Sub-Prime Lending/Foreclosure etc

Stephen Eisel · Post by **Stephen Eisel** » Sat Nov 10, 2007 4:06 pm

In my opinion, saying that the borrower is the root of the problem does not equate to them being 100% of the blame...

sharon kinsella · Post by **sharon kinsella** » Tue Nov 13, 2007 12:23 pm

Reviving this thread to let all know (if you don't know already) that a task force is kicking into high gear here, going after perpetrators of mortgage fraud.

The FBI, IRS, State Attorney General's Office, Cuyahoga County Prosecutors office and the US Postal Service are kicking into high gear and have already arrested over 125 people for fraud. Falsified wage statements, overstating property values etc. etc. etc.

They have reported that there is a lot more to come and won't even disclose the location of the Task Force.

Hmmm - sounds like it's gonna hit the fan.

It's a slimey industry and everyone is suffering because of it.

Justine Cooper · Post by **Justine Cooper** » Tue Nov 13, 2007 4:11 pm

That should be interesting. I have seen brokers push income levels however they could, pushing borrowers in some cases, and it is usually the broker who "let's the appraiser know" what value they are looking for in a home. In fact it is the broker who deals directly with the appraiser and picks him/her. It should be interesting. This actually occurs in suburbs like Strongsville and Avon often, or it did as the foreclosure rates skyrocketed there.

Stephen Eisel · Post by **Stephen Eisel** » Tue Nov 13, 2007 4:28 pm

http://news.bbc.co.uk/2/hi/business/7070935.stm

Richard Cole · Post by **Richard Cole** » Tue Nov 13, 2007 4:59 pm

Stephen Eisel wrote:http://news.bbc.co.uk/2/hi/business/7070935.stm

What

- are you saying we've come "full circle"

Stephen Eisel · Post by **Stephen Eisel** » Tue Nov 13, 2007 5:57 pm

Richard Cole wrote:
Stephen Eisel wrote:http://news.bbc.co.uk/2/hi/business/7070935.stm
What - are you saying we've come "full circle"

Justine Cooper · Post by **Justine Cooper** » Wed Nov 14, 2007 9:36 am

Great link Stephen. Even greater tragedy. How did we let this happen in our country, to our country, to our neighborhoods? This quote is hindsight but hopefully a lesson for any future legislation for unregulated, uneducated people in charge of homes and mortgages in this country:

"Many of these mortgages were sold by unscrupulous and little regulated mortgage brokers, who received handsome commissions for selling expensive and unsuitable products.

Some customers were not told that their interest rates would go up sharply after two years; others were promised they could refinance their home before higher rates took effect.

Others found that when they had difficulties paying, huge unexplained fees were added to their bills, putting them further in debt."

The ROOT of the problem:

"He says lenders engaged in deceptive practices and clients found it difficult to get any information at all when they got into arrears."

Bill Call · Post by **Bill Call** » Wed Nov 14, 2007 12:55 pm

Justine Cooper wrote:"He says lenders engaged in deceptive practices and clients found it difficult to get any information at all when they got into arrears."

Of course that is almost absolute nonsense but it does conform to the modern American habit of attributing economic failure to some criminal enterprise.

The reality is that 85% of sub prime loans are not in default.

The reality is that only 5% of all mortagages are in default.

The reality is that 95% of all loans are not in default.

The reality is that except in very, very, very, few instances loan documents have multiple disclosures showing the affect of increasing interest rates on loan payments. Failure to have those disclosures is a violation of current law. I have yet to see anyone produce any loan document involved in a foreclosure that did not have that disclosure.

The reality is that in every single case the foreclosure is caused by the failure of the debtor to pay the mortgage.

The reality is that 15% annual increases in real estate values was unsustainable.

The reality is that if the debtor assumes his home will increase in value 50% over the next 5 years and it does not that does not make the lender a criminal.

The reality is that government solutions are likely to aggrevate the problem.

