Pages

Sunday, September 14, 2008

THE RIGHT THING: THE FINANCIAL COMPANY YOU KEEP

I shouldn't have been surprised, really, when the letter came in the mail.

We had spent weeks in a mortgage-approval process, during which the financial institution had scrupulously examined various aspects of our financial wherewithal.

It was a painstaking and occasionally annoying process -- my wife gleefully learned, for example, that she has a credit score 30 points higher than my own. But the institution had a reputation for being rigorous in its due diligence about prospective borrowers. For instance, the day before closing it called the college where I teach to confirm that I hadn't been let go since the last time it had called ... two weeks earlier.

We were pleased to be doing business with a company that not only gave us a decent rate, but also had managed to stay above the fray in the recent subprime-mortgage crisis, which had come about in large part due to some institutions making loans to people whom they knew weren't likely to be able to afford their monthly payments.

But then, shortly before our first mortgage payment was due, we received a letter informing us that our mortgage had been sold to another lender. We knew that this was a possibility, of course, since it had happened to us in our prior home-ownership experience. But this time the mortgage was sold to Countrywide Home Loans, an institution that had been caught up in the subprime mess.

We learned this in late August, which is when we also learned that Indiana had joined four other states in suing Countrywide for its lending practices. When Connecticut announced that it was suing Countrywide earlier in August, its complaint said that Countrywide's lending practices were "oppressive, unethical, immoral and unscrupulous."

Given the choice, my wife and I would not choose to do business with an institution that has a reputation for any one of these things, let alone all four. But our original lender was perfectly within its legal rights to sell our mortgage to another lender.

"This is another collision of ethics and reality," says Steve Rhode, the founder of The Ethical Banker, a Web site focusing on ethics in financial services. "From a consumer point of view it is wrong, and I think a consumer could demonstrate that they have been harmed to be sold to a lower-quality lender."

He also points out, however, that any effort to undo the sale would be a costly legal battle in which the consumer would be significantly outgunned.

If we wanted to, we could try to refinance our mortgage with another lender, absorbing a higher interest rate and more closing costs. Even then, however, doing so couldn't ensure that the new lender wouldn't turn around and sell us right back to Countrywide.

"It's dishonest for an institution to advertise `We're here for you' when really you're nothing but an asset that can be bought and sold," says John Waggoner, author of Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments. "Expecting kindness from your mortgage lender is like expecting kindness from a soft-shell crab."

So what's the right thing for us, or other consumers in similar situations, to do?

There's some solace in knowing that Countrywide is under new ownership, having been purchased by Bank of America in July. There's also comfort in knowing that the scrutiny under which Countrywide now finds itself is likely to keep it from behaving as questionably as it allegedly did in the past.

This doesn't eradicate the past behavior, of course. And it's unconscionable that consumers don't have more say in choosing the lenders with whom they ultimately do business.

But if Countrywide is forced to clean up its own house, perhaps we can live with having it finance ours.

c.2008 The New York Times Syndicate (Distributed by The New York Times Syndicate)

4 comments:

Anonymous said...

As long as you had no direct business with Countrywide, you have nothing to worry about. After you negotiate your mortgage and settle down and start making payments, it really doesn't matter who holds your mortgage.

I refinanced thru my credit union years ago and all I know is that they're collecting the mortgage payments and forwarding them to some other unknown company.

There are nine homes on my nine house cul de sac and two have been foreclosed. According to the notice posted on the front window of one, it is now owned by the Deutsch Bank, a German company not in the business of making home loans in America.

If a problem arises with your loan, you sue the original mortgage company as that's who your contract is with.

Burl

Mark Tarshis said...

Jeff,

I wrote you a scathing letter after reading your "post" as edited and presented by some Ohio paper. However your COMPLETE post here is more fair.

After being the business for twenty years (mortgage banking) I can honestly say that loan servicing is really a non-issue.

if you want more control over that factor of the transaction, then you need to walk into a Chase or (God forbid) Citi branch and request one their portfolio products what won't get transferred. I guarantee you that you will pay a much higher rate and fees for that loan.

I suggest you investigate the true implications of loan servicing and report that.

The bigger picture is the greed of all involved in the industry that led to it's own demise. And I mean ALL- from the borrower, to the broker, to the real estate agent, to the escrow officer, from the CEO, to the girl answering the phone. This was a gold rush for many years and many got in to make a quick buck.

I got sucked in and held down with golden handcuffs and I am happy to say that I'm off for friendlier pastures.

I would love hear a follow up from you and your wife regarding what you learned about loan servicing and how it will really hurt you- or not so much...

Sincerely,

Mark Tarshis

Anonymous said...

A note to these borrowers.
The couple in your article who feel they have been turned over to an unethical lender. It appears that thry applied for a loan either through a broker or a correspondent lender. In other words they locked your loan prior to you signing your loan documents,hopefully, with the most competitive lender on that lock day, in this case with Countrywide/BofA. Look at your loan documents, probably, Countrywide is mentioned in them.

You should have shared your opinions with your lender when they locked the loan. If you had, they could have sold your loan to anyone you preferred. I hope the loan went to Countrywide for your benefit. Interesting opinion though, over the years I have had many borrowers that request Countrywide primarily for their superior loan customer service.

Get over the point that you've been slighted, it doesn't sound like a borrower that has experience, which is the real problem.

Bill Smith
Mission Viejo, Ca

MT said...

Bill,

For the most part I agree with you- however the originating broker only has control over the initial sale- after that it can be sold to anyone, including CW.

As for experience for the borrowers, it it such a whole new world, not even the most experienced broker knows what's going on.

Lesson learned: caveat emptor. Borrowers should do their homework before choosing a broker and getting more than one opinion. Trust and knowlege are your friends- going for the lowest rate will hurt you. You should trust that whoever you work with will give you the lowest- FAIREST rate, and yet provide you the service you need.

'nuf said.