History and the "Mortgage Crisis"

Wow! What a week, this past one, the third week of September 2008!

So much has gone on, and frankly, it is very difficult for me to understand a lot of it.

One article that I have read used the phrase, “the credit market has seized up and has made it impossible for anyone to get mortgage loans, etc. (sic).” That pretty much summed it up for me and my business.

Any time that I have a problem getting a loan for a man with 817 middle credit score and 45% down, on the purchase of a single family home in San Diego means that things have gone beyond “hinky”.

With each loan application I take, I summarize with this apology: “I’m sorry. Though I have asked you for everything that my experience tells me we will need, the times are challenging. It is very possible that things that have never had to have been documented before will be asked for before we finish. I believe that we will present a very good loan package. We can get this done if we work together. Please don’t take any additional requests personally. It is simply the need for the underwriter to cover all the bases because he or she fears their own job loss.”

I was very saddened, and then relieved, that the Treasury Dept. had taken over Fannie and Freddie because I believe that those two businesses will become much more predictable as to the standards that must be met for a “good loan”. FHA loans have always made it easier for 1^st time homebuyers to invest in the American Dream and I believe the new standards that will be set for FNMA and Freddie will do the same for all loan programs.

So many people have asked me, “How did all of this happen in the mortgage industry?” I am not qualified to answer that on anything more than my experience in real estate for 26 years and good business sense, but here is my answer:

During the boom there were many nights when I worked very late at the office to keep my loan pipeline on track. I remember thinking many times that “how will these credit scores hold up if a borrower with a 680 credit score buys a home with no money down and loses his job?” If you can’t make the payments, you can’t make the payments regardless of your credit scores.

I also knew that any market that white-hot was going to cool. Sadly, I also knew that many loan officers and real estate agents only look at the “deal” and not how the transaction will play out in their client’s lives.

Then, there is the issue of so many negative amortization loans that were funded where even the loan officer didn’t understand them well enough to explain them to their borrower. I am a proponent of neg-am loans; they definitely have their place. Many, many homeowners, me included, have been able to buy homes and keep them because of this type of loan. As long as the borrower has owned property before and understands how the loan will work, they are good loans.

The final big reason that I could see was that all of the different types of loans that were introduced went far beyond common sense. In terms of the loan programs and the underwriting and approval of those loans, many of this was simply bad business and without common sense. I am and have always been very proud to work with General Mortgage in San Diego. Their level of professionalism has always been superior.

Human nature and/or capitalism will exploit every avenue until it proves harmful and then regulation will bring it back into balance.

In the coming years, I believe that the standard of education for the client and the loan officer and real estate agent will improve. It has to! The price is too high to fail and I am not just talking about money. Our clients trust us with their financial lives which directly affects their quality of life.

The need to prepare the clients’ credit report, carefully consider the loan program being offered, and understand the entire process and teach that will be the professional’s duty to obtain the best results for the client.

I challenge anyone, still in the business, to bring the level of their education up on an ongoing basis. I promise, it will be expected.

Mary Supinger

Copyright 2008 All rights reserved

Comments

[mortgage leads]

I agree, there wont be many of these "bad apple" loan officers left for much longer. i think the Gov. is going to make it much harder to become aloan officer

Chad

[mercy]

The Republican candidates for president generally supported the Bush plan but were reluctant to call for further regulations to protect borrowers. Some pundits, including former Texas Rep. Dick Armey, a right-wing Republican who now runs a conservative think tank, Freedom Works, suggested that the Bush plan violated the president's oft-spoken zeal for allowing the "free market" to work. The media fell for Bush's media spin, describing it as a interest rate "freeze" and an "agreement" hammered out with lenders and investors. But in fact the Bush plan involves no mandates or legislation, just a voluntary agreement by lenders that lacks the force of law. There's absolutely no requirement that would force banks or investors to share the pain or be part of the solution. It isn't even clear if investors in mortgage-backed securities will allow the lenders to reset the rates. They may even file suit to halt the freeze.
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Mercy

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