Share Your Story: Will Qualified Mortgages End Banks’ Risky Practices?

By Nancy Wilberg Ricks, Senior Policy Communications Strategist, Wealth-Building Policy Project

HFG_LOGO-FullColor-horiz 6 4 12Many read recovery on Wall Street as a sign that all families will benefit from the same relief.  This is an inaccurate interpretation.  Many Latinos and other Americans continue to fight unfair housing practices and a disproportionate number of foreclosures.  The real estate market is picking up but that’s often due to investors swooping in and paying cash for multiple units, turning homeowner neighborhoods into rental communities.  While there are signs of hit-or-miss recovery, decision makers have begun comprehensive efforts to quell lenders’ bad practices, and we’re keeping track of your thoughts on the matter.

On our Home for Good website, we track submissions from ordinary Americans affected by the foreclosure crisis through the Share Your Housing Story page.  We frequently receive submissions from former homeowners who suffered unnecessary foreclosures and job losses.  On occasion, we hear from market players who share their perspective from the inside and how their discomfort led them to leave behind their job or the industry as a whole.  Today’s story highlights widespread, harmful behavior by lenders and how preventive efforts must be taken to turn the economy around for honest lenders and families alike. 

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Photo: Jeffrey Turner
Photo: Jeffrey Turner

Alan Gomez worked as a notary before the recession, trying to make some extra money notarizing documents part-time for mortgage companies while also working in real estate. Although he wasn’t actively trying to harm anyone, he came to realize he inadvertently became part of the problem through his role in the foreclosure process.

Read his story after the jump:

Alan Gomez
Peoria, AZ

Prior to the recession, I was a part-time notary and also doing real estate sales. The notary work provided me a source of part-time funds by notarizing documents for mortgage companies that had done refinance loans.

I noticed after several closings that I would present the paperwork to be signed and the people would be disappointed and then into tears and frustration because the lender had kept saying that they would get a low interest rate, but the mortgage company would drag out the application process for 3–4 months also telling the client that it would be at the end of the month and then delay the closing.  They would also tell them that the lender would close by the end of the month and not to make the monthly payment.

What they were doing is forcing people with excellent or good credit into a bad credit rating and then forcing them to pay a larger discount fee and a higher interest rate.

I reported the situation to the escrow/title company but they did not seem to care as they were getting the title fee and escrow fee.  Also the mortgage company called me and was mad at me for explaining the documents and pointing out the high interest rates, monthly payment, and discount points were not what the client was told and expecting.

I did not want to hurt my reputation so I quit as a notary and gave up the business.  I guess there was a lot of this going on in the industry at the time.

Even after realizing what he was doing was ultimately hurting honest homeowners trying to refinance their homes, he felt powerless to stop it and was ignored by the title company. This runaround from mortgage companies which Alan discovered was happening is called dual tracking.

With dual tracking, mortgage companies encourage homeowners to fill out applications for mortgage refinancing while simultaneously initiating foreclosures against the homeowners, often without their knowledge.  After working hard to submit and resubmit documents to the mortgage lender, the company denies their request and serves them with a foreclosure notice instead.

CFPB_LogoEarlier this year, the Consumer Financial and Protection Bureau (CFPB) issued new regulations to not only halt dual tracking, but to prevent poor underwriting from occurring at the outset.  The CFPB accomplished this by issuing the definition of the Qualified Mortgage rule.  These mortgages hold high standards and preserve borrowers from risky or toxic loan terms that have proven to carry a high risk of default.

Under the new rule, those applying for a qualified mortgage would have to prove their ability to pay and not have their debt exceed 43 percent of their income.  In return, lenders cannot charge points and fees amounting to more than 3 percent of a mortgage’s value.  Mortgages cannot exceed 30 years and the rate must be fixed.  For borrowers who cannot meet the debt-to-income standard or have weak credit, another type of qualified mortgage with “rebuttable presumption” will be made available.

Though the foreclosure crisis is not over, it’s important to remember that comprehensive fixes are in the works and on the horizon.  It’s also promising to see that even during the worst of it, people such as Alan Gomez were willing to recognize dubious activity and stand up for honesty in the market.  These newest regulations—from an agency that fought hard to protect consumers—are systemic improvements that set in motion a healthier economy.

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