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.
Gary Frimann says:
Good post. I would argue, however that one has a duty to advise and consent which would place them in the role of an agent, hence the Laws of Agency would kick in.
I used to be in the loan business. I have seen some greedy agents, some very greedy agents, and some ethical ones. The best motto to live by, I think, is that your “Task” is to get them a good loan so that they can get into a home, your “Job” is to have a client for life. I think what most agents do not realize is that people talk, to neighbors, around the water cooler, to relatives, and that a referral is the greatest, strongest, cheapest form of advertising out there.
Just my $.02…
July 16, 2008 — 10:23 am
Bawldguy Talking says:
Sean — The word greed itself has been bastardized like so many words have. If folks would adhere to the unassailable principle that words mean things, our lives would be so much less rancorous.
Self interest in our capitalistic, free enterprise economic system works incredibly well. It becomes greed much of the time when the decision is made to ignore the right thing to do.
It’s hard to be greedy when you’re doing the right thing.
July 16, 2008 — 10:55 am
Sean Purcell says:
Gary – I like your take on “Task” and “Job”. Even if your focus was completely selfish, your objective would be to gain referrals. Nothing beats doing things right.
Don’t agree anymore on the agency issue, but that is really a topic for a different post.
July 16, 2008 — 12:40 pm
Sean Purcell says:
Jeff,
You said it long ago. I have really just made a very wordy post out of your succinct, wise message:
Do the right thing.
July 16, 2008 — 12:43 pm
Chris says:
http://www.youtube.com/watch?v=JaKkuJVy2YA
I love this scene!
July 16, 2008 — 3:18 pm
Sean Purcell says:
Chris,
As we used to say on the trading floor: “With!”
July 16, 2008 — 3:33 pm
Mike Farmer says:
The problem with “greedy” is that it backfires on the “greedy” person, costing them far more than their short-sighted manipulations to squeeze every penny and ignore the best route (not to mention it hurts the clients who are trusting the money-blinded “greedy” person). The best route leads to trust, respect and future business — “greedy” leads to short term gain that is very expensive in the long run.
Like Jeff said, and I’m sure Brian was alluding to, “greed” has been used to denigrate capitalist for being smart enough to make good money — however, I fully understand your distinction with “greedy”.
But, yeah, just do the right thing.
July 16, 2008 — 6:42 pm
Sean Purcell says:
Mike,
The problem with “greedy” is that it backfires on the “greedy” person, costing them far more than their short-sighted manipulations to squeeze every penny and ignore the best route
I have taught this exact sentiment, but from the other perspective. I tell agents and originators: “Even if your motives are purely based on greed, it makes more sense to create a referral client who generates $3000, $5000, $10,000 for you ever couple of years in referrals and repeat business, than it does to make an extra couple of thousand now and lose them for life.
I guess that’s the nice thing about “greedy” people. They are self-selected for failure.
July 16, 2008 — 7:12 pm
Bawldguy Talking says:
Grandma taught me greedy folks find early in life there’s a finite number of people you can treat badly before the jig’s up.
July 16, 2008 — 7:17 pm
Sean Purcell says:
Jeff,
I’m guessing Grandma didn’t treat greedy folks too well either.
July 16, 2008 — 7:37 pm
Bawldguy Talking says:
Sean — Grandma would talk smack about ANYBODY. At about 12 or so, I challenged her on that. I said she couldn’t say anything good about Satan. Without even taking a breath, she replied, “He does an outstanding job.”
Hang head, leave room defeated — again. 🙂
July 16, 2008 — 7:43 pm
Bawldguy Talking says:
Uh, would NOT talk smack it shoulda been. Sorry Grandma. 🙂
July 16, 2008 — 7:44 pm
Brian Brady says:
“But suggesting a product that may not be among the best options – or in some cases is demonstrably 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.”
Pretty damned good explanation. I concur.
July 16, 2008 — 8:18 pm