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The dirty little secret behind the national mortgage mess CNN, Paula Zahn NowApril 10, 2007 PAULA ZAHN, host PAULA ZAHN, host: This week we're bringing a nationwide financial crisis out in the open. Tonight, the dirty little secret behind the national mortgage mess.Unidentified Man #1 (Speaking at Conference): It takes more training to become a hairdresser than it does to become a mortgage broker. ZAHN: Wow. Next, our series Debtor Nation reveals why some mortgage brokers may not have your best interests at heart, and why they might also not have any training at all. Also, should politicians avoid Imus' show? Send a text message to CNNTV. Text message PZYES, PZNO. We'll have the vote for you a little bit later on.
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ZAHN: Today, one of the biggest homebuilders in the
country says the number of new homes that sold in the last
three months was down nearly 40 percent. It's another sign
of bad times in the housing market, mostly because of the
meltdown in the market for loans to people who have poor
credit.
(Commercial Break) * * * Well, all week long we're bringing out in the open the secret struggle millions of Americans face with crushing debt. And in tonight's biz break, we continue our series Debtor Nation with a look inside an industry you may never have heard of--now taking a lot of the blame for the number of people losing their homes. Personal finance editor Gerri Willis joins me now from Greeley, Colorado, which was among the hardest-hit towns by the nation's foreclosures crisis last year. Gerri, it's really sad when you look at all these people getting wiped out. GERRI WILLIS reporting: Paula, you know, right here in Greeley, Colorado, in February alone the foreclosure rate was one in every 200 homes, so the problem here very big indeed. In fact, when you're buying a house, you use a lot of professionals along the way to guide you through the process. It's very complicated. And certainly, you have to be aware of these people. It is buyer beware when you're buying a home, because not all of these professionals have your best interests at heart. Mr. BOB MOULTON (American Mortgage Group): We're going to (unintelligible) we've got the lowest costs. WILLIS: Chances are, it's the biggest purchase of your life. And it's overwhelming. Not only do you have to worry about finding the right house, but you have to figure out how you will pay for it, how you'll find the right loan. Who's there to help? Increasingly, it's a mortgage broker. They now act as middlemen for more than half of all new mortgages. But are they looking our for your best interests? Bob Moulton has been a mortgage broker for nearly 20 years. He says they provide a vital service, helping consumers sort through the web of confusing loan options out there. Mr. MOULTON: There's 300 products that are available out there, from auction ARMs to interest only to a myriad of adjustable rates, and then to your traditional fixed rate mortgage. WILLIS: But federal officials and consumer groups say mortgage brokers are largely responsible for the record foreclosures across the country, and the near collapse of the subprime mortgage market. They say brokers put borrowers in loans they don't understand or can't afford. One of the biggest recurring complaints about brokers: minimal or no training standards. Unidentified Man #1: There are roughly 44,000 licensed mortgage brokers in the United States. Mortgage brokers are typically required to obtain a state license, but frequently there are no testing or educational requirements as part of that process. WILLIS: Each state has different requirements for a license. Some states are beefing up their standards, like New York, which recently passed requirements saying brokers must attend 18 hours of training. But many states still have few or no standards. Unidentified Man #2: It takes more training to become a hairdresser than it does to become a mortgage broker. It is one of the least regulated professions in the country. WILLIS: Another worry? How brokers get paid. Unidentified Woman #1: When people go to a mortgage broker, they believe that the broker is helping them find the best possible loan. That's not necessarily true. And I think the real problem is the system of compensation, the fact that they are paid extra for higher interest loans, and the borrower doesn't know that. WILLIS: Brokers have no legal responsibility to make sure buyers can afford their loan, or that they're getting the best loan. Lawmakers in Washington are pushing for standards that would require brokers and lenders to give borrowers the best loan for their financial situation. Some brokers do agree that stricter licensing requirements and changes in how brokers are paid will make getting a loan safer. Mr. MOULTON: There are 95 percent--maybe even higher--of good loan officers in this country. And the unfortunate thing is there's a small lot that's creating a bad image for a big group of people. WILLIS: Well, to protect yourself, Paula, you've absolutely got to shop around. Get quotes from three lenders. You don't even have to go to a mortgage broker. You can go directly to the lender. Get names from friends and family, people you trust, of both mortgage brokers and mortgage lenders. It's up to you to educate yourself. If you get loan terms through a mortgage broker or a lender that you don't understand and they won't explain it to you, don't sign the paperwork. They've got to explain it to your satisfaction to get the right loan. Paula. ZAHN: We're listening to you. You always have great advice. WILLIS: My pleasure. ZAHN: Gerri Willis, good work with that wind machine going on out there tonight.
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