Herb

In relation to Mortgage Fraud we are finally seeing Banks willing to speak some truth, i.e., that ?The Emperor Has No Clothes?. Basically, over the last few years a large number of loans should have never made it passed Quality Control (Underwriting, etc) and only now are these types of loan submissions being rejected. The fact is Banks are finally implementing the common-sense Underwriting rules that they willfully neglected for years. In other words, with the strings having tightened they?ve finally found the courage to tell Brokers that ?Your Loan is Naked—it has no clothes?. The truth is, of course, that it isn?t ?courage? they found: the Banks ?wink winked? and ?nudge nudged? at a variety of practices over the past few years for profit and now they are discontinuing those practices for profit.
Some people may wonder why Banks looked the other way (at minimum) and advocated (at maximum) such loose practices. Afterall, wouldn?t profit of that sort come at a substantial risk? Not really, actually?because the Banks weren?t holding all of that risky money. Everyone on the inside is aware of the ?art? of securitizing loans. With out getting into the minutiae, Banks sold off the riskiest paper in ways that affected them the least. So understand this clearly: The loss incurred by Banks is not one of default but of volume (The reason default affected Banks is because they were funding loans with leveraged money and the real lenders stopped providing the funds to continue the buy-and-sell cycle).
So what am I getting at? That Banks did not truly care about the quality of many of the loans they funded. They knew that as long as Real Estate appreciated they could play refinancing?s version of Musical Chairs; as long as the music played the borrowers could use the equity provided by appreciation to subsidize their finances. The Banks knew that the goal was to make as much money as possible while the music played?and now the music stopped. A number of the lender-start-ups are gone and they?ve taken a number or established players with them—players that always knew the Emperor Had No Clothes but refused to let some start-ups snag all of that gorgeous market share. Frankly, I believe they?ve received their just desserts. The investors are hung out to dry and everyone that was selling cars in 2002 can go back to selling cars.

The Banks could be further implicated for the creation and proliferation of ill-conceived loan programs that were designed entirely for an appreciating market. Consider, for example, that subprime loans were written so that the ARM Reset occurred simoultaneously with the expiration of the Prepayment Penalty. In the midst of depreciation this left a whole class of people that did not have the equity necessary to pay the costs of refinancing and the prepayment penalty, yet also did not have the income necessary to make the monthly payments at the higher, newly adjusted rate. This is a scenario that spirals into late payments and default when the solution could?ve been as simple as making sure the Prepay expires prior to the reset date. But hey! Those subprime lenders loved all that ?Prepay? money when they their borrowers refied out of those loans while they still had the equity, right? So that?s one example of greed and senseless loan programs aiding the demise of many lenders. Believe me, there are plenty more that I could list?but in the end, it?s Sunday morning and I?ve got some more football to watch. Then I?ll be working some more on my marketing strategies. After that I?ll lay back and smile?because the competition has dried up. And afterall, I?m here in the mortgage capital of the country—Good ol? Orange County?a place where everyone and their mothers were in the business. It?s also the Mercedes Benz capital of the world. So if you put all that together ya know what it means? It means right now you can get used 2005 SL500 for pretty cheaply around here?and I love a bargain.