What makes a mortgage company “evil”?

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Since my post on “Mortgage Bloggers Under Attack” there has been a lot of back-and-forth about a mortgage company whose CEO posted a response in the comments. You can read through the comments here. The comments basically revolve around alleged improprieties or problems within the company and issues that the employees had with management. It seems to be a common refrain. Many former employees from mortgage companies that are now closedÂ have spoken up about problems – this instance here is in no way unique. All of these comments lead me to ask this question: “What makes a mortgage company evil?”

What is it that makes all of these mortgage companies evil in the eyes of their former employees? Is it:

Fraudulent activity witnessed
Coercion in to acts of fraud or malfeasance
Forgery or falsification of documents
Taking advantage of customers
Lack of leadership or incompetence
Negligence
Lack of compensation upon termination
Sour grapes from being fired
Lavish or extravagant spending by ownership
Lack of personal responsibility by leadership
All of the above
Something else?

Obviously some of these things are transgressions of the law while others are a symptom of weak ethics by the leadership; they run the gamut of offenses. But what about the following, do these activities make the company evil?

Using stated income loans
Using no documentation loans
Selling pay-option (neg am) ARMs
Selling subprime mortgages
Refinancing clients on multiple occasions

Do these activities make a mortgage company evil? Do using mortgage products that people want and that banks provide make the company evil?

Let’s consider the first list. Obviously serial cases of fraud and executive coercion in to shady business practices make a company a ringer for the evil tag. But what about a company that suffers from the fraudulent activities of its employee (or employees)? Does this qualify them as evil? I would argue that the act alone doesn’t make them evil. All companies in all industries deal with ethical issues and legal breaches by employees. The fact that consumers are harmed is a horrible thing; especially when dealing with their homes and a large debt-burden. But the fact remains that in every industry there are cons, thieves and unethical people.

I believe that a case of fraud against a company or a case of unethical business practice against a company is not enough to label a company evil. I believe that the evil designation can only be achieved if the following apply:

The company promotes or turns a blind-eye to fraud and unethical business practices
The company refuses to take corrective actions to address problems
The company uses unethical or misleading marketing/advertising
The company promotes or turns a blind-eye to high pressure sales tactics
The company exhibits gross negligence in allowing any of the above to occur

The common theme here is that the company doesn’t take corrective action to a known problem. All companies suffer from problems of fraud and employee misconduct; it is the company’s response to the problem that determines whether the company is truly acting in the best interest of its customers and is making a good faith effort to comply with the law and engage in ethical business practices.

While I agree with the employees who have spoken out in the numerous cases online; I believe that it is important to truly distinguish what makes a mortgage company evil. Some people seem to think that simply by being involved in the mortgage industry you earn the evil tag. I think this is an unfair (if unfortunately, highly accurate) generalization. Many mortgage companies are horrible – most of this blog is dedicated to just that. However, many mortgage companies that are trying to do a good job have customers that feel cheated. There is a big difference between a company trying to provide good service and products and one that is serially ripping people off and acting outside the law. It is important to note this difference.

What about company leadership, does that make a company evil?Â I think again, it depends.Â If leadership doesn’t care about fraud or customers being ripped off then obviously they get the evil stamp.Â However, if they are trying to address problems and work within the rules of law and good business practices then I believe they have to be given the benefit of the doubt – even if they are victims of unsavory employees.Â It comes down to the actions they choose to take to prevent and correct problems.

Now let’s talk about the second list.Â Does a mortgage company that uses mortgage products such as stated income loans qualify as evil?Â Does a mortgage company that sells well-disclosed and explained pay-option (neg am) ARMs qualify as evil?Â Does a company that refinances the same customer several times at the customer’s request qualify as evil?Â And what about subprime loans?

It seems that many of the complaints about companies center around these types of issues.Â I don’t know if these make a company evil.Â If offering a stated income loan is evil than everyone in the mortgage food-chain is guilty of evil.Â From the investors that agree to buy stated income loans to the banks that offer them and promote them to the brokers that sell them to the public.Â If a stated income loan is inherently evil than the industry is branded.Â Same goes for pay-option loans.

Same goes for subprime loans.Â If subprime loans are being forced on prime borrowers to earn more yield spread premium or volume incentives than the company gets an evil stamp.Â If the company offers subprime loans to subprime borrowers I don’t believe they qualify as an evil company.

I believe that the “evil” in these instances come from the use of these products in inappropriate ways.Â Selling a pay-option loan to an 80-year old retiree on a fixed income could qualify as evil.Â Helping someone like Casey Serin buy a ton of properties on stated income loans is definitely grounds for getting the evil tag.

So what do you think?Â What makes a mortgage company evil?