Mortgage Meltdown

[JOEBIALEK]

Until recently I was an underwriter for a sub-prime mortgage company that is about to close. It seems that most media outlets and government officials fain ignorance about the real underlying cause of the problem. There is either a tendency to blame the borrower or act as though no one in the industry {or outside of it} saw this coming. They fail to mention that those who gained the most financially got off scot free while leaving the mess behind for everyone else to clean up. In my former company, the sales managers and loan officers “held the keys to the safe” while deciding which guidelines to ignore sometimes going so far as to bribe fellow underwriters to “look the other way”. Sales managers often overrode an underwriter’s decision they did not agree with. Other times fellow underwriters would be threatened with their job for “impeding company growth and progress” just because they refused to go along with the flagrant disregard of guidelines . I complained to the sales managers about the bribing but all I got was a formal write-up for making “inappropriate comments”.

There was absolutely no support from the owner of the company all the way to the human resource representative. This company is as corrupt as they come. I can’t tell you the number of sexual affairs that occurred between married and unmarried people; primarily among the management staff {at the workplace itself}. Promotions were strictly political thus moving people “up the ladder” who never proved themselves worthy or were on a final written warning to be terminated {for poor performance}. As a result of the corrupt management of this company, I and several hundred others were laid off. I believe the federal government needs to investigate this company and bring to trial those corrupt individuals who broke the law. This would set an example for the rest of the mortgage industry that absolute corruption corrupts absolutely.

 

[Pax]

Until recently I was an underwriter for a sub-prime mortgage company that is about to close. It seems that most media outlets and government officials fain ignorance about the real underlying cause of the problem. There is either a tendency to blame the borrower or act as though no one in the industry {or outside of it} saw this coming. They fail to mention that those who gained the most financially got off scot free while leaving the mess behind for everyone else to clean up. In my former company, the sales managers and loan officers “held the keys to the safe” while deciding which guidelines to ignore sometimes going so far as to bribe fellow underwriters to “look the other way”. Sales managers often overrode an underwriter’s decision they did not agree with. Other times fellow underwriters would be threatened with their job for “impeding company growth and progress” just because they refused to go along with the flagrant disregard of guidelines . I complained to the sales managers about the bribing but all I got was a formal write-up for making “inappropriate comments”.

There was absolutely no support from the owner of the company all the way to the human resource representative. This company is as corrupt as they come. I can’t tell you the number of sexual affairs that occurred between married and unmarried people; primarily among the management staff {at the workplace itself}. Promotions were strictly political thus moving people “up the ladder” who never proved themselves worthy or were on a final written warning to be terminated {for poor performance}. As a result of the corrupt management of this company, I and several hundred others were laid off. I believe the federal government needs to investigate this company and bring to trial those corrupt individuals who broke the law. This would set an example for the rest of the mortgage industry that absolute corruption corrupts absolutely.

The U.S. Equal Employment Opportunity Commission is the federal agency that enforces sexual harassment laws. The agency’s website is: www.eeoc.gov.

Your state may also have even stricter standards than the federal standards. You can file a suit against the company under federal and state laws. The law prohibits promotions based on sexual favors. This is a discriminatory practice and companies cannot allow it. This might get the ball rolling on fixing the situation or from preventing it from happening again.

Good luck.

 

[Ridgerunner]

I have been involved in mortgage lending, in one way or another, since I was 13 years old. (nobody paid any attention to child labor laws then) That has been a very long time. I’m old enough to remember the late 1970s when mortgage lending broke every rule of sanity that could be imagined, and a good number of the rules of criminal law. I then remember, in the 1980s when it all came crashing down. Lots of folks went to jail over it.

It seems to me that there is a cycle to this. Interest rates are favorable; the market is awash in money looking for a return; people are making more and more and more money in the market. Then the piper comes in and demands payment.

During the last several years, I have firmly believed we were going to have mortgage mess sooner or later, and sure enough, we did. I saw things happen that threw chills up and down my spine. Borrowers that couldn’t afford the payments. Bogus down payment practices. Inflated values. Incredible consumer spending. Craziness.

So now, here we are. It will get worse before it gets better. Sooner or later a few might go to jail. Things will quiet down. Markets will return to a more normal state. Then, eventually, it will all happen again.

I never did think Greenspan was doing the economy a favor in driving interest rates so low and flooding the market with so much money. That invites a harder down cycle than would otherwise be the case. And he had the temerity to warn everybody about “irrational exhuberance” in the stock market!

If I could point to one thing that massively exacerbates all this, it would be the lack of local control of lending that followed on the regulatory push to consolidate the lending industry clear back in the 1960s. Local bankers, who had a stake in outcomes and put their loans “on their own shelves” instead of selling them to some fund or derivative creator somewhere, were practically driven out of business with the complicity of the government. Now, nobody but the buyers of mortgages, who know nothing about the properties or the borrowers, cares, so long as the loan is “conforming on paper” to a set of underwriting requirements.

I get tickled at seeing “It’s a Wonderful Life” every Christmas season. Despite his survival in that movie, Jimmy Stewart would have been driven out of business in the 1960s and 1970s. Old Man Potter won in the end. The Federal Savings and Loan Insurance Corporation went broke, and the banks got it all.

