Listen, I know I have started a couple of lively exchanges of idealogy here on Active Rain talking about this subject. If you've read my blogs you know I don't fault the lenders or Wall Street - at least I don't hang them out there to dry all alone - I throw a major portion of the blame on the "why can't we all just get a loan" crowd of equality minded socialists.
This current implosion of non-prime lenders is an example of what happens when otherwise intelligent business people give in to the whines and complaints of the liberal sociopaths who all but dominated the media.
To show my other card I will say those lenders are getting what they deserved for making the decisions they made to offer lending solutions to people who honest to goodness did not deserve them! The truth is the lending industry is a great place for profiling: not on personal appearences, religious beliefs or ethnicity but on their credit profile and financial profile.
People with bad credit do not deserve good loans and anyone who loans money to them deserves to suffer the consequences! (Fortunately it was always my "competition" who did the really crazy stuff.)
If you are not keeping up with it there are 36 major lenders who have dropped off or been sold at distress prices during the last 3 months! Even the big lenders are suffering and drawing back into their shells like hermit crabs under attack.
What can be done to save the industry? Time. Tick, tock, tick, tock.
The indsutry is adjusting. Non-prime won't go away but it will definitely return to pre-2005 conditions where you actually had to have credit and income even to qualify for a street type loan.
Here are a couple of numbers for you:
In 2004 we were one of the few lenders in Georgia where you could get 100% investment financing. We required a middle score of 680 and a DTI of 45% or less, full doc only with 6 months of seasoned reserves. It was only available in a fixed 30 or fixed 15. That was it. We did dozens of loans every month.
In 2005 our volume dropped sharply and people were telling us there were brokers doing loans for investors with NO DOC (NIVA) down to a 620 middle score. My exact words to my staff were: don't worry, this won't last long. It lasted just about 22 months.
Now there are very few lenders offering anything less than 660 full doc for investors in Georgia although there are still some who allow stated income. My guess is that pretty soon we'll be back to business as usual with good old Novation Mortgage being the only place in town (again) to get 100% investor financing at decent pricing.
A Bone and a Warning
While I am going to share with you a link which "tracks" subprime lenders in trouble I am also going to tell you that the way it is presented lacks detail and explanation. Before you ASSume the information to be portrayed correctly do your own research. Fremont, for example.
Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683
34 Comments on Surprise! People With Bad Credit Don't Pay Their Mortgage Payments!
MAR
05
2007
"While I am going to share with you a link which "tracks" subprime lenders in trouble I am also going to tell you that the way it is presented lacks detail and explanation. Before you ASSume the information to be portrayed correctly do your own research. Fremont, for example. "
I am assuming you mean www.lenderimplode.com , They are liberal on their shut down list. But Fremont isn't wrong, the FDIC (!!) shut their residential lending down with a Cease and Desist order. They filed a 12b-25 with the SEC regarding the whole thing.
As far as the meat of the post, I agree, bad credit should get very restricted loans if any. But I disagree as to their motivation (greed not pressure from liberals, the media, and socialists) and that the lenders are good at profiling credit risks. Clearly they are not or we wouldn't be in this mess.
On another note, it is good to see you posting, I haven't seen you around in awhile and was beginning to worry.
Mikey I had business to tend to - a few seminars and an opportunity to investigate some mortgage fraud but I turned those findings in today and now I can have some fun again. And I'll give you greed as a driving factor but not the original motivation. And I did forget to post the link to http://ml-implode.com/ As for Fremont I was simply using that as an example of how the information provided on the implode website warrants further research. I did find it odd that I contacted a Fremont AE for his take on it before he even heard the news. You can't just loan people's money without following the rules.
Ken, I've noticed over the last few weeks I'm getting more offers with 5% down payments. I guess the 100% with a 580 score ain't happening right now. And that's a real good thing.
BTW good talking with you last week. Your advice helped me get my deal done.
