The following link leads to an oversimplified chart of a conventional loan transaction, leaving out the actual people at each step and leaving out several of the computer servers:

CHART: Conventional Loan Transaction

Most people don’t have any idea about the number of steps and the number of people in the number of vendors that are involved with a single loan transaction or a single loan payment. But if it was as simple as most people think it is, we would have no need for banks or computers.

In a small bank or credit union many of the steps and procedures that are contained in the outline shown in the above chart are consolidated into a single loan officer combined with a Board of Directors that approves each transaction. The representation of the number of computer servers may seem overly dramatic to some. But the truth is that even the smallest conventional loan transaction, this chart only shows the first layer of computers that are involved and which are located in various geographical locations, owned by various outside vendors with whom the borrower has never done business.

The failure to disclose the existence of the outside vendors, and the function of the outside servicer, along with compensation received by them is generally considered to be permitted under the disclosure rules for the federal truth in lending act.

The reason is simple: the party who is named as the lender is in fact the lender and is responsible for compliance with all of the technical requirements contained within TILA. Anybody who claims to be a successor of the original lender becomes a successor lender and subject to the same claims and defenses as the predecessor for any violations of lending or servicing statutes.

It is also legal to insert mortgage bankers or mortgage brokers who intern employee sales people to make calls on prospective borrowers either in person or through some direct or electronic media. But the small bank making a conventional loan ordinarily not employ such intermediaries simply because they have no control over what is being said to the prospective borrower. Fewer intermediaries means greater accountability, which is what the ordinary lender requires. And that is the opposite of what Wall Street wants.

Anyone who studies this chart will come to the conclusion that the lending marketplace is currently dominated by players who have no desire to play by the rules described above.

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