some mortgage lenders nervous. "There is a virus spawned in the nation's mortgage portfolio," said the mortgage auditor at the National Association of Realtors convention here. "Banking deregulation gave unscrupulous lenders a license to steal - and now they are overreaching into consumers' equity." The rise of the secondary market in servicing has helped mortgage originators "pass the buck," she said, while creative financing has made deciphering how payments are applied almost impossible. Additionally, lender willingness to write lower loan-to-value loans and allow borrowers to use more of their income on payments has increased delinquencies and foreclosures. "One of the frightening things that you should know - when rulemakers and dealmakers changed the rules, they made foreclosures profitable," Ms. McDonnell added, although most lenders would disagree. Ms. McDonnell warned dozens of real estate brokers attending her seminar on bad loans to "be very careful when helping people qualify" for a loan. Lenders will not explain everything to the brokers, she said. Real estate brokers in the audience expressed a lot of interest in her talk, perhaps signaling that the level of trust between them and mortgage brokers is not as high as it could be. "When you represent a buyer, there is no way of knowing what is going to happen" when they go to a mortgage broker, said one realty agent. And many of the agents expressed concern that they will be left holding the bag if a lender cuts a deal that a buyer cannot really afford. Since 1988, Ms. McDonnell has served as a real estate counselor, working from Needham, Mass. She started auditing mortgages in 1991, and for a $150 fee will sit down with a homeowner looking to refinance or buy a new home. So far, she has discovered problems in eight out of 10 mortgages, she said. Some of the most common include Truth-in-Lending violations, bait- and-switch tactics, and phantom fees. Two years ago, she helped form the Dime Borrowers Association for Massachusetts borrowers from Dime Savings Bank who had problems with their mortgages. Crisis mitigation is one of her specialties. "If a fair solution can be developed outside of litigation, it's better to negotiate," she said. In the future, Ms. McDonnell hopes to see lenders developing a documentation system that more clearly outlines mortgage payment systems, and providing more education to customers. Additionally, she is hoping real estate brokers will take a more active role in the loans to applicants that they have qualified. "When real estate people have blinders on, they encourage borrowers to have blinders," she said.

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