet. 

I’ve often heard other Loan Officers state that morality is something that cannot be regulated.  I’ve been known to say it myself.  Whether we like it or not it’s impossible to protect consumers from themselves and there will always be situations where Loan Officers and consumers will make poor choices.  Sometimes those choices might be motivated by greed or by fraud or even by sheer stupidity.  Whatever the case, human beings are far from perfect and will not always do what is in their best interest (or their customer’s). 

One of the issues with legislation and regulation is that it tends to be regressive, slow and ill-timed.  In the case of the mortgage industry, the changes we are seeing now are in response to events that in all honesty happened five to six years ago.  To further complicate matters, rules and regulations in place several years ago could have prevented much of the mess we find ourselves in today had they been enforced.  This is one of the biggest frustrations that I have with our overall situation; it’s not a lack of rules that account for the toxic mess that we find ourselves in.  Instead, it’s a matter of enforcement.

The anti-steering provisions of Dodd-Frank are more forward thinking than regulations that we have seen in the past and they are brilliant in their simplicity.  The provision can be summed up quite easily:  given an equal loan amount, the compensation to a Loan Officer for closing a transaction is to be the same regardless of the loan program.  In the new world a Loan Officer has absolutely no incentive to steer a consumer into any one loan product.  And, since the rate of compensation is the same for all programs, the Loan Officer has no motivation other than to find the very best program for the consumer.  Simple.  Brilliant.  And, maybe just this once, this regulation may actually do what it was intended to do. 

Don’t get me wrong – I do see regulations and rules that are created for the purpose of curbing and changing human behavior as being tricky stuff.  To a certain extent, these changes are the equivalent of a lowest common denominator in mathematics – we’re not necessarily seeing the best of behavior but rather the least bad.  It’s early in implementation but this regulation may actually be a winner for consumers and that’s a rare thing.


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