- This topic has 565 replies, 25 voices, and was last updated 13 years, 5 months ago by
scaredyclassic.
-
AuthorPosts
-
August 14, 2010 at 2:00 PM #591891August 14, 2010 at 2:43 PM #590854
Arraya
Participant[quote=eavesdropper]
No, I think that borrowers who walk away from properties for which they can continue to make payments are risking a lifelong “deadbeat” reputation that not only will make it impossible for them to gain credit, but also bar them from security clearances, attractive employment offers, and other opportunities. To paraphrase Captain Renault in Casablanca: “I’m afraid that the bankers will insist”.
Note that I am not commenting on the decision to stay or walk away. As made very evident on this thread, that’s a very personal choice based on individual viewpoint. But the thought of what the extremely powerful lending community will do to those who do walk scares the hell out of me. And anyone who thinks that the government will step in and prevent them from taking draconian measures need only look at congressional and agency response to banking missteps over the past 25 years.[/quote]
Well, they are already trying to penalize “strategic defaulters” and some in congress are trying to stop it, thankfully.
Also, remember they are only a “deadbeats” if they are of modest means, if they are well-to-do or a corporation, it’s just practicing sound financial judgement. Of course, the well-to-do default at higher rates than others.
The current housing bust should be viewed for what it is: a systemic market failure – not a moral failure on the part of millions of American homeowners.
In fact, I’d go as far as to say, that “strategically defaulting” is the moral choice rather than propping up massive systemic fraud.
The big banks are not just amoral but immoral. We need a restored morality, which must grow again from the ground up. We won’t find remnants of it in existing structures. Paradoxically, strategically defaulting is a step in the right direction to restore morality.
Geithner helps the big banks unload all the risk and bad bets on the people and then he turns around and threatens the people from walking. That is the definition of “GALL” and will blow up in his weaselly face.
August 14, 2010 at 2:43 PM #590948Participant[quote=eavesdropper]
No, I think that borrowers who walk away from properties for which they can continue to make payments are risking a lifelong “deadbeat” reputation that not only will make it impossible for them to gain credit, but also bar them from security clearances, attractive employment offers, and other opportunities. To paraphrase Captain Renault in Casablanca: “I’m afraid that the bankers will insist”.
Note that I am not commenting on the decision to stay or walk away. As made very evident on this thread, that’s a very personal choice based on individual viewpoint. But the thought of what the extremely powerful lending community will do to those who do walk scares the hell out of me. And anyone who thinks that the government will step in and prevent them from taking draconian measures need only look at congressional and agency response to banking missteps over the past 25 years.[/quote]
Well, they are already trying to penalize “strategic defaulters” and some in congress are trying to stop it, thankfully.
Also, remember they are only a “deadbeats” if they are of modest means, if they are well-to-do or a corporation, it’s just practicing sound financial judgement. Of course, the well-to-do default at higher rates than others.
The current housing bust should be viewed for what it is: a systemic market failure – not a moral failure on the part of millions of American homeowners.
In fact, I’d go as far as to say, that “strategically defaulting” is the moral choice rather than propping up massive systemic fraud.
The big banks are not just amoral but immoral. We need a restored morality, which must grow again from the ground up. We won’t find remnants of it in existing structures. Paradoxically, strategically defaulting is a step in the right direction to restore morality.
Geithner helps the big banks unload all the risk and bad bets on the people and then he turns around and threatens the people from walking. That is the definition of “GALL” and will blow up in his weaselly face.
August 14, 2010 at 2:43 PM #591485Participant[quote=eavesdropper]
No, I think that borrowers who walk away from properties for which they can continue to make payments are risking a lifelong “deadbeat” reputation that not only will make it impossible for them to gain credit, but also bar them from security clearances, attractive employment offers, and other opportunities. To paraphrase Captain Renault in Casablanca: “I’m afraid that the bankers will insist”.
Note that I am not commenting on the decision to stay or walk away. As made very evident on this thread, that’s a very personal choice based on individual viewpoint. But the thought of what the extremely powerful lending community will do to those who do walk scares the hell out of me. And anyone who thinks that the government will step in and prevent them from taking draconian measures need only look at congressional and agency response to banking missteps over the past 25 years.[/quote]
Well, they are already trying to penalize “strategic defaulters” and some in congress are trying to stop it, thankfully.
