People need to realize that there were mistakes made at every level by lenders in their underwriting practices, borrowers in their judgment when taking on the responsibility of a loan that had a payment that was not affordable (yes people individuals need to take responsibility for their actions) Wall Street Investors for driving the machine and lastly all those people who actually got a PRIME loan can afford the payment but are simply choosing to walk away because real estate pricing have crashed and they are upside down. This crisis was not created by one organization but 1000’s with millions of willing borrowers, greedy lenders, brokers, banks, real estate agents etc.

Anybody that says a sub-prime loan is easy apparently hasnt plowed through 24 months of bank statements, gotten judgements cleared off, tax liens removed for their borrowers… I don’t know of any lender that has a larger than 3% YSP on sub-prime loans. In many cases, you are forced to give up some well-earned profit just to make the loan work. GASP! A broker lose profit…it happens all the time.

Prepays: I have never seen a lender pay extra to put a pre-pay on a sub-prime loan. My former employer as a broker had 289 lenders and with the exception of pay-option arms (not normally a sub-prime loan)none paid extra for pre-pays. I think its funny how the media neglects to mention that when borrowers were faced with the decision to buy out the prepay, they more often than not CHOSE the pre-pay because of the lower interest. Now, should it be that costly to buy out the prepay? Thats another story..

Equity Stripping: Im not justifying the CHURNING of all sub-prime borrowers but it does make sense on certain occasions. If people are maxxed out on credit, their scores can drop dramatically even if they dont have a single late. So in many cases, you stick them in a sub-prime loan to pay off the debt (without a prepay)and get their scores up then get them into a fixed product at a much better rate. Not saying it happens all the time, but it DOES happen.

While we are talking about equity stripping and churning, we should also mention the “no fee” refi as a culprit as well. As we all know, if you aint payin fees, you aint gettin a good rate. How many of these “no fee” refis resulted in a second trip to the mortgage guy to get a lower rate? TONS. You are paying 1-2% in fees whether you see them on the HUD statement or not. Banks don’t have to disclose YSP so they have a nice and tidy no-fee HUD. If borrowers were able to see the YSP on those loans, they might think twice about the “no fee.”

Financial Benefits Worksheet: Im sure they funded 0 and -1’s but that is not always CW’s fault. Im sure many of you can attest to the borrower wanting to refi JUST TO SKIP A PAYMENT. Does that make any sense? Hell no but to the borrower–it does. I have explained to people like that till I was blue in the face that it made no sense but when they said “If you don’t do it, Ill find someone who will” I relented. You can lead a horse to water all you want, but you can’t make ‘em drink.

Many times, the only true benefit is in the eyes of the borrower. To me, if you do your best to educate the borrower and they still want to do a no-sense loan…so be it.

BTW, Flagstar has a Customer Retention center here in Colorado…

Flagstar is the only one that I know of who supports the broker and offers to send information our name vs. mass marketing their company.

The employees have been kind, but CW’s policies stink, and MHO is that their management (the folks calling the shots) are selfish scum.

Sorry to all the other customers who have been screwed by them, and to their employees who are steered to lie and swindle in order to make a living. I pity them, and so does my friend.

Dealing is a part of every mortgage broker. In an earlier post, I stated that I have always provided a better financing option, although perhaps lacking in instant savings, to the applicant that would eliminate outstanding consumer debt and not recycle it. More often than not, the applicant opts for the instant savings. Similar to your comparision, if the doctor won’t prescribe what you want, you simply visit another doctor. Every broker is in the business to get business and not to let it go.

Does anybody really ever know what the true value of homes are? A home does not gain value just by aging. It is affected by the buyer’s emotions, crime rate in the area, educational facilities, employer availability and many other factors including, and absolutely illogical, what investors THINK is going to happen. The absolute and only true value of a home to a home-owner is when they tender the very last mortgage payment. To the home-owner the home is worth exactly what he no longer pays in monthly mortgage payments. If it is a rental, the home is worth what the investor receives in rents. That’s the true worth of a home until you sell it and take the cash profit…which in reality there really never is any profit if you look at the interest paid and add that to the amount you borrowed against the home.

The Lender has to assume the risk of a loss. Just like stock investors assume a risk when buying stocks which can result in a loss (although they came up with a magnificant program where you can bet on losses rather than gains and make money. . . I wonder if we could do that with mortgages? Hmmmm?)

As far as guideline changes, I think the increased default rate along with the fact that investors have no clue how much homes are going to be worth in the next 18-24 months is what is driving the underwriting guideline changes. Consider San Diego, where homes at auction are selling for 67 cents on the dollar. Lenders who capped at 80% are still looking at a 13% loss on each of those properties.

Fear of that occurring across the country is what is driving the conservative revisions to guidelines, at least in some not-so-small part.