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Turns out the Big Real Estate Agent had another lender in his/her rolodex, one who perhaps was a little less ethical. They called them next. The LO did the same thing, took a loan app, went stated income, fudged this and that, and got an approval for a loan the borrower had no business being in. They delivered a much higher loan approval than the Ethical L.O. and closed yet another loan.
Just as in the instance recently where Lenn threw out a 
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194 Comments on Lenn Harley is WRONG
Regardless who is to blame...... it seems like their was a false sense in how much more the properties would appreciate.... I told lots of my clients, regardless of what they qualfied for, that they were buying in an extremely inflated market..... and when they were cashing out they better be sure to use the money wisely in case the values went down if it were a refi.... just like the realtors saying "I'm not responsible to qualify them for a loan, blah blah blah," I made it my responsibility to tell them they were buying in one of the highest priced markets in my history.... all we are asking is if the realtors did the same???????? it is a simple question.... did you advise them not to buy with the current prices???? did anyone advise them of what a bursting bubble might look like???? there are two parts of a loan everyone.... the buyers side and the properties side.... the value, the expectation of equity increase.... people are not only walking away because the payment went up, they are walking away because the value went down.... why weren't they coached on that is all I am asking?????
Pardon me for asking what is probably a question with a simple answer. Why would someone walk away from a mortgage on a home that's value has decreased? If they can afford the payment, and are in the house for a few years yet to come, the value will (in all prior real estate corrections) come back up to where it was, and probably go above that.
But I do agree that, at least in the time I was in SoCal, each month that went by for the three years I was there, I told clients not to bank on the values to continue their 25+ percent annual increase that was happening at the time. Lots of LO's were selling 2-5 year ARMS by telling the clients "don't worry- when it's time to refi you'll have oodles of equity even if the rates are a little higher!" Criminally irresponsible of them. We're certainly reaping the bitter harvest of that viewpoint now.
It's unfortunate that every industry has its, let's say, ethically challenged members. I cannot tell you, though, how many times I expressed concern with my clients about a loan they were jumping into. In many cases, a freight train wouldn't have stopped them from making that mistake.
I thank everyone for voicing their opinion. (even those I disagree with). Thank you for keeping the conversation spirited and civil. I love the associated side debate between Ardell and Aaron.
Just a couple of thoughts.
You know how I feel. I don't shirk the responsibility that loan officers played in this mess. If anything hits my hot button it's when someone suggests, "It wasn't my industry's fault!" whatever industry that may be. That goes for the borrowers themselves.
I hold a slightly different view than most when it comes to the actual Lenders. I feel that Lenders were simply acting as a business. In the simplest form, a business is "in business" to generate income. It's as simple as that. "Helping homeowners achieve their dreams of home ownership..." is just advertising B.S. from a Lender. Can you put Lenders in the same box as Tobacco companies? Perhaps. (thanks Liz)
Lenn - a special thank you for responding. We agree on so much more than the few points we disagree on. I subscribe to your blog via RSS. I value your opinion more than you know. This was not an attack on you personally, just a response to one particular point of view that you voiced.
I'll be at Inman Connect this week, so my responses will be slow and limited. It's a shame because I just got a whole batch of new suits out of the garage. I plan on interviewing as many people at Inman as possible there. Would this be the best question to ask them? Or would it be the worst?
Let's stop the blame and keep on fixing. The lender makes the final decision. The buck stops there.
Maya Thomas done did wrote: The lender makes the final decision. The buck stops there.
Even if they rely on appraisers and agents who might be doing something underhanded we're supposed to lay it all on the