Here in Connecticut, I have found that our lenders, even sub-prime, will not touch anyone with scores under 600. Even when sales were high, they wouldn't touch it. I must have found the good lenders:) I can tell you, I have had clients who had to attend mandatory credit classes for weeks before their loan closed. It was a requirement of the lender. Just about 1 1/2 years later, they went into foreclosure. They just keep making bad decisions. They refinance online, then cannot make the new payment, because they go out and buy things they don't need, again. It is a horrible cycle. Thanks for the tip on the link!
great post, 100%, zero interest, and others just sets the average person up for financial failure. How many folks that bought during the boom of 2004/2005, whose home is now worth thousands less than when they bought, and now need to sell are upside down. These new-fangled mortgages are killing them. I do feel the foreclosure numbers will increase and I hope I am wrong!
It never does anyone any good to lend them money when it puts them in a worse financial situation than they already are in. I, personally, am glad that the rules have gotten stricter once again. I am not against promoting homeownership for all, but you have to prove that you are credit worthy. It is really sad to see people barely make it into a home, only to lose it within a year or two, and a divorce or bankruptcy later.
Glad to see you back posting. Today's USA Today had another article about the folks who are seeing rising payments. My favorite quote was from the homeowner who had purchased a new car-and missed her mortgage payment that month-and then found herself unable to refi because her credit scores had dropped. And her response was that not everyone can be good ALL the time, and that 'sometimes, i'm just late.' Tell me why that's the fault of the lenders out there. It's a personal responsibility issue.
I agree with Valerie. I really believe in getting people into homes they feel comfortable making the payment on, which is sometimes not what they "qualify" for. If they're going to end up losing it for being in over their heads, what service have I provided? Good points here : ) Thank you-
I have mixed feelings on the loan changes; obviously, some restrictions are necessary, but I took full advantage of stated-income and NINA programs to build my personal investment portfolio....so I'm kind of partial to the variety of programs we had....
I know it is tough out there, but no matter where you are trying to get a loan I promise you, it can't be more difficult than it is in Ohio!
SB185.
Genius, pure legislative genius. Rather than converge and plan with the people who understand the industry and make them police their own, the brilliant minds that lead that state took them right to the proverbial brink with a property tax increase of 42% (in some cases) and removed almost 15% of the states own population (averaged out from last year's data available) from the ownership pool.
And at the same time forced people into foreclosure.
I would have to admit that while some of this was a long time coming, it is only going to get worse before it gets better.
And I love ml-implode! I found that site in January and I go there every few days. Morbid, yes. But even when the truth is scary - it's still the truth.
Ken.. good to see you back around. A good post with some good insight, but I am going to have to disagree on the overall perception of what people think and in your case, people don't deserve loans that have bad credit.
If I got back the last 6 years, I am just going off my numbers, those around me, and people that I talk to on a daily basis. I bet it would surprise you that a larger number that you think, had decent to good credit. And they are being foreclosed upon. Besides, in this post, you failed to define 'bad' or 'poor' credit. Are we talking about multiple lates on most cards in less than 6 months? A year? Had some problems two years ago, but their credit scores are low?
I will dig up the information, but I saw a few studies that mentioned over 30% of these people actually had good to very good credit. What? 30%? In this post, you didn't factor job changes, loss of jobs, decrease in pay, another child, RAISING TAXES... I had one lady's whose taxes went up $2,500 in one yr.... and she was making good money. Now she is having a hard time paying.
My overall point is that you bring up a good point. And that lenders are folding up... yes, they made many bad loans... but did they make as many as one would think, just because someone can't make a payment? Did a previous loan officer put an "A" paper client into a high risk loan? I heard those often also... so, be can blame everyone, both consumer, lender, wholesale company, underwriter's, laws, states, congress, etc etc.....
