A slew of responses to my post reprinting questions that New York Democratic Senator Chuck Schumer sent Countrywide Chairman and CEO Angelo Mozilo. Most responses centered on why the company doesn't send 1099 forms to independent brokers:
From John A:
Wow, Countrywide's blanket statement "we do not issue 1099's" seems strange. As a legal document service provider that creates corporations, I know a lot of tax law. When business is done between two corporations, the IRS does not require the corporation on the income receiving end to issue a 1099 to its payer... But I bet a lot of those independent brokers are NOT incorporated, so Countrywide would be in violation of IRS rules if it chooses to not 1099 them. In California, as well as probably every other state, a licensed individual mortgage broker cannot be a corporation. Only licensed brokers of a certain type, that employ other licensed brokers as part of a firm, can incorporate that firm.
From Mortgage broker Brian C:
Countrywide not sending out 1099's sounds strange. We definitely receive them every year from all of the lenders including Countrywide. The broker would have an incentive to not want to receive the 1099 if possible to reduce their reported income tax liability.
(He also notes that, in fact, brokers who work for Countrywide often make more on loans than independent brokers because they don't have to disclose their "yield spread premiums,"--YSPs--aka "commissions"): I've even had recruiters from Countrywide say, Brian - come work with us so that you don't have to disclose your YSP! Its a rocky road ahead.
There is only one reason why 1099s would not be sent. You want to keep the broker as your friend. When the broker knows that Countrywide will not issue a 1099 for the commissions he's earned where do you think his business will be placed? It's money under the table to the broker. I would love to see the documentation to support the decision not to send 1099s. I've dealt with this area for 20 years and cannot think of one compelling argument to support it. The fines by the way will not be small change.
From Ralph in Chicago:
Regarding Schumer's letter to Countrywide, don't forget that Congress berated the banks and mortgage lenders for not doing enough lending to the lower credit quality applicants -- especially minorities. Why isn't Congress defending the lax rules that they encouraged?
I can not agree more with your article on Countrywide. The sad thing is they are not alone, you only have to look to the West Coast to see the same and worse behavior from WAMU. Not only are they putting people in the wrong mortgage product they really come down hard on their customers for being a few days late.
From Mike M:
I can generate PROOF that brokers are the low cost option, and, oh, by the way, we make money for doing loans. Why is it a bad thing that brokers make money for closing a loan that was better then all the banks? Will Sen. Schumer sue the banks for offering a rate of interest that is higher then mortgage brokers????????
From Todd and Melissa M:
We all know that the problems that we're dealing with today are because there were too many unscrupulous lenders out there selling the wrong product to less than savvy borrowers. That, layered with the investor frenzy that took place, has us where we are today. We're all responsible for it but the wholesale brokers have to shoulder the biggest share of the blame because their lobby has been so strong in most states. They've allowed for exhorbitant fees, yield spread and origination fees to continue to be charged.
Countrywide's computers aren't programmed to go over 1098. It's so much simpler if everything is a techno-glitch. Like all those defective toys from China that Mattel is apologizing for to China.
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