Also, remember they are only a “deadbeats” if they are of modest means, if they are well-to-do or a corporation, it’s just practicing sound financial judgement. Of course, the well-to-do default at higher rates than others.
The current housing bust should be viewed for what it is: a systemic market failure – not a moral failure on the part of millions of American homeowners.
In fact, I’d go as far as to say, that “strategically defaulting” is the moral choice rather than propping up massive systemic fraud.
The big banks are not just amoral but immoral. We need a restored morality, which must grow again from the ground up. We won’t find remnants of it in existing structures. Paradoxically, strategically defaulting is a step in the right direction to restore morality.
Geithner helps the big banks unload all the risk and bad bets on the people and then he turns around and threatens the people from walking. That is the definition of “GALL” and will blow up in his weaselly face.
August 14, 2010 at 2:43 PM #591594Participant[quote=eavesdropper]
No, I think that borrowers who walk away from properties for which they can continue to make payments are risking a lifelong “deadbeat” reputation that not only will make it impossible for them to gain credit, but also bar them from security clearances, attractive employment offers, and other opportunities. To paraphrase Captain Renault in Casablanca: “I’m afraid that the bankers will insist”.
Note that I am not commenting on the decision to stay or walk away. As made very evident on this thread, that’s a very personal choice based on individual viewpoint. But the thought of what the extremely powerful lending community will do to those who do walk scares the hell out of me. And anyone who thinks that the government will step in and prevent them from taking draconian measures need only look at congressional and agency response to banking missteps over the past 25 years.[/quote]
Well, they are already trying to penalize “strategic defaulters” and some in congress are trying to stop it, thankfully.
Also, remember they are only a “deadbeats” if they are of modest means, if they are well-to-do or a corporation, it’s just practicing sound financial judgement. Of course, the well-to-do default at higher rates than others.
The current housing bust should be viewed for what it is: a systemic market failure – not a moral failure on the part of millions of American homeowners.
In fact, I’d go as far as to say, that “strategically defaulting” is the moral choice rather than propping up massive systemic fraud.
The big banks are not just amoral but immoral. We need a restored morality, which must grow again from the ground up. We won’t find remnants of it in existing structures. Paradoxically, strategically defaulting is a step in the right direction to restore morality.
Geithner helps the big banks unload all the risk and bad bets on the people and then he turns around and threatens the people from walking. That is the definition of “GALL” and will blow up in his weaselly face.
August 14, 2010 at 2:43 PM #591906Participant[quote=eavesdropper]
No, I think that borrowers who walk away from properties for which they can continue to make payments are risking a lifelong “deadbeat” reputation that not only will make it impossible for them to gain credit, but also bar them from security clearances, attractive employment offers, and other opportunities. To paraphrase Captain Renault in Casablanca: “I’m afraid that the bankers will insist”.
Note that I am not commenting on the decision to stay or walk away. As made very evident on this thread, that’s a very personal choice based on individual viewpoint. But the thought of what the extremely powerful lending community will do to those who do walk scares the hell out of me. And anyone who thinks that the government will step in and prevent them from taking draconian measures need only look at congressional and agency response to banking missteps over the past 25 years.[/quote]
Well, they are already trying to penalize “strategic defaulters” and some in congress are trying to stop it, thankfully.
Also, remember they are only a “deadbeats” if they are of modest means, if they are well-to-do or a corporation, it’s just practicing sound financial judgement. Of course, the well-to-do default at higher rates than others.
The current housing bust should be viewed for what it is: a systemic market failure – not a moral failure on the part of millions of American homeowners.
In fact, I’d go as far as to say, that “strategically defaulting” is the moral choice rather than propping up massive systemic fraud.
The big banks are not just amoral but immoral. We need a restored morality, which must grow again from the ground up. We won’t find remnants of it in existing structures. Paradoxically, strategically defaulting is a step in the right direction to restore morality.
Geithner helps the big banks unload all the risk and bad bets on the people and then he turns around and threatens the people from walking. That is the definition of “GALL” and will blow up in his weaselly face.