One last thing... you said it was your competition that did the really crazy stuff.... define crazy? I have seen some extremely tough loans get approved FHA.... and those clients had bad credit, but they are still making their payments 1 to 2 years later.... again, I think the term 'bad credit' needs to be defined. I understand a lot of what you talked about, because I have been in the business for over 14 years.... but we need to educate everyone with true facts of percentages and not just companies going out of business. Again, just my opinion.
Bryant Tutas: As always, my pleasure and I hope that all works out for you and your pocket. Are the fish jumping on the dock yet?
As a lender I have never thought it good business to make bad loans (good loans to bad borrowers, as clarification for Brian Brady). However, to demonstrate that my summary of lenders creating loans because they were "demanded", "suggested" or whatevered here is a quote from the FDIC themselves:
"The mortgage market has again been transformed in recent years as significant product innovation by lenders has expanded the supply of mortgage credit to meet the rising demand." Link here
Ken: Thanks for this amazing post. I am wondering what the ramifications (short and long term) will be in my market. It is a little scary. I have an escrow (sale side) that is an FHA loan. Haven't seen an FHA loan since I was licensed in Nebraska.
Jeff: You forgot rising energy costs. Not only were us westerners paying outrageous gas prices (as always), our electric utilities credit ratings are ruined (the price of ENRON) and we see electric rates rise at incredible paces. My summer electric bill hovered around $100 a month after we moved in our current house in 2002. My bill LAST month January, was $149. I cannot wait until my summer electric bills which I project to be $400-$500 a month. Oh, and you forgot how credit card minimums doubled too. You are semi-right-on-track with your comments though. I think a combination of several of our scenarios could set any household in a tailspin.
Renee....great feedback in regards to where I was going with that. Yes, you are so correct, about rising energy bills....because this is not factored into a mortgage payment. Either is car insurance.
Again, Ken, you bring up a good topic, but I think people are pointing the finger at a small part of a large problem.
Good post. I think there are going to be opportunities for many foreclosures here shortly in my market. However, I think some irresponsible lending is going to leave banks over extend on many loans with properties they cannot recuperate their losses from.
I went to a training today on how to short sell a listing. Seems that the practice is becoming so prevalent in California, we need training on how to do it right. It was a bad way to start the work week.
"The mortgage market has again been transformed in recent years as significant product innovation by lenders has expanded the supply of mortgage credit to meet the rising demand."
Ok, I will play. I read the FDIC article and nowhere did I see the increased demand due to the media, equality minded socialists, or liberal sociopaths.
On the other hand the FDIC posted this graphic:
Looks to me that privatization of securitizing loans to take away market share from Fannie mae and Freddie mac led to the greater availability of products to a wider range of people, Which then increased demand for homes, which then drove the lenders to offer more "affordability" programs so that their loan volumes (and cash flow) didn't stop growing. The private market is the one that fueled this, driven by dollars. If a political party drove this then it would be the GSE's with the market share and lax underwriting.
Blaming factors outside your industry is convenient, but the underwriting standards start and stop with the originators. You keep looking for an excuse not to blame lenders, but at the same time preach personal responsibility. This juxtaposition I simply can't reconcile.
You can't legislate good credit. With the recent changes (disasters) in the sub-prime market there has been a flight to quality. There is a limited secondary market for these loans and many of the big non-prime lenders are going down like trees in a hurricane.
Good post. It is time for a reality check. Good lenders make the appropriate loans to the right borrowers.
Here in Florida, it is easier to get the loan, then they find out they cannot afford the maintanence,taxes,insurance, and they cannot find a person to rent it out to or not enough to cover what it costs them to carry it.
within 6-12 months they try to sell, they become upside down in the deal,cannot pay us,wont reduce the price from a number that is not reachable, i had a guy call me the other day, he didnt tell me he was listed,set up an appointment to meet, then i found out he ws already listed and was just pumping me to see if the other realtor priced the house right, he first listed for 2,400,000, it expired, relisted at 1,9999999,then raised it again to 2,100,000,the problem was there was never a sale over 1,500,000,he owed 1,300,000, the community was new and he bought it 8 months ago, i bet there is a prepayment penalty as well, and unless the buyer comes in with atleast 10% down, there will probably be some sort of seasoning issue even though ,he might be ok, after 6 months.