The reality is that the above does not matter to many people because they think the failure of someone to pay their mortgage IS NOT THE MORTGAGEE'S FAULT.

The other reality is that people are more eager to borrow money than to pay it back.

If property values continued to increase by 15% a year most of those subprime mortgages would be refinanced until the inevitable happened: The property values would not continue to increase and the mortgagee would default on the mortgage.

Does this matter to some people? No. Because their reality states that it must be someone elses fault.

Justine Cooper · Post by **Justine Cooper** » Wed Nov 14, 2007 1:12 pm

Why in the world would thousands of people, writers of articles, politicians trying to change legislation, and many other people and agencies JUST want to put the blame on "someone" who bears no blame? There is enough research out there to show you where the problems occurred, and new legislation to prevent future problems. So you are really saying all those people are liars? That all brokers and lenders were ethical and honest? That is the easy way out for you, in my opinion. Why would I care? I have not been deceived, because I knew the mortgage business when I bought my first home. I have nothing personal to gain by writing on the tragedies that have occurred in this country, and especially in our area due to LACK OF LEGISLATION, LACK OF ETHICS AND ACCOUNTABILITY by the main people dealing with the loans and mortgages. It is all evidenced if you read the evidence. It has destroyed neighborhoods, property values for everyone, and families. But chalk it all up to a "greedy" borrower and sleep better not admitting or realizing the truth. The result is the same-DEVASTATION THAT HURTS US ALL.

sharon kinsella · Post by **sharon kinsella** » Wed Nov 14, 2007 2:55 pm

Bill-

Your reality is of another time, another place and certainly another planet.

You seem to always put everything off on the working stiff - the REALITY is that there are wolves in 3 piece suits out there.

There are usurers and those that cheat and steal on a much higher plane than the three card monty players on the lovely streets of New York.

The REALITY is that the Taft administration refused to pass regulations that would watch over this end of the industry - mind you while brokerages and banks had rules to abide by.

The REALITY is that the working poor get poorer and you are way too eager to cast slings and arrows.

The REALITY is that I worked with these people briefly and saw the crap they were pulling, and got out.

But please feel free to join their friends and open up a payday loan emporium where you too could loan money at 300% interest.

Hooray for capitalism (at least some people seem to benefit).

Ryan Salo · Post by **Ryan Salo** » Wed Nov 14, 2007 3:34 pm

First let me say that bad brokers need to be forced out of the market and I am not saying ALL the blame is on the consumer. Secondly there is a reason sub prime lenders exist, people go through tough times and if they are willing to pay more they can still get financing when they need it.

The problem that I see, being in the industry, is not that we need new laws. We need the current laws to be better enforced. State laws and RESPA are already here.

http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm

They regulate ALL brokers. The only people that don't apply to these are banks, and they have their own regulations. These LAWS require proper disclosure prior to the loan closing and at closing. Then consumers get 3 days to review the documents and decide if the loan is right for them. The only way people are not notified is with direct fraud where a broker signs forms for the customer. I believe this has happened but not nearly as often as customers NOT READING WHAT THEY SIGN!

In my experience, and I mostly do FHA loans so I don't see subprime very often, people that are in difficult times are WILLING to take drastic measures. I get calls from people who are behind or going to be behind on their mortgage and they ask to me to do loans that I have to refuse. I think the whole concept of everyone should own a home is crazy. Most can't handle it or are not smart enough to save enough money for when bad things happen.

As far as pushing people into bad loans to make more money, that is wildly not true for most brokers. I can make a lot more money giving someone a conforming or FHA loan than I can with subprime. Most customers that get into ARMS ask for the LOWEST PAYMENT, I have see customers refuse a fixed because they want to save $40 a month!! I have seen people go to other lenders (like the big one downtown) and get put in interest only loans just so they could afford that extra bit of house.

