CRA Reader Response

Morgan — Sat, 20 Dec 2008 20:22:23 +0000

This is a reader response from Jim Brown (no relation) to our recent post: The Blame Game Continued: Is CRA at Fault? Jim Brown is a 25 year veteran of the mortgage business managing sales and marketing. If you’d like to respond at length to one of our posts send us an email at tips@blownmortgage.com. Please note responses may be edited for clarity and content.

CRA is NOT responsible for this mortgage debacle. Absolutely not. These programs required full documentation at the time of origination. This means borrowers had jobs also known as employment, credit which also means 5 pieces of proven payment, and a down payment verified.

Why is everyone looking back to 1977? The answer is right in front of us. Blame can go back to as early as 2000. Banks started the demise by offering option arms, negative amortization and started loosening underwriting eliminating the need for a down payment of 20%, waiving job verification, and accepting credit scores above 620 (today that won’t get you any kind of loan).

And people thought “Hey, this Option ARM thing seems to be working,” and loans were coming in. People could afford to borrow more when they only had to pay at say 3% instead of a fully indexed 6.90%. And then what happened?

Things started getting really good. The homeowners were losing equity on the low payment which everyone thought was no big deal in a rising market. But several years later they are now losing the equity due to the changes in the Real Estate market.

No one was looking were they? In the mean time…

The Wall Street companies came along and said we can enhance those old underwriting scenarios which now look like “tough underwriting requirements”. We will do loans to 100% as long as they have a credit score of 620. And if they don’t we can still give them a loan and just charge them higher fees to close.

Hey when your down you need a punch to keep you down.

This is exactly what a higher rate and more points did to those borrowers. You would also hear, we can do that loan self-employed too. Just get me a business license!!!!!

Now the client says…”I want that loan and I can pay for it.” “Ok, sure.” So it gets done. The client thinks “I will be able to refinance when I ‘earn’ 20% more equity by next year with the market going up.”

He asks the loan officer, “Think that can happen?” The common refrain, “Oh sure homes sold today at 300K should easily be worth 360K.”

How sad that one of these Wall Street guys went down in just 2 years. But did they make one good loan?

So stop trying to find blame…it is right in front of us.

What about the responsible ones?

So, it begs the question, who wants bail out for making your payments on time with your sensible “Conventional Mortgage”? Even though you did the right thing you have been penalized by an economic calamity that caused by Greed and Money. What’s the penalty? Your job? Your 401k? Your pension?

Should we really thank the wizards of Wall Street and the banking system for creating this mess with bail out money? Or should we pass it along to the consumer who lost their job because of it while dutifully paying their mortgage on time. I say give them a year of no payments, and let’s bail out the folks who deserve it.

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CRA Reader Response