I've seen your posts several times now, yet I have not found an email address associated with them. I find your posts insightful and to some degree entertaining - in a Benny Hill sorta way.
The common denominator in all of the above perspectives is perhaps greed, desire, misguided and untested plans or even an over-inflated sense of self-worth.
But it is simply all about what people want and what they are willing to do to get it. From the buyer, to the builder, to the agent, to the developer, to the reference, to the loan officer, to the lending AE, to the lender, to the secondary market, to the person that bought the bonds and then back around to the buyer.
I think it's fair to say that as in all things in life, where you have a want or a need, a desire or a dream there will always be someone available to provide you the means to get it.
A previous post alluded to a familiar phrase on these forums, "You can't legislate common sense." Man, I love that one. :)
It's kind of funny to me - you know- credit scores and all. I never used to worry about my credit at all, I still don't, but I am now aware of it. Since becoming aware of my credit and doing nothing consciously to fix it, as it wasn't broken, it has risen about 40 points. All I ever did was to always pay my bills on time and apply for more credit. The amazing part as I see it is that the people who need the help are predominantly the ones who either won't listen or lack the discipline to fix and keep their credit in good repair.
Mikey, you and I can write almost the same thing but seem to come from two different planets. Kind of reminds me of an old college friend. When we had a conversation it always sounded like he was arguing when he was simply recounting what I had said and adding bits to it.
Sometimes it's not a reply comment. Sometimes it's an entirely new blog post.
I wrote about this the other day at: The Buck It Don't Stop Here / Shame On The NAR when the NAR disgraced themselves! The Monday morning I watched CBS point fingers. Then you step in pointing your finger!
I hope this is only to start a "lively exchanges of idealogy" we don't normally disagree so extremely.
I started to comment here but ended up posting separably at Congratulations Ken you're in interesting company, CBS, the NAR.
How about those "interest only" loans......you are never able to pay down the principal. Everyone one wants everything and they want it NOW! Most people don't save $ anymore and most people spend beyond there means, it's C R A Z Y Back in the depression people lived in a frugal manner and saved what they could. If they didn't have the money to buy something, they didn't buy on credit. Sooner or later you have" to pay the piper!" Most people today don't think about where the money is coming from , much less care!
BINGO! Patricia nailed it on the head ... almost. The problem is not the interest only loan ... it's the interest only borrower and the interest only loan officer. Interest only loans can be extremely powerful tools in the hands of a borrower who understands and knows how to use them. What you must always keep in mind is that interest on mortgages is front loaded. What an interest only loan does is allows the borrower to make principal reduction payments so that when the loan recasts the payments are lower. So if I pay down the principal on a rental property on a fixed 30 loan my payments still remain the same for the during of the loan. HOWEVER, if I pay down the principal on my adjustable interest only loan when that loan recasts it recasts on a lower principal amount which is reduced directly by my principal contribution. It's a great place to spend my tax refund. The problem is most loans are more sohpisticated than most borrowers and most loan officers. Once again, education can fix it. Thanks, Patricia for your comment.
Whilst I would love to reply to your other post, you made it members only, I will just assume it is an article extolling my virtues. I agree, I am wonderful.
If it is an article listing all your data proving that the housing/credit bubble was caused by the media, equality minded socialist, and liberal sociopaths then I can't wait to see it. After all that theory is infinitely more logical than corporations exploiting a free market. Or not..