However, I have seen lots of new bank charters lately, at least. The big lenders have become so bloated that locals can now compete with them. I think maybe the government learned its lesson too, at least in part, because they grant those new charters. Here we go 'round the mulberry bush.

 

[JimG]

Yes, I remember those days. The FSLIC went bankrupt, and the Resolution Trust Corporation was created to dispose of the avalanche of foreclosed homes. There were RTC employees sitting in offices surrounded by stacks of files representing loans (from failed S&L’s) awaiting completion of foreclosure. Nothing could get done until they worked their way through them.

Homebuyers were not (are not) customers; they are products: income streams packaged for investors and backed by government guarantees.

 

[KathleenElsie]

I have been involved in mortgage lending, in one way or another, since I was 13 years old. (nobody paid any attention to child labor laws then) That has been a very long time. I’m old enough to remember the late 1970s when mortgage lending broke every rule of sanity that could be imagined, and a good number of the rules of criminal law. Double digit interest rates. A low interest rate was 9%. I then remember, in the 1980s when it all came crashing down. My mother lost all of her retirement investments and moved in with us. Lots of folks went to jail over it.

It seems to me that there is a cycle to this. Interest rates are favorable; the market is awash in money looking for a return; people are making more and more and more money in the market. Then the piper comes in and demands payment. But till now the public just took their lumps.

During the last several years, I have firmly believed we were going to have mortgage mess sooner or later, and sure enough, we did. I saw things happen that threw chills up and down my spine. Borrowers that couldn’t afford the payments. Bogus down payment practices. Inflated values. Incredible consumer spending. Craziness. That many are now screaming they expect those that did not buy into the practices to bail them out.

So now, here we are. It will get worse before it gets better. Sooner or later a few might go to jail. Things will quiet down. Markets will return to a more normal state. Then, eventually, it will all happen again. Greed is always a popular player.

I never did think Greenspan was doing the economy a favor in driving interest rates so low and flooding the market with so much money. That invites a harder down cycle than would otherwise be the case. And he had the temerity to warn everybody about “irrational exuberance” in the stock market! His predictions tend to self fulling prophesies.

If I could point to one thing that massively exacerbates all this, it would be the lack of local control of lending that followed on the regulatory push to consolidate the lending industry clear back in the 1960s. Local bankers, who had a stake in outcomes and put their loans “on their own shelves” instead of selling them to some fund or derivative creator somewhere, were practically driven out of business with the complicity of the government. Global un-responsibility. Now, nobody but the buyers of mortgages, who know nothing about the properties or the borrowers, cares, so long as the loan is “conforming on paper” to a set of underwriting requirements.

I get tickled at seeing “It’s a Wonderful Life” every Christmas season. Despite his survival in that movie, Jimmy Stewart would have been driven out of business in the 1960s and 1970s. Old Man Potter won in the end. The Federal Savings and Loan Insurance Corporation went broke, and the banks got it all.

However, I have seen lots of new bank charters lately, at least. The big lenders have become so bloated that locals can now compete with them. I think maybe the government learned its lesson too, at least in part, because they grant those new charters. Here we go 'round the mulberry bush.

When an industry is based on the weaknesses of others it is immoral. They might not be illegal but they are immoral.

 

[JimG]

I recall once discussing underwriting with a mortgage broker.

My comment was that even though according to particular underwriting programs, buyers might ‘qualify’ for the loan, surely the borrower would look at the proposed payment himself and make a personal decision as to whether he was comfortable with it. “They ought to know what they’re comfortable with, and know what they can afford, before they even come to you,” I told him.

“Jim,” he replied, if I tell them they qualify, “they’re comfortable with it. If the underwriter says they can afford it, they believe they can afford it.”

 

[KathleenElsie]

I recall once discussing underwriting with a mortgage broker.

My comment was that even though according to particular underwriting programs, buyers might ‘qualify’ for the loan, surely the borrower would look at the proposed payment himself and make a personal decision as to whether he was comfortable with it. “They ought to know what they’re comfortable with, and know what they can afford, before they even come to you,” I told him.

“Jim,” he replied, if I tell them they qualify, “they’re comfortable with it. If the underwriter says they can afford it, they believe they can afford it.”

And there lies the saddness of this whole mess. When it was the man that lived as you do making the decision to give the loan s/he had a better idea of the real cost of the house you wanted to purhase. The true cost is always much more then the actual payment of the loan.

 

[JOEBIALEK]

good points

 

[Joe_Kelley]

I recall once discussing underwriting with a mortgage broker.

My comment was that even though according to particular underwriting programs, buyers might ‘qualify’ for the loan, surely the borrower would look at the proposed payment himself and make a personal decision as to whether he was comfortable with it. “They ought to know what they’re comfortable with, and know what they can afford, before they even come to you,” I told him.

“Jim,” he replied, if I tell them they qualify, “they’re comfortable with it. If the underwriter says they can afford it, they believe they can afford it.”

I remember years back that most people expected to pay their debt out of next year’s raise. The year the raise didn’t come through they went broke. I doubt that much has changed.