August 14, 2010 at 3:34 PM #590859bearishgurl
Participant[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 :={
August 14, 2010 at 3:34 PM #590953Participant[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 :={
August 14, 2010 at 3:34 PM #591490Participant[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 :={
August 14, 2010 at 3:34 PM #591599Participant[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 :={
August 14, 2010 at 3:34 PM #591911Participant[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 :={
August 14, 2010 at 8:53 PM #590939eavesdropper
Participant[quote=UCGal][quote=eavesdropper][quote=bearishgurl][quote=UCGal]
For the life of me (I wasn’t working in RE when this practice became common), I HAVE NO IDEA WHY ANY LENDER (either the one holding the 1st TD or a diff. one) would subordinate themselves to themselves or to the 1st TD holder at the time of purchase and make a 2nd “purchase money” loan (for a dn. pymt. perhaps?) and obtain a 2nd TD (purchase $$ NON RECOURSE paper) from the “buyer” in their “favor.” How risky is that??? It’s effectively 100%(+) financing and makes absolutely no sense at all to me.These lenders must have been two jokers short of a full deck.[/quote]
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]
I don’t think the personel at the retail outlets of the banks are the cause – they’re the symptoms. What triggered the lower underwriting standards was the money being generated by writing loans, selling them to the secondary market, bundling them into mortgage backed securities and selling them as investment grade vehicles… Profits were taken at every step – and they wanted more mortgages to feed the MBS beast… pretty soon you barely needed a pulse to get a loan and downpayments… pppht… who needs that. There was little risk to the banks originating the loans since they were sold off as soon as they were written and the borrower only had to make payments for the first 2 years… so underwriting standards looked for 2 years worth of solvency on a 30 year loan.
The khaki/polo clad folks at the bank were a symptom, not the cause. The underwriting standards were lowered by the corporate officers, not the clerks in comfortable attire.[/quote]
UCGal, exactly what I meant, even if I phrased it poorly. I meant no harm or insult to the khaki-clad friendly folk at the banks (actually, they seem to be very nice people). What I was trying to say was perhaps it was when the senior management of the financial institutions decided that their primary (dare I say “only”) goal was to create, market, and sell low-overhead products to the masses. With cheap money available to them courtesy of the Federal Reserve, their message changed from “save for a rainy day” (or kids’ college, or retirement, or a house) to the siren call of “You can have it NOW!” I listened to a lot of classical radio while at work back in the 90s, and I remember being disturbed by the incredible increase in bank advertising, almost all of it having to do with home equity loans. Those ads were alternated with commercials from luxury automobile companies and dealerships, jewelry stores, and high end electronics retailers, almost always with some variation of the line “Never has it been more affordable…” The financial institutions got astounding results for their advertising dollars, and as customers for loans began flooding bank branches, major philosophical shifts were inevitable, and these institutions shed their traditional “responsible stewards of your money” roles and responsibilities, and went after the “real” money to be made in selling loans, thus creating the personnel changes I mentioned. You’re absolutely right: the khaki-clad staff were just a symptom of the fever that had seized senior management.
Problem was that no one at the banks thought to tell the general public that they should be paying a lot more attention to their own money, and perhaps they should also enroll in the MBA curriculum at Wharton or Harvard, because, lord knows, that’s not what we do here at Bank of America and Wachovia anymore.
Believe me, I’m not making excuses for the hundreds of thousands of borrowers out there who are saying that they thought the bank would have warned them if they were taking a larger mortgage than they could afford. Aside from clear-cut cases of predatory lending, most people should have known that they couldn’t afford an $850,000 house on a $70,000 household income. But the while the banks were clearly engaging in the aggressive marketing of loans in the complete absence of responsible lending practices and banking standards, they still presented themselves to the public as sincere, knowledgeable, and skilled stewards of their money.
In truth, the financial institutions had shifted their focus completely, from making profits via sound financial management practices to making astronomical profits from the changing housing market. The guys who had the financial brains and education should have recognized the beginnings of the boom for what it was, but were instead blinded by the money to be had. At that point it became necessary to shed personnel who were skilled in fiscal management and replace them with those who could create new products when conditions that had created earlier boom markets became unsustainable (interest-only mortgages and negative amortization loans are two of them that come to mind) and those who could sell them.