"The problem is not the interest only loan ... it's the interest only borrower and the interest only loan officer. Interest only loans can be extremely powerful tools in the hands of a borrower who understands and knows how to use them. What you must always keep in mind is that interest on mortgages is front loaded. What an interest only loan does is allows the borrower to make principal reduction payments so that when the loan recasts the payments are lower. So if I pay down the principal on a rental property on a fixed 30 loan my payments still remain the same for the during of the loan. HOWEVER, if I pay down the principal on my adjustable interest only loan when that loan recasts it recasts on a lower principal amount which is reduced directly by my principal contribution. It's a great place to spend my tax refund. The problem is most loans are more sohpisticated than most borrowers and most loan officers. Once again, education can fix it."
Actually, what would fix it would be proper underwriting. Lenders making sure your borrower was proper for the loan not trusting the broker or borrower. After all this is big money and big business, and there is no trust, only due diligence and sound underwriting. THAT is the lenders responsibility and they are not doing it.
"Actually, what would fix it would be proper underwriting." Proper underwriting according to ridiculously loose guidelines or proper underwriting according to what I would agree to be fair and equitable lending requirements? Actually I don't think I mentioned you in that other article and I made it Member's Only because this is turning into droning - not to keep you out. But I bet there are some things I've written that would make your mind sizzle that are members only. Time for you to sign up and let people have a glimpse at you!
Just regarding the comments about interest only loans: I don't think they are as bad as everyone is saying. In fact, I recommend the 10-year fixed, Fannie Mae conforming, interest-only loan to many of my borrowers. (Those with bad credit won't qualify for this Fannie Mae product.)
Then, I give them the Principal and Interest payment on paper. I tell them that they should pay $1200 per month (for example), instead of the $1000 that their statement says. However, if times are ever tight-- (and we've all had some tight months, right?)-- they could "fall back" on the interest only payment.
This way, people have a couple to a few hundred dollars "buffer", in case they ever need it.
Personally, I think its a great loan. Also, since the average homeowner stays in their home for 7 years or so, they barely pay down the principal anyway. The great majority of their profit will be in appreciation.
If I don't have intentions of keeping my home until the day I die, I don't see any point in paying down principal. That extra bit of money does me far better in my hand.
So that's my case for interest-only loans. I love them. Well, I shouldn't say that. I love one or two of them: The Fannie Mae 7 or 10 year I.O. ARM.
Karen.. When these neg amortization loans first hit the market in the 80's I told my buyers that this would be a good thing using the same analogy you did.. but the problem is that very few borrowers have that type of discipline.. the $200 always goes somewhere else..
Afraid I agree with Mikey.. these loans became popular because lenders pushed them.. I have never understood the rational behind the fact that a buyer must fully qualify for a 30 year fixed rate loan ... where he knows what the payment will be every month for 30 years.... but he can do stated income for an adjustable where the rate can change significantly.. it a crazy way of doing business..
I don't think we need to go back to 20% down loans but I believe it is a huge mistake to not require borrowers to have some funds they must use as a downpayment.. even 3% makes buyers think about putting some money away in order to buy a home.. it gets them in the mode of trying to save a little to use toward a home..
In the long run I think if buyers have to have some money toward a purchase they will take it far more seriously .. as it is we are making buying a home like leasing a car.. it's easier to walk away from something when you don't really have a financial interest in it...
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
Posted by 
;)
;)
"While I am going to share with you a link which "tracks" subprime lenders in trouble I am also going to tell you that the way it is presented lacks detail and explanation. Before you ASSume the information to be portrayed correctly do your own research. Fremont, for example. "
I am assuming you mean www.lenderimplode.com , They are liberal on their shut down list. But Fremont isn't wrong, the FDIC (!!) shut their residential lending down with a Cease and Desist order. They filed a 12b-25 with the SEC regarding the whole thing.
As far as the meat of the post, I agree, bad credit should get very restricted loans if any. But I disagree as to their motivation (greed not pressure from liberals, the media, and socialists) and that the lenders are good at profiling credit risks. Clearly they are not or we wouldn't be in this mess.
On another note, it is good to see you posting, I haven't seen you around in awhile and was beginning to worry.