 

[SeekerJen]

I remember years back that most people expected to pay their debt out of next year’s raise. The year the raise didn’t come through they went broke. I doubt that much has changed.

We were advised 4 years ago to 1) buy more house than we could afford because “salaries go up” and 2) to get an adjustable rate mortgage because “no one stays in a house for more than a few years, you can make a profit and have low house payments”. Fortunately we had the good sense to ignore both pieces of advice, buy what we could easily afford on our income at the time, and take a standard fixed-rate mortgage. I thank God daily for this, especially when I read about the sub-prime industry collapse.

 

[KathleenElsie]

We were advised 4 years ago to 1) buy more house than we could afford because “salaries go up” as does everything else and 2) to get an adjustable rate mortgage because “no one stays in a house for more than a few years, you can make a profit and have low house payments” see my comment below. Fortunately we had the good sense to ignore both pieces of advice, buy what we could easily afford on our income at the time, and take a standard fixed-rate mortgage. I thank God daily for this, especially when I read about the sub-prime industry collapse. My mother lost all of her savings in the realestate crash in 1987 she had invested into the savings and loans on some “good” advice. You were wise and good stewards of your assets to purchase what you can afford. /quote]

Well if you watch HGTV’s programs they let you see the greed that is out there. People that purchase a house, put a few thousand into it and expect it to double in value in a few years. One show that stands out had a house that six years ago was purchased for $200,000 had improvements made to it of $120,000 and they were upset that it was “worth” only $950,000 now.
If I am counting right they only spent $320,000 and their profit would be $630,000. This for a two bedroom house in California in a “desirable” location. The woman almost had a heat attack when told it was not worth the $1 million plus she expected it to be.

 

[MelanieAnne]

Truth in lending (and I’m not so sure how “truthful” it is anyway!) only goes so far. Now, it should not be the lender’s business to disclose costs other than those directly related to the loan, but where do people who are in the midst of the “I’m about to be a homeowner” dazzle-experience learn about the rest of the burdens of being a homeowner? Because those factors also affect the mortgage meltdown.

A lender may disclose the cost of borrowing & even the limit of how high the payment can rise. They can disclose, and even set up impounds, for such items as insurance and real estate taxes. But THAT’S IT. And yet home ownership involves so much more. When the kitchen sink is stopped up, you can’t call the landlord to get it fixed, you have to call a plumber & pay the plumber yourself. If the roof leaks, you have to fix it, maybe even pay for a new roof. And it goes on and on. New homeowners very often do not take these obligations into account when figuring their housing budget.

I have had occasion from time to time to talk about lending, home mortgages, etc., with persons in the process of bankruptcy. Careful soliciting of the truth of their financial practices routinely reveals that many of these people do not view financial obligations the same way as many others do. I often see that available resources are directed toward “wants” first, and whatever is leftover is directed towards financial obligations. This is the opposite of what financially stable people do.

 

[GregoryPalamas]

SeekerJen;3087605:

We were advised 4 years ago to 1) buy more house than we could afford because “salaries go up” as does everything else

and 2) to get an adjustable rate mortgage because “no one stays in a house for more than a few years, you can make a profit and have low house payments” see my comment below. Fortunately we had the good sense to ignore both pieces of advice, buy what we could easily afford on our income at the time, and take a standard fixed-rate mortgage. I thank God daily for this, especially when I read about the sub-prime industry collapse. My mother lost all of her savings in the realestate crash in 1987 she had invested into the savings and loans on some “good” advice. You were wise and good stewards of your assets to purchase what you can afford. /quote]

Well if you watch HGTV’s programs they let you see the greed that is out there. People that purchase a house, put a few thousand into it and expect it to double in value in a few years. One show that stands out had a house that six years ago was purchased for $200,000 had improvements made to it of $120,000 and they were upset that it was “worth” only $950,000 now.
If I am counting right they only spent $320,000 and their profit would be $630,000. This for a two bedroom house in California in a “desirable” location. The woman almost had a heat attack when told it was not worth the $1 million plus she expected it to be.

And it wasn’t much of a house. It would not have drawn more than 170,000 in our market or more than 300,000 in almost any Chicago market. In fact in most markets in the country it would have been something to have got more than 100k.

Poor babies.

CDL

 

[manualman]

I’m torn on the issue and I’m worried that well intended government types will go off the deep end on bailout. On the one hand, I believe that certain kinds of mortgage brokers certainly employ tactics that cross the line into usury and their victims might need some protection in the name of justice, especially when they invested a lot into their home. But it works the other way too!

When someboy gets 100% financing with a 1 year ARM for 5% interest and it goes up to 7% the second year and 9% the third year, then a foreclosure happens, is this guy really a victim? If he got into a house with no downpayment, below market interest for the first year, ~market for the second and high interest for the third, he got to live in a home for three years at a price probably less than renting an equivalent home would cost once you factor in the mortgage tax deduction (which might even put him into earned income tax credit territory). In this case, it seems to me that the victim might be the underwriter (or perhaps the private mortgage insurance company).

I don’t have a problem with legislation to help the first guy, but IMO the second guy hasn’t suffered genuine economic damages from the deal.