Cleveland is another story, when Cleveland enacted the predatory lending laws it crushed people with poor credit and people that were in ARMS. All the subprime lenders pulled out because of the risk of suit. That left hundreds of people stuck in ARMs and subprime loans with no one to help. They didn't qualify for conforming loans or FHA loans and all options were forced out by legislators "trying to help".

This is the same thing that will happen if the current legislation in the house gets passed as is. All of the lenders that can help people in times of need will say sorry I'm sticking to stronger borrowers and those that do stay will charge a premium rate to take on the risk. Bottom line will be if you are not A paper you will suffer with more regulations and laws. The easier it is for a lawyer to sue a mortgage company the easier it will be for them to just flat out decline everyone. Then the same people blaming the lenders for this problem will be furious that they don't step in to fix it. Cant have it both ways.

Please need to read what they sign, and most people are not smart enough to even understand everything so they should take it to someone they trust or hire an attorney.

Bad brokers need to be forced out of the business but it isn't through new laws, we just need to crack down on the ones we currently have otherwise the consumer will suffer.

Just my opinion.

sharon kinsella · Post by **sharon kinsella** » Wed Nov 14, 2007 5:13 pm

Ryan -

FHA loans are great and you are probably a good job and being reasonable by turning down people who aren't eligible for standard financing down.

What Justine and I have been saying is that many of the sub-prime lenders have not behaved honorably and have openly sought out not only initial loans, through telemarketing, internet advertising and newspaper ad (Is there anyone out there who hasn't seen the TV ads for Countywide and Direct Loans?) They have also sought out people with good loans and convinced them that they could get rid of all their debt through refinancing with sub prime loans.

Sure people should read what they sign - sometimes that doesn't help - who can comprehend all the legalese? Hire a lawyer? Frankly a lot of people don't know how to find one and think that it costs huge amounts of money to hire one.

The three day disclosure sure they sign it - after having the pages flipped in front of them and told oh this is nothing it's just (here I would insert a lot of fast talking and irrelevant dialog thrown in - but I won't go there).

Many of these people ARE CON MEN.

That's the reality.

No one is bashing legitimate mortgage lenders. The hammer falls on the ones who pander to the American dream, quick fix that doesn't exist.

sharon kinsella · Post by **sharon kinsella** » Wed Nov 14, 2007 5:15 pm

Forgot one thing.

If it is not in your realm of experience. If you don't come from an environment where these basic financial skills are taught and fostered, this lending world is a dangerous place to tread.

Kind of like giving a kid a gun - they may be able to pull the trigger, but don't fully understand the consequences.

Ryan Salo · Post by **Ryan Salo** » Wed Nov 14, 2007 8:40 pm

If we cannot trust individuals to not get themselves in harms way when it comes to mortgages we will soon see a larger gap in the classes. If things must be regulated and dumbed down to the lowest person participating then the lenders will just up the lowest criteria to eliminate the lower class. Why risk a law suit to make a couple thousand, an individual broker may but the lenders themselves cant afford it. That is why you immediately saw so many lenders pull out of Cleveland, then Ohio and now go bankrupt.
I think the issue many need to realize is that desperate people do DUMB things. No matter how clear lenders make it, people will get themselves into dumb loans.

We cannot expect the government to protect us from our own stupidity.

All consumers will suffer if this new legislation passes.

sharon kinsella · Post by **sharon kinsella** » Wed Nov 14, 2007 9:29 pm

Ryan -

First of all - because something isn't in your realm of experience doesn't mean you are stupid. It just means that no one you know has ever done something like that - you've never heard about it - never knew it existed.

Do you know how to feed a family of four for 200 a month - I do. Do you know how to french braid hair - I do. Do you know how to help someone through the system when they've become disabled - I do. These things are within my realm of experience. I don't expect everyone else to know those things - neither should you.

You may be drumming against the legislation - go right ahead - but do not equate a lack of familiarity to being dumb. It's called experience and everyone's experiences are different. That's just the way the world is.