There’s plenty of blame to go around in this mess. But the financial wizards are the ones that were supposed to know better. At least that’s what they told us for as long back as I can remember.
August 14, 2010 at 8:53 PM #591033Participant[quote=UCGal][quote=eavesdropper][quote=bearishgurl][quote=UCGal]
For the life of me (I wasn’t working in RE when this practice became common), I HAVE NO IDEA WHY ANY LENDER (either the one holding the 1st TD or a diff. one) would subordinate themselves to themselves or to the 1st TD holder at the time of purchase and make a 2nd “purchase money” loan (for a dn. pymt. perhaps?) and obtain a 2nd TD (purchase $$ NON RECOURSE paper) from the “buyer” in their “favor.” How risky is that??? It’s effectively 100%(+) financing and makes absolutely no sense at all to me.These lenders must have been two jokers short of a full deck.[/quote]
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]
I don’t think the personel at the retail outlets of the banks are the cause – they’re the symptoms. What triggered the lower underwriting standards was the money being generated by writing loans, selling them to the secondary market, bundling them into mortgage backed securities and selling them as investment grade vehicles… Profits were taken at every step – and they wanted more mortgages to feed the MBS beast… pretty soon you barely needed a pulse to get a loan and downpayments… pppht… who needs that. There was little risk to the banks originating the loans since they were sold off as soon as they were written and the borrower only had to make payments for the first 2 years… so underwriting standards looked for 2 years worth of solvency on a 30 year loan.
The khaki/polo clad folks at the bank were a symptom, not the cause. The underwriting standards were lowered by the corporate officers, not the clerks in comfortable attire.[/quote]
UCGal, exactly what I meant, even if I phrased it poorly. I meant no harm or insult to the khaki-clad friendly folk at the banks (actually, they seem to be very nice people). What I was trying to say was perhaps it was when the senior management of the financial institutions decided that their primary (dare I say “only”) goal was to create, market, and sell low-overhead products to the masses. With cheap money available to them courtesy of the Federal Reserve, their message changed from “save for a rainy day” (or kids’ college, or retirement, or a house) to the siren call of “You can have it NOW!” I listened to a lot of classical radio while at work back in the 90s, and I remember being disturbed by the incredible increase in bank advertising, almost all of it having to do with home equity loans. Those ads were alternated with commercials from luxury automobile companies and dealerships, jewelry stores, and high end electronics retailers, almost always with some variation of the line “Never has it been more affordable…” The financial institutions got astounding results for their advertising dollars, and as customers for loans began flooding bank branches, major philosophical shifts were inevitable, and these institutions shed their traditional “responsible stewards of your money” roles and responsibilities, and went after the “real” money to be made in selling loans, thus creating the personnel changes I mentioned. You’re absolutely right: the khaki-clad staff were just a symptom of the fever that had seized senior management.
Problem was that no one at the banks thought to tell the general public that they should be paying a lot more attention to their own money, and perhaps they should also enroll in the MBA curriculum at Wharton or Harvard, because, lord knows, that’s not what we do here at Bank of America and Wachovia anymore.
Believe me, I’m not making excuses for the hundreds of thousands of borrowers out there who are saying that they thought the bank would have warned them if they were taking a larger mortgage than they could afford. Aside from clear-cut cases of predatory lending, most people should have known that they couldn’t afford an $850,000 house on a $70,000 household income. But the while the banks were clearly engaging in the aggressive marketing of loans in the complete absence of responsible lending practices and banking standards, they still presented themselves to the public as sincere, knowledgeable, and skilled stewards of their money.
In truth, the financial institutions had shifted their focus completely, from making profits via sound financial management practices to making astronomical profits from the changing housing market. The guys who had the financial brains and education should have recognized the beginnings of the boom for what it was, but were instead blinded by the money to be had. At that point it became necessary to shed personnel who were skilled in fiscal management and replace them with those who could create new products when conditions that had created earlier boom markets became unsustainable (interest-only mortgages and negative amortization loans are two of them that come to mind) and those who could sell them.
