Banks are still fueling the fire

God bless the account executives for banks that have put me on their rate sheet and promo distribution email lists without my permission. Without their blatant spamming of my email account (I guess they assume that since they read Blown Mortgage that I must be interested in their product offering) I would never come across these gems.

This email that I am about to share is overly typical. It shows you in black and white that the conflict of interest of sales vs. sensible lending is alive and well even in the midst of a underwriting tightening. Bank account executives who need to make their numbers push the most aggressive of their underwriting guidelines to their brokers in the hopes of winning loans. They allude to fraud, they promote the idea of “getting away with” fraudulent information on loan applications. They push the most aggressive (and least common-sense) of all of their loan products.

The mortgage mess will not get better until these practices are cleaned up. Big banks – are you listening? If you want to protect yourself from future write-downs you may want to look at what type of business your sales agents are drumming up.

This one from a Wachovia rep but it could be any of the big banks on any given day. And pardon the spelling, we’re not always dealing with rocket scientists here:

Subject:
NO MINIMUM TRADE LINES – NO SCORES – JUMBO CASHOUT STATED 620 – INNER FAMILY TRANSFERS

WHAT WACHOVIA?S PORTFOLIO CAN DO FOR YOU????.

620 FICO STATED WAGE EARNER ? 80 LTV ? CASHOUT

620 STATED FIXED INCOME ? 80 LTV CASHOUT

STATED OPTIONS ARMS ? UP TO 90 LTV PURCHASE OR RATE AND TERM ( 700 FICO )

INERFAMILY TRANSFERS ? 70 LTV

FIXED RATE OPTION ARMS

100% GIFT FUNDS ? NO GIFT LETTER NEEDED

30% GIFT OF EQUITY

JUMBO STATED CASHOUT ? NO ADDS

LLC LOANS

BROKERS AND REALTORS LOANS

90 DAYS OFF MLS ( 60 DAYS BY EXCEPTION)

NO MINIMUM TRADE LINES

NO MINIMUM FICO SCORES 75 LTV

NO CREDIT OK

NO LIMIT TO AMOUNT OF PROPERTIES

WE NEVER AS FOR 4506T

STATED NON OWNER CASHOUT 70 LTV

FOREIGN NATIONALS TO 70 LTV ? ONLY NEED VALID PASSPORT

CO BORROWER DOES NOT NEED SOC SEC NUMBER ? 80 LTV STATED

Why do account executives push the shady aspects of their guidelines?

“We never ask for a 4506T” implies that income will not be checked on stated income loans. That is pretty much an open invitation to over-state income because there is no recourse for the lender to request tax returns on the individual. The 4506T lets lenders order tax returns from the IRS on the borrower. These are usually executed only if the loan goes bad as part of QA to find out what went wrong with the loan.

Of course, if the 4506T is materially different from the income on the loan application there could be reprecussions against the loan officer (either retail or broker) for a fraudulent loan application.

Brokers and Realtor Loans

Many banks are now eliminating stated income loans for brokers and realtors as conflict of interest loans. Not only is it likely that the broker or realtor making less this year; but the fact that they know how to “work the system” by over-stating income and assets makes them particularly high risks when it comes to financing. By highlighting (and these were highlighted in rainbow colors in the original email) these nuances the account executive is telegraphing the ability of Realtors and Brokers to utilize this loop-hole to secure their financing (no matter how legitimate it is).

I could go on – but most of those “highlights” scare me to death. If loans are still be underwritten with some of those guidelines we are going to continue to see poor vintage quality for 2008. This of course pushes out the time horizon of recovery as these loans will no doubt go bad at a higher rate than conforming or fully-documented loans. Until banks stop pushing the edge and start promoting reasonable and responsible lending practices by all parties (and not leaving suggestive invitations for fraud and malfeasance) we won’t be able as an industry and a country to put this housing crisis behind us.

Is it just me or is this type of advertising bad for our industry?