Loan debacle.                                      10-05-07.

Yesterday I attended a community outreach conference, put on by the Women's Council Realtors in the White Mountains.  Three separate topics were covered.  The first was a presentation from the government agency in our state currently investigating loan fraud.

One of the interesting topics covered, was the straw buyer issue.  They explained a scenario that is apparently very common.  In this scenario the scammer would buy homes at the lowest possible price and then find someone with good FICO scores and use them as a straw buyer to obtain the loan and purchase the home at a much higher price.  In one case, a 78-year-old man whose son was in trouble with his business and about to lose his home.  They arranged to get a much higher appraisal than is realistic, and the father, then purchased the home, allowing the son to walk away with the $75,000 in non-existent equity.

My first experience with lenders and real estate was precipitated through a broker, I once worked for.  He did not have time to train me and referred me to a lender that could help me through the process.  Looking back at that period of time over a decade ago.  It seems like most new Realtors were being trained by mortgage brokers in the art of obtaining loans for buyers, whose credit and income were marginal or worse.

It wasn't long before I connected the moral dots realizing that this was of no value to anyone except the mortgage broker and the Realtor.  By this I mean, the mortgage broker would get a commission.  The Realtor would get a sale and commission then the buyer would get a loan they could not possibly sustain over time.  In thinking this through I realized that this poor family, who currently had bad credit or an income level that would not qualify to purchase a home, would be used and left in a desperate situation.  Extrapolating further their children would be harmed, and possibly homeless.  Unless they could buy some time by borrowing money from family or friends, which would only delay the inevitable.

Because it is my belief that ill-gotten gains soon take the wings of the damned, I chose not to follow that path.  However, many people did.  I remember being told by a buyer that the mortgage broker explained to them that the lender would like to see seasoned money as the down payment.  Meaning, they wanted to know that the buyer had saved the money themselves, rather than having borrowed it.  Probably because it signaled a work ethic and responsibility on the part of the buyer.  They explained that the buyer could write a letter falsely claiming to have sold their nonexistent sailboat to explain why the down payment had only recently been in their account balance.

In the early part of my career.  I ended a relationship with a manufactured home dealer, who I had been working with to find land for customers buying their product.  This individual had taken a potential buyers, W-2 form and white-ed out the stated income, replacing it with a much higher amount.  This person would profit, if memory serves to the tune of $20,000.  This poor man with four children, and a barely running vehicle would surely be bankrupt in six months.

This was the beginning, and over the next 10 years with little funding for oversight, the problem grew until we find ourselves in the position we are today.  Although you cannot exonerate the lenders, who allowed many of these stated income, adjustable arms, etc. to be underwritten and closed. It appeared to degenerate into a feeding frenzy on the part of the lenders. 

Now that the lenders have to deal with the possibility of many many foreclosures, once again from my perspective, the common sense escapes them.  From a simple man's point of view, you would believe there would be a rush to modify these adjustable arms to prevent foreclosures on a massive scale.

The good news, and I hope I get this right, because I'm going from memory.  In watching the news yesterday morning I believe, Citibank had reported a large drop in their profits.  I believe that the bankers and financiers around the world. can't currently loan money, and if they can't make money  they must find a way to correct this problem.  In reality, the average citizen is seen as a mechanism to collect interest.  The only way that our population is of use to the powers to be as intended is when they are paying interest to the bankers and financiers of the world.  So if they need it fixed to make money.  It will get fixed.

Sorry to sound so jaded, but we are truly just one ant in their ant farm.  If we don't produce we won't make money for them.  They will find a way to loan money, because they need us toiling and paying interest for their way of life continue.