Tuesday, August 26, 2008

News Flash:

What do credit apps, tax forms, and fairy tales have in common? They all contain a bit of embellishment that... umm... may vary from the truth.

This apparently surprises some people.
Now, the credit histories of many applicants are not good enough to get approved for mortgages, except through some creativity - or chicanery - by brokers and loan officers.

The most common type of fraud that MARI found pertained to employment history and income. Many applications exaggerated how much borrowers earned and misrepresented their job descriptions.

I remember in the late '80s, when I was briefly selling cars for a living, having another salesperson tell me how "It's wrong to lie on these forms, so I just present the truth in the most favorable light possible," as he changed a garbage man making $12.50/hr into a Waste Disposal Engineer making... tap, tap, scribble... carry the two... round up to the nearest ten... $30,000/yr.

PS: Interestingly, the little poll shows that 44% of respondees are unaffected by the mortgage snafu. I'm going to postulate that those who really took it in the shorts, either being badly upside down in their crib or getting kicked to the curb by a foreclosure, are probably not regular readers of Money.CNN.com. Perhaps if they ran that poll at an online gambling site or a 419 scam relief organization, they'd get different numbers.


phlegmfatale said...

The person who processes the loan on a mortgage-- the one who originally writes the application paperwork-- will most likely make at least 1.5% on the transaction. They have a big personal interest in writing as many loans as possible. I don't know about other states, but in Texas it's been legal for a person to write a statement of additional income (mowing lawns, shadetree mechanic-ing, selling one's household pets into slavery) which will not be verified by the mortgage company. I think this has changed, given the current state of affairs with foreclosures, but on the basis of unverified income, a lot of people have been approved for loans vastly beyond their means. Oh, and it was not legal for loan officers or mortgage people to tell people they could do that (pad the appearance of their incomes), but probably a lot of them made it known to loan applicants. There are people to blame in the RE/financing industry along every step of the way, and only a moron wouldn't have seen the collapse coming.

Less said...

Phlegmy is right... A lot of loan guidelines weren't requiring full income verification.

This was a fault on:
1.) The buyers for thinking that they could get a huge home for little to nothing.

2.) The brokers for getting unqualified folks loans

3.) The original lender - since it allowed brokers to "get creative" and

4.) Fannie Mae - for not have realistic guidelines when purchasing loans to get sanitized... (Why on earth would they think these type of loans were stable enough to package as bonds?!)

the pawnbroker said...

"I'm going to postulate that those who really took it in the shorts, either being badly upside down in their crib or getting kicked to the curb by a foreclosure, are probably not regular readers of Money.CNN.com."

no, they're viewers of "flip that house", mortgage broker ads promising "100% loans with no money down and everybody's approved", and the "free money" lawyer promos.

i'll further your postulation and say that few of
those getting "kicked to the curb" lost a damn thing; they got to live in a house that was way beyond their means with teaser rates and other shenanigans; they got a free ride for a few years...and if prices had kept shooting skyward they could even borrow out appreciated equity or sell for a profit, and the brokers and banks could keep churnin' and burnin'.

but if...shocker...the pyramid peaks and collapses, the buyers, brokers, and bankers man-up and take responsibility, right?

uh, no...taxpayers and stockholders pick up the burden, as usual, the buyers go back to renting what they might really be able to afford and walk away with no harm/no foul except to their "credit" which probably wasn't stellar to begin with, the brokers fold up shop and go back to phone soliciting or whatever, and the banks bundle up their losses and dump them on...taxpayers and stockholders.

no "empathy" from me for most of the "victims" of the real estate blowup...people with half a brain stayed put or bought what they could afford and resisted pitchmen and greed...but as usual, they're still expected to pay the bills.

but for those who feel that they must help those poor foks being turned out of their homes, you will have a chance to fund a program or fifty that will give those fine people another free house, free medical, and...and, oh, the possibilities!

just pull the lever under "dem" in november, or "vote your conscience" by abstaining or going third party...

and turn everything over to the worst (economic and social)terrorists of our time...

o_ama bi___den.


Fuzzy Curmudgeon said...

The interesting thing about that poll is that only 3% are reporting that they lost their home in a foreclosure. None of the other categories of response indicate anything more than inconvenience (can't sell the house, house lost value) or no problem at all (deal on new house, or no affect).

So the real result of the poll is that 97% of the respondents so far are reporting either a little discomfort or no problem whatsoever, and only 3% have actually lost their home in foreclosure, which is probably not what CNN would really like to be able to report.

I'm sure they'll spin this as "59% of homeowners are affected in some way" instead. (The current number of "hasn't affected us at all" being 41% rather than the 43% Tam originally reported.)

Somerled said...

Greed triggers corrections in markets--eventually. The same greed prompts calls for government to "fix" the markets and we have another war on ... something.

Alexander Hamilton said it well, "The people, sir, are a great beast."

We can choke on all those bones thrown to us.

Drang said...

"So the real result of the poll is that 97% of the respondents so far are reporting either a little discomfort or no problem whatsoever, and only 3% have actually lost their home in foreclosure, which is probably not what CNN would really like to be able to report."

We're all being affected, if only by the fact that the horror stories in the media are making a Gubbmint Bailout inevitable, which, of course, will cause taxes to go up, ditto the deficit and debt.

Not to mention the negative effect this is having on the real estate market. House values soared, to simply absurd heights, and now any homeowner is taking it in the shorts, due to the tax-appraised value of their property having kept up while values were rising, but not keeping up when they fall.

Adrian K said...

So far I'm in the inconvenienced category. (At least until Big Blue cuts our group and moves it to Malaysia)

Our 1400ft^2 3-bed 2-bath is getting a bit cramped with two growing children, motorcycles, and a Mary Kay business (read: inventory).

We can't sell and won't be able to for sometime though simply because there's no demand down here for a 15-year old house right now.

Just two blocks away, a pair of asshat developers bought up of what were 5 acre pastures and berry fields and sub-divided them into 1/8th to 1/10th acre lots and dropped 2200 ft^2 into them. 40 of the 65 houses are still unsold from the first group, and 51 more are under construction.

Insult to injury, they're houses I'd never own because the plans have MAJOR space-utilization flaws. Small kitchens, stupid features like 200ft^2 2-story foyers with fancy narrow stairways, tiny bedrooms that won't fit a double. They look great on paper though, with all the Street of Dreams doo-dads you could ever want. Pretty enough that they drive right by mine.

The developer is so screwed right now that they're selling the houses for 275 instead of the 350 that was advertised 2 years ago. Which puts those pretty, fancy boxes right where mine would be priced since I'm on twice as much land.


Matt G said...
This comment has been removed by the author.
Matt G said...

Add into it the ridiculous amount that people will take in loans based on their income.

After we had been married for about 3 years, my wife and I decided to get a house, and found that while our income was small, our credit rating was considered high. The first mortgage broker we called --a shyster, it later turned out-- offered us a loan with payments of up to 50% of our monthly household income!!! When your net household income is about $2400, that's insane. A complete recipe for failure, for a family of 3. We fired his ass after realizing that the numbers changed every time that we spoke to him.

We're in the process of buying a house, now. The process has gotten a quite a bit more complicated than it was last time. The funds verification process is, uh, rigorous. There is a frickin' federal form, serially-numbered, mailed out individually to your bank, which is to be filled out to prove that (a)we've got the money that we say we do, and (b)we're not terrorists moving money around in new and ingenious ways, using house titles instead of cash.

I wish I were joking.

At any rate, for my wife and me, the subprime mortgage failure hasn't affected us at all, beyond our shame of our fellow citizens, and our fury at our government for bailing our the mortgage companies.