There’s plenty of blame to go around in this mess. But the financial wizards are the ones that were supposed to know better. At least that’s what they told us for as long back as I can remember.
August 14, 2010 at 8:53 PM #591571Participant[quote=UCGal][quote=eavesdropper][quote=bearishgurl][quote=UCGal]
For the life of me (I wasn’t working in RE when this practice became common), I HAVE NO IDEA WHY ANY LENDER (either the one holding the 1st TD or a diff. one) would subordinate themselves to themselves or to the 1st TD holder at the time of purchase and make a 2nd “purchase money” loan (for a dn. pymt. perhaps?) and obtain a 2nd TD (purchase $$ NON RECOURSE paper) from the “buyer” in their “favor.” How risky is that??? It’s effectively 100%(+) financing and makes absolutely no sense at all to me.These lenders must have been two jokers short of a full deck.[/quote]
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]
I don’t think the personel at the retail outlets of the banks are the cause – they’re the symptoms. What triggered the lower underwriting standards was the money being generated by writing loans, selling them to the secondary market, bundling them into mortgage backed securities and selling them as investment grade vehicles… Profits were taken at every step – and they wanted more mortgages to feed the MBS beast… pretty soon you barely needed a pulse to get a loan and downpayments… pppht… who needs that. There was little risk to the banks originating the loans since they were sold off as soon as they were written and the borrower only had to make payments for the first 2 years… so underwriting standards looked for 2 years worth of solvency on a 30 year loan.
The khaki/polo clad folks at the bank were a symptom, not the cause. The underwriting standards were lowered by the corporate officers, not the clerks in comfortable attire.[/quote]
UCGal, exactly what I meant, even if I phrased it poorly. I meant no harm or insult to the khaki-clad friendly folk at the banks (actually, they seem to be very nice people). What I was trying to say was perhaps it was when the senior management of the financial institutions decided that their primary (dare I say “only”) goal was to create, market, and sell low-overhead products to the masses. With cheap money available to them courtesy of the Federal Reserve, their message changed from “save for a rainy day” (or kids’ college, or retirement, or a house) to the siren call of “You can have it NOW!” I listened to a lot of classical radio while at work back in the 90s, and I remember being disturbed by the incredible increase in bank advertising, almost all of it having to do with home equity loans. Those ads were alternated with commercials from luxury automobile companies and dealerships, jewelry stores, and high end electronics retailers, almost always with some variation of the line “Never has it been more affordable…” The financial institutions got astounding results for their advertising dollars, and as customers for loans began flooding bank branches, major philosophical shifts were inevitable, and these institutions shed their traditional “responsible stewards of your money” roles and responsibilities, and went after the “real” money to be made in selling loans, thus creating the personnel changes I mentioned. You’re absolutely right: the khaki-clad staff were just a symptom of the fever that had seized senior management.
Problem was that no one at the banks thought to tell the general public that they should be paying a lot more attention to their own money, and perhaps they should also enroll in the MBA curriculum at Wharton or Harvard, because, lord knows, that’s not what we do here at Bank of America and Wachovia anymore.
Believe me, I’m not making excuses for the hundreds of thousands of borrowers out there who are saying that they thought the bank would have warned them if they were taking a larger mortgage than they could afford. Aside from clear-cut cases of predatory lending, most people should have known that they couldn’t afford an $850,000 house on a $70,000 household income. But the while the banks were clearly engaging in the aggressive marketing of loans in the complete absence of responsible lending practices and banking standards, they still presented themselves to the public as sincere, knowledgeable, and skilled stewards of their money.
In truth, the financial institutions had shifted their focus completely, from making profits via sound financial management practices to making astronomical profits from the changing housing market. The guys who had the financial brains and education should have recognized the beginnings of the boom for what it was, but were instead blinded by the money to be had. At that point it became necessary to shed personnel who were skilled in fiscal management and replace them with those who could create new products when conditions that had created earlier boom markets became unsustainable (interest-only mortgages and negative amortization loans are two of them that come to mind) and those who could sell them.
There’s plenty of blame to go around in this mess. But the financial wizards are the ones that were supposed to know better. At least that’s what they told us for as long back as I can remember.
August 14, 2010 at 8:53 PM #591682Participant[quote=UCGal][quote=eavesdropper][quote=bearishgurl][quote=UCGal]
For the life of me (I wasn’t working in RE when this practice became common), I HAVE NO IDEA WHY ANY LENDER (either the one holding the 1st TD or a diff. one) would subordinate themselves to themselves or to the 1st TD holder at the time of purchase and make a 2nd “purchase money” loan (for a dn. pymt. perhaps?) and obtain a 2nd TD (purchase $$ NON RECOURSE paper) from the “buyer” in their “favor.” How risky is that??? It’s effectively 100%(+) financing and makes absolutely no sense at all to me.These lenders must have been two jokers short of a full deck.[/quote]
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]
I don’t think the personel at the retail outlets of the banks are the cause – they’re the symptoms. What triggered the lower underwriting standards was the money being generated by writing loans, selling them to the secondary market, bundling them into mortgage backed securities and selling them as investment grade vehicles… Profits were taken at every step – and they wanted more mortgages to feed the MBS beast… pretty soon you barely needed a pulse to get a loan and downpayments… pppht… who needs that. There was little risk to the banks originating the loans since they were sold off as soon as they were written and the borrower only had to make payments for the first 2 years… so underwriting standards looked for 2 years worth of solvency on a 30 year loan.
The khaki/polo clad folks at the bank were a symptom, not the cause. The underwriting standards were lowered by the corporate officers, not the clerks in comfortable attire.[/quote]
UCGal, exactly what I meant, even if I phrased it poorly. I meant no harm or insult to the khaki-clad friendly folk at the banks (actually, they seem to be very nice people). What I was trying to say was perhaps it was when the senior management of the financial institutions decided that their primary (dare I say “only”) goal was to create, market, and sell low-overhead products to the masses. With cheap money available to them courtesy of the Federal Reserve, their message changed from “save for a rainy day” (or kids’ college, or retirement, or a house) to the siren call of “You can have it NOW!” I listened to a lot of classical radio while at work back in the 90s, and I remember being disturbed by the incredible increase in bank advertising, almost all of it having to do with home equity loans. Those ads were alternated with commercials from luxury automobile companies and dealerships, jewelry stores, and high end electronics retailers, almost always with some variation of the line “Never has it been more affordable…” The financial institutions got astounding results for their advertising dollars, and as customers for loans began flooding bank branches, major philosophical shifts were inevitable, and these institutions shed their traditional “responsible stewards of your money” roles and responsibilities, and went after the “real” money to be made in selling loans, thus creating the personnel changes I mentioned. You’re absolutely right: the khaki-clad staff were just a symptom of the fever that had seized senior management.
Problem was that no one at the banks thought to tell the general public that they should be paying a lot more attention to their own money, and perhaps they should also enroll in the MBA curriculum at Wharton or Harvard, because, lord knows, that’s not what we do here at Bank of America and Wachovia anymore.
Believe me, I’m not making excuses for the hundreds of thousands of borrowers out there who are saying that they thought the bank would have warned them if they were taking a larger mortgage than they could afford. Aside from clear-cut cases of predatory lending, most people should have known that they couldn’t afford an $850,000 house on a $70,000 household income. But the while the banks were clearly engaging in the aggressive marketing of loans in the complete absence of responsible lending practices and banking standards, they still presented themselves to the public as sincere, knowledgeable, and skilled stewards of their money.
In truth, the financial institutions had shifted their focus completely, from making profits via sound financial management practices to making astronomical profits from the changing housing market. The guys who had the financial brains and education should have recognized the beginnings of the boom for what it was, but were instead blinded by the money to be had. At that point it became necessary to shed personnel who were skilled in fiscal management and replace them with those who could create new products when conditions that had created earlier boom markets became unsustainable (interest-only mortgages and negative amortization loans are two of them that come to mind) and those who could sell them.
There’s plenty of blame to go around in this mess. But the financial wizards are the ones that were supposed to know better. At least that’s what they told us for as long back as I can remember.
-
AuthorPosts
- You must be logged in to reply to this topic.