In a comment on a recent post, I shared with David Shafer the “revulsion that an ignorant, greedy originator causes.” The Great and Powerful Oz – one of the sharpest minds in lending… actually just one of the sharpest minds period - called me on it and asked if I might define “greedy originator”. Never one to back down from a challenge, I decided to give it a try… but in a post. I want to hear what the ‘hounds on the street’ think.
The primary purpose of any business is to maximize profits. To quote the great Gordon Gecko: “Greed is good.” But I believe “greedy” – especially when used in a pejorative sense as I am doing here – defines someone who has crossed an ethical line in service of that greed. Lies of commission and omission are obvious examples of such a breach. More common and more directly related to my comment, however, is the originator who chooses an inappropriate product for their client because the profit in that product is greater than the appropriate recommendation.
I do not believe (as I once did) that there is a fiduciary obligation between originator and borrower. An originator is not working as an agent on behalf of a client the way a real estate agent does. An originator is in the retail business. Some originators are in the Kmart retail business (a market for clients who want very little service – simply shelves of loans to choose from) and some are in the diamond store retail business. I argue that a great many, if not most, originators see themselves as the latter. In which case, the borrower is paying the originator, at least to some degree, for their advice. There is an expectation and perception (usually encouraged if not advertised) that the originator is helping the client to choose an appropriate financial tool. Maximizing your profits in that process is just plain financially sound business practice. But suggesting a product that may not be among the best options – or in some cases is demonstratably a bad option – solely because the profit is greater… that is crossing an ethical line and earns that originator the label of greedy to say the least.
Filed under: LENDERS
