News from the Mortgage Industry
SOUTH SHORE INSIDER - TOP DEFENDER: Mortgage group president says ‘perfect storm’ led to lending crises
By A.J. BAUER
The Patriot Ledger
HANOVER - In his first speech as president of the Massachusetts Mortgage Association last month, Alain Valles donned an Army helmet - a fitting, if hyperbolic, gesture given the fire his industry is under in the midst of the subprime mortgage crisis.
Alain Valles, president of Direct Finance Corp. of Hanover, was recently elected president of the Massachusetts Mortgage Association. (GARY HIGGINS/The Patriot Ledger)
While Valles, who is founder and president of Direct Finance Corp. in Hanover, said he and his colleagues in the mortgage brokerage industry have carried a disproportionately high share of the blame for the mortgage debacle, he said the MMA is doing its part to prevent future crises.
Part of that effort is his group’s support of new regulations - signed into law on Nov. 30 by Gov. Deval Patrick - that would increase oversight over the state’s mortgage lenders. Valles said he hopes the new law will help weed out some of the ‘‘bad apples’’ in his industry while the mortgage association works to build its membership and get more lenders under one code of conduct.
But the 46-year-old Hanover resident admitted the crisis wasn’t caused in a day and the public’s perception of his industry probably won’t rebound quickly.
How has the subprime crisis affected public perception of your industry?
It is the result of many different actions coming together - it’s almost like that perfect storm. ... You have Uncle Sam saying, ‘We want home ownership,’ we have Wall Street saying ‘Here’s cheap money’ and you have the homeowners beginning to accept risks that they shouldn’t have accepted. So now what happens is there’s a day of reckoning, where it all implodes and everyone would like to point to one cause, but unfortunately I don’t think there’s ever going to be one cause to this disaster - and it is a disaster.
Do you think small mortgage companies, like yours, have gotten more heat than others involved in this crisis?
I’m going to say yes to that, which is not a surprise to you. We were at a (state) Division of Banks hearing, this is going back about a year when this was starting to get on the front page. And there was a gentleman there who was from western Mass., he was a mortgage owner and ... he said, ‘I’m so-and-so from Western Mass., and I want to present as Exhibit A this box of Q-tips.’ ...And I’m not quoting him properly, but he said, ‘How many people in this room use Q-tips?’ So everyone raises their hands. ‘How many stick them in their ear?’ Like 99 percent (raise their hands). So, of course, he reads the side of the box and said, ‘Warning warning warning, if you stick this in your ear it’ll cause death’ - you know, something extreme. That was his analogy of this whole industry.
What happens is the providers of this money, big banks and Wall Street, are now saying, ‘Jeez, mortgage broker company. These were Q-tips and you weren’t really supposed to use this Q-tip this way.’ ... That’s what they’re saying publicly, but behind the scenes they’re like, ‘This is how you use this program.’
Are you guys the scapegoat here?
We all want to be able to point to somebody. The big banks, the big investors that gave us this money to lend to people they’re not getting as much heat because they’re going to say it’s the mortgage broker - because we sat with that client one-on-one. Now, my interpretation of the Division of Banks’ rules is I’m not allowed to make what is called a ‘‘credit decision.’’ I am not allowed to say whether or not you can get this loan.
As a broker we capture, we gather your information and submit it to the lender, and the underwriter has that power to say ‘‘yea’’ or ‘‘nay.’’ If I told you you can’t get this loan, I’m actually breaking the rules. So it’s interesting how now the pendulum has swung back where we’re supposed to have some fiduciary responsibility, and that’s against the rules as they are today. Now there’s discussion to change those rules, but that isn’t how the rules have been for the past several years. ... There have been bad apples in this industry and that’s why as an association we’ve been saying we should license everyone.
How is the MMA working to change that perception of your part of the industry?
I think you have to start within. So one of the initiatives that I’m looking for board of director approval on is to promote that with the loan officers, get them to join and have them sign on to a code of conduct, get more education. With the loan officer licensing bill coming through, that’s where I think the MMA can be instrumental in providing specific training programs, business ethics, different types of certifications for these people. I think that’s how we have to do it, and then it’s really a grassroots campaign.
A.J. Bauer may be reached at email@example.com .
Copyright 2007 The Patriot Ledger
Transmitted Wednesday, December 12, 2007