A Review of Recent Mortgage News

CNN recently aired a ‘Special Report’ about the crumbling state of the mortgage industry, interviewing victims, offering tips on how to avoid a predatory broker/banker, adding all the tear-jerking drama that mainstream media loves to lace the airwaves with.

Yesterday NPR reported on Ameriquest’s most recent run-in with law-enforcers, as the defendant in a class action lawsuit, maintaining the mortgage giant was guilty of all sorts of detrimental misrepresentation. Some of the claims caused me to laugh in partial disbelief as I listened. For example, attorneys for the plaintiffs alleged that Ameriquest loan officers:

Switched out documents at the closing table, giving clients 2 yr ARM’s instead of 30 Year Fixed.

Made $20-$30k commission rips in the process, thus wiping out homeowners equity (and heres the gut punch) which was actually phantom equity ‘created’ by aggressive appraisers in cahoots with their Ameriquest bag-men. So…Ameriquest created additional capital via the mortgage transaction, then took it all for themselves, to then receive the home via foreclosure. Nice.

Mortgage fraud has finally hit the mainstream consciousness and its about time. These types of grievous actions, mostly committed by professionals working for chop-shops far less famous than Ameriquest, were called sensational, false, grandstanding, shock marketing, etc. by many people who visited my blog 6-8 months ago (albeit mostly mortgage professionals). An I told you so seems appropriate here, so there you have it.

Now the greater mortgage industry is spewing out changes to mortgage qualification guidelines faster than they can weigh their actual effectiveness. Raising credit score requirements, eliminating (Sub-Prime) programs, running more comprehensive checks regarding someones intent to occupy a property, or determining its real value…tightening guidelines in general by placing rigid stop-gaps within a very flexible industry is the protective equivalent of putting a cop at the front door while the back door swings open and unguarded.

As guidelines change so does everyone else in the industry, the savvy industry pros are always 2 steps ahead of the lawmakers. Case in point, everyone is so focused on Sub-Prime that no one is looking over here while I silently pilfer $30k out of Dr. Smiths $750k lake house or jack $15k from Joe Investor.

More rules and regulations are not the answer to the mortgage pandemic, they’ll simply contribute to a more confusing process. The Real Estate Settlement Procedures Act (RESPA) already requires a books worth of papers to be signed for the protection of the borrower (that did alot of good). Booklets and other educational material are a waste of trees, and eliminating certain programs more often than not punishes the very people the laws are meant to protect by yanking the carpet from underneath their feet. Good paying borrowers who still may fall under the ‘Sub-Prime’ moniker are left with no alternative….

The mortgage industry experienced unprecedented growth over the past 5 years, however it still has yet to mature. The rise in payment defaults and subsequently foreclosures should be no surprise, it was bound to happen as a direct correlation to the amount of qualified mortgage borrowers rose to historic highs. The brazen actions of brokers/bankers as well as the willingness of borrowers to accept mortgages they knew they couldn’t afford are the consistent key contributors to these ‘hard times’.

The ability to qualify for a mortgage was increased substantially with the roll-out of thousands of new programs and everyone took advantage of them. In the end, there is still only one comprehensive solution to the mortgage woes…100% Transparency and some simple standardized ‘tests’ to insure all parties to the transaction are clear on exactly what is being sold.

Stop the ridiculous ‘rule’ that allows bankers to not disclose YSP. This causes borrower to commonly identify banker originated loans that are more expensive to be less expensive than the same loan originated by a broker.
Make YSP a focal point on the GFE and HUD-1.
Stop the private YSP bonus incentives offered by wholesale lenders, unless they are properly disclosed to the borrower as well. Standardize the formula for determining the Annual Percentage Rate on any given loan.
Increase licensing requirements for individuals selling mortgages to the levels commonly associated with securities traders.
Increase the minimum paperwork required for stated income borrowers.
Dutifully verify 3rd party professional validations, i.e. CPA letters that certify self-employment.
Increase common sense. As was reported in the CNN story, there should be no way a non-English women who makes $24k/year qualifies for a $350k home.

ENFORCE THE LAW AND PROSECUTE THE PERPETRATORS.

RESPA needs an enema.