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DPChallenge Forums >> Rant >> Housing crisis- an excellent article
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04/18/2010 12:09:22 PM · #1
I figure this thread will dissolve into a rant anyway, so why not start it here.

New York Times

Please read the article before blaming borrowers. I spend my days auditing mortgage loan files, and trust me it was not all the borrowers, if you want to point blame look at the lenders and mortgage brokers that raked in millions and didn't care what happened to a loan after they got their commission or origination fees. Look at the people that pushed the adjustable rate mortgages, look at the appraisers that were more than willing to give "target" values on properties in exchange for more business, look at the people that "packaged" these risky loans into securities that were destined to fail.

Also, if you want to see how some people got incredibly rich-

Crisp and Cole Bakersfield Housing Collapse

Crisp and Cole Timeline

They were one of hundreds companies doing this exact same thing. They were just stupid enough to flaunt it.

One of many examples of what appraisers did:

Appraisal fraud

I've worked about 15 files for Crisp and Cole transactions- my company as a whole has done nearly 90. We've seen this exact same thing in all 50 states- sometimes on a much larger scale. One of my co-workers has done over 250 files (over 3-4 years) for a company that worked the southeast- Georgia, Alabama, South Carolina and northern Florida. Thus far no prosecutions have come for that company. They made millions of dollars, but did it very quietly, changed business names, floated around. I couldn't find any links to post for them, otherwise I would've happily called them out.

Even more reading:

Mortgage Fraud Blog

04/18/2010 01:08:14 PM · #2
This American Life, Show #405: Inside Job
Originally posted by Program Notes:

Originally aired 04.09.2010
For seven months a team of investigative journalists from ProPublica looked into a story for us, the inside story of one company that made hundreds of millions of dollars for itself while worsening the financial crisis for the rest of us. It includes our original Broadway song "Bet Against the American Dream": (on the site are links to MP3, video, and sheet music).

About how financial institutions used those lousy mortgages to ruin the economy ... the song is fantastic.
04/23/2010 07:57:29 PM · #3
I'm in the middle of reading How We Decide, and one of the statistics stated in the book was that 55% (or was it 65%) of subprime mortgages went to people who could have gotten prime mortgages. The premise of the chapter is that our brains are wired for instant gratification, and will instinctively choose something that isn't the best deal in the long run, if it's cheaper now. The way subprime loans are structured plays exactly into that. The most common type of subprime loan is a 2/28, where the first 2 years is a fixed rate loan with a low teaser rate, then it changes to an adjustable rate loan with a much higher interest rate. Because of the way the brain is wired, it is very hard for people to resist the allure of the low teaser rate, and the idea that they can buy the big house that they wouldn't be able to afford with a conventional mortgage (and won't be able to afford once the rate adjusts).

These companies knew this and used it for profit.
04/23/2010 08:50:01 PM · #4
It may not be all the borrowers fault, but no one should borrow money without being sure that they can pay it back. Heck, i know some folks that a year ago had just had a baby, an unemployed husband, and were stressing for half the year about possibly losing their house. Hubby finally got a job, and now exactly 12 months later, they have just bought a new house that is twice as expensive, and have a second kid on the way. They both work for the same company, and the husband is only a temp employee - at a company that has been laying folks off right and left. *And* they were stressing over the closing costs, to the point of having to borrow from their retirement account. But hey, it's the american dream. Gotta have that showplace, right?

I don't begrudge anyone the things they desire and can afford, but when those of us who pay our taxes and live well within our means (hey, our house value is less than a year's income) have to subsidize other's vanity, that's ridiculous. That $8K (or $6500 for repeat buyers) refundable tax credit has to come from somewhere!
04/30/2010 01:27:51 PM · #5
Originally posted by Ann:

I'm in the middle of reading How We Decide, and one of the statistics stated in the book was that 55% (or was it 65%) of subprime mortgages went to people who could have gotten prime mortgages. The premise of the chapter is that our brains are wired for instant gratification, and will instinctively choose something that isn't the best deal in the long run, if it's cheaper now. The way subprime loans are structured plays exactly into that. The most common type of subprime loan is a 2/28, where the first 2 years is a fixed rate loan with a low teaser rate, then it changes to an adjustable rate loan with a much higher interest rate. Because of the way the brain is wired, it is very hard for people to resist the allure of the low teaser rate, and the idea that they can buy the big house that they wouldn't be able to afford with a conventional mortgage (and won't be able to afford once the rate adjusts).

These companies knew this and used it for profit.


I audit 65 to 70 "bad" loans (a loan that has gone into default) each month. Countrywide had a loan program where the interest rate adjusted 10 days prior to the second payment (the first payment being due at closing). Two days ago I spoke with a borrower- 72 years old- he and his wife had downsized from their 2,400 sq ft home to a 900 sq ft condo to save money (this loan originated in 2006). They were told their payment would be $610 per month- and it was until their interest rate went from 5.26% to 12.25% (on the second payment). Suddenly they're being billed $1,156. They contacted Countrywide and were given a salespitch on refinancing to a lower payment if they made payments on their existing loan for six months. Countrywide knew these people had a fixed income of $1,400 per month. They used a teaser rate to qualify them- even though they knew they could not afford this after the first payment. The condo was foreclosed in 2007.

This was an extreme case but I hear this all the time. ARM's were crack and the lenders were the dealers. Lenders used the ARM's so people would come back to refinance again and again. Why give someone a decent rate that they might keep for 30 years, where's the profit in that? The people above had a 740 credit score, there was no reason they should've been in a subprime mortgage.

BTW- its not just subprimes. Half the loans that I see fraud on are not sub prime. About two years ago I interviewed a borrower that earned $9,200 per month (per his IRS tax transcript) but had done a stated income loan showing he earned $30,000 per month. He told me he provided tax returns to the loan originator, but he didn't qualify for the loan. So he and the originator agreed to inflate the income so he could qualify. He defaulted on his 3rd payment and the home was in foreclosure in less than seven months. His justification was that he was a contractor and no one was going to hire a contractor that lived in a $200k POS house. So he HAD TO have the $650,000 McMansion just to stay keep his contracting business alive. He also told me "Its not like I commited a crime. Its my f'n house." Actually- its bank fraud and interstate wire fraud- both felonies, and its Fannie Mae's house now. He was not sub prime.
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