[quote=eavesdropper]I don’t know, bg. Do you think it has anything to do with the fact that about 10 or 15 years ago, banks stopped hiring rather forbidding-looking pinstripe-suited people actually educated/trained in finance, accounting, and risk management, and replaced them all with friendly and approachable 22 year-olds, clad in polo shirts and khakis, who had proven track records in…..SALES?[/quote]
lol, eavesdropper, it’s possible this happened but I think my description below illustrates a more common scenario.
Let’s use Countrywide (“CW”) for our first example, shall we?
Up until a few years ago (2002-2003?), CW, aka “Countrywide Funding” had its own brick-and-mortar mortgage loan business in nearly every urban zip code. Its loan officers were on salary + commission or commission-only but “in house,” so were not paid “back-end loads.” They were trained in CW’s products, which were FNMA-backed conv. loans, VA loans and FHA loans (in certain locales). They only originated loans for CW and did not “shop” other lenders for “borderline” clients. At this time, CW DID NOT ENGAGE IN “sub-prime” lending which was formerly referred to as “hard-money” or C/D paper.
When the “brick and mortar” CW’s were vacated (and their own loan officers were laid off) CW began making its products available to independent mortgage brokers to originate and process who possessed widely varying degrees of education, training, experience and ethics in this field. More than a few of these “brokers” and their “sales-associates” had other “businesses” they were operating simultaneously and only opened their “mortgage-loan” outfit as a “legitimate-looking” cover-up or “laundromat” for their REAL “business,” which was often a real-estate ponzi scheme, dabbling as unqualified “flippers,” or forming phony REIT’s seeking “investors.” Because many of these “licensees” (the “mortgage broker/associate” terms are generous) were bilingual and/or bicultural, they preyed on unsophisticated persons seeking mortgage loans with whom they could converse and identify culturally with and who either had poor credit or did not have any credit or enough credit to obtain a mortgage loan through normal channels. Even if not initially seeking a “cash out” refi, their loan applicants were easily seduced into “investing” with them all or part of any “cash-out” they would recieve as a condition of having a loan granted. In return, the “mortgage brokerage” would embellish their client’s loan applications and submit phony income documentation in order to successfully originate the loans.
Over the years and as a result of CW authorizing all these marginal “mortgage brokerages” to originate their loans, demand for NINA and limited doc/no doc loans became intense, causing CW to change their product line from prime/alt-A products to primarily sub-prime products, erroneously thinking that the collateral would ultimately satisfy.
Since CW obviously did not check out these contracted mortgage-loan “firms” before authorizing them to originate their products, besides having to foreclose on many of these “recent” loans, they are now being sued left and right for damages inflicted by these “brokerages” due to fraud and misrepresentation. Of course, these “mortgage brokerage” fronts have now closed their doors and the principals have absconded with their ill-gotten proceeds after being disciplined and fined by the DRE.
CW made two fatal errors here: contracting out their loan origination function and changing their target market to “sub-prime.”
The second example I will use has to do with the demise of several huge thrifts formerly insured by the FSLIC. This happened between about ’94 and ’99 or 2000. Their loan officers were truly “in-house” working inside the banks (or their own branded standalone “mortgage-origination stores”). They were all employees of the bank and made small commissions on each loan they originated plus their regular salary and benefits. They ONLY originated loans from their own bank, 90% of which were kept by the bank and never sold on the secondary market. Since their employer was keeping the loans, they used their OWN EXPERT JUDGMENT and company guidelines on home loan lending (NOT FNMA’s or FDMC’s) and the appraisers they were required to use were also bank employees. They had a variety of conventional loan products to choose from, but primarily lent to prime and alt-A customers. A down-payment of at least 10% (w/PMI) was required. When these giant thrifts went under (NOT for reasons of making bad residential mortgage investments) and/or were taken over by other thrifts or commercial banks (FDIC), all their “portfolio” residential-lending activities disappeared along with the mergers. These loans played a HUGE part in the residential resale market.
This left many buyers/refinancers with few choices in an escalating market. Many felt they had to take their loan to unscrupulous mortgage brokers in order to get it funded.
Don’t know if it was the chicken or the egg which came first but the unscrupulous loan brokerages fueled price escalation and price escalation fueled more unscrupulous loan brokerages. Selling off mortgages immediately upon origination played a HUGE PART in this as well. This is my .02, based upon the situation I am seeing homeowners in now.
eavesdropper, I don’t really see how origination of mortgage loans can be returned to the ways of the “good-old days” (if that’s what they were). What few lenders are left now seem to be going so overboard the other way (in the loan-application process), so we can all pay for their past lending mistakes, even if we don’t deserve to be treated like that :={
