Let me just give you a short synopsis of my work history. I have been
involved with real estate since about 1977. For my purpose here, the
pertinent facts are that I have been in mortgage lending since 1984. I
have worked for mortgage bankers and banks as a mortgage originator.
From my perspective, people who had income, and a respectable credit
history, could borrow money for their house purchase, and the bank –
and ultimately the investor could expect to get paid back on a monthly
basis. The investors – the ones who provided the cash for the purchase
– was mostly FNMA known as Fannie Mae, or FHLMC known as Freddie Mac.
These agencies provided the structures for which lenders could lend
money to borrowers. Various economic times and situations may have
tweaked the rules – better credit or more flexibility on credit
standards were the ones affecting borrowers most directly. Everyone
played by the rules and life was good for the credit-worthy.
Then in the 1990’s, there was a shift of policy, not from
the investors, but from the political administration that home ownership is
not merely a privilege to be earned, but a right of all Americans. A
directive from the administration, to the investors was made to make
homeownership available to more people, to those who were marginally
qualified and expand that to those who would not have qualified for
home ownership, even in the best of times. So, by administrative
edict, the quasi-governmental agencies, FHMA and FHLMC worked to expand
and loosen their guidelines to enhance home ownership to the ‘underserved’ in our society.
Things like ‘stated income’ loan programs – which became the liar’s
loans and the zero down payment loan
programs (not the VA loan program). Yes – I originated some of these
loans. If we as a bank wanted to participate with FNMA and FHLMC, we
had to offer them, and if we as an institution originated mortgage
loans and did not offer these programs, we would then been accused of
discrimination, and that would open up other unwanted doors.
There was an attempt to somewhat control the liars loan
program – we had a site that would give us a range of income for
particular careers or positions, and if the stated income fit into this
range, the loan was granted. The problem was probably not in the loan
product so much as what the borrowers perceived as their income.
If you are self-employed, and you take in $20,000 a month – this is
probably not your net income. Against this income there would be
maybe business expenses and other items – maybe the cost of goods, that
would reduce this $20,000 to a lower figure of actual income (also
called net income). Needless to say, these loans experienced a
foreclosure rate exceeding 25%. These loans were mostly in the
expensive property ranges, as an hourly worker would not have qualified
for these loans from the beginning.
The zero down payment was another lending accident waiting to happen.
There were variations of this loan – 100% loan where all the money was
borrowed in one loan, the 80/20 loans, where there were 2 loans – an
80% first mortgage and a 20% second mortgage, and 80% first mortgages
with the seller carrying the 20%. While the product itself was sound,
it would depend on many external issues to make the program successful.
One of the most dependant issues would be that the value of the house
would either stay the same or increase. We certainly know that that
didn’t happen in many areas of the country. This zero down payment program
was also used to take advantage of the underserved.
For the most part, mortgage brokers –
those who originated and then sold the loans, would make these 80/20
loans to the underserved – and make the loans adjustable rate
mortgages. The payments on these ARMS were lower for the first 3 to 5
years before they would adjust – and up was the only way they would go.
These borrowers could then qualify for a more expensive house than
they normally would and of course, emotion rules when this happens. In
their defense, the program was probably not explained in depth to them.
If they barely could qualify for this lower ‘teaser rate’ payments,
how were they going to make the payments when the rate increased? So
losing a job – or even getting cut back on hours worked would be
devastating, and on top of that, they couldn’t sell their home for what
they paid for it to get out of the loan because of the economic
turndown.
This now is the basic backdrop of my frustration. There were
mortgage brokers who took advantage of the borrowers – for sure, but
this was not the only problem. Once the loans were closed, they were
packaged together into mortgage-backed securities and sold to
investors. Notice the Goldman Sachs fiasco. These high risk mortgages
were sold as investments and while I am not privy to the inside
information, where Goldman Sachs is accused of doing wrong, is betting
that these securities would go bad and not perform as was presented.
Thus the word ‘derivative’ we hear on the news. While derivatives are
not bad in themselves, if Goldman Sachs offered these to the public and
then bet that these would go bad is not good business.
The bottom line is that greed was playing a part in most of
the above items. Mortgage brokers became wealthy making these loans –
often charging outrageous fees to the marginal borrowers. The
investors and on to the brokerage houses who funded the loans and sold
them as securities also made tons of money. It was then left up to the
taxpayer to bail them out.
There is blame to be spread over the whole
industry and people should be punished for crimes they enacted.
This greed also crept into the bank I work for. We are now
under the directives of the Office of Thrift Supervision (OTS). We
have been directed to sell the bank by April 30th, with the deal to
close by May 31st. The mortgage-lending arm is still lending as usual,
for the most part, but our consumer lending is at a standstill. What
happened here? This is my employer, I have been nothing but honest in
my dealings with the public and their mortgage loans. I offered them
good rates and low costs. What happened?
Prior to 2001, we were a privately held regional bank, with
our home office in Lincoln, Nebraska. In 2001 we became a publicly
traded stock company. Now everyone who owned or bought stock in the
company wanted their stock to rise. So – to facilitate the maximum
income, loan production offices (LPOs) were opened in Florida, South
Carolina, North Carolina, Minneapolis, Colorado, Phoenix, and of course
Las Vegas.
Construction lending went sour in Florida, Las Vegas and
Phoenix and the Carolinas, and 100% home equity loans went sour
everywhere. Lots of money had to be written off as bad debt, which of
course depleted the bank’s cash reserves. We dropped below the federal
requirements for reserves, while at the same time the Feds increased
the reserve requirement they wanted institutions to have. There is no
excuse for the poor judgment and greed that entered into my employer.
Thanks for letting me get this off my mind. There are so
many things that I see going on that are not right – and instead
letting things correct themselves via market conditions, we now have
the government stepping in take over institutions and businesses.
Which brings me to another sore point. What is going on in government
is just atrocious to me. Our duly elected president is truly quite an
effective orator, but what comes out of his mouth is so full of lies
and mistruths that I just cringe when he speaks. The government is not
authorized and is ill advised in running private business. I could go
on on this topic forever and still not have said everything that needs
to be said.
Our own Senator Ben Nelson has made Nebraska notorious
with the ‘Nebraska Option’ deal in the health care bill states in his
public stance that 90% of the people he talked to were for the passing
of the health care bill, when readily available polls showed that
Nebraskans were against the health care bill 2 to 1.
When Obama and Clinton talk about the dangers of the tea
party movement and how these tea partiers can undermine the peaceful
process of the United States – also makes my blood boil. The tea party
gatherings have been peaceful – learning and discussion meetings –
which is what we are supposed to be able to do in this – home of the
free.
There are other items which get under my skin – The Feds cannot
close the borders in Arizona, so the Arizonians decide to address the
issue themselves, and Obama criticizes them for that. Pay attention to
what is going on my friends. We are becoming more of a socialistic
nation the longer we do nothing to protect our rights.
A bit of humor...
Powered By WPJoke
YOUR CONTENT HERE
Powered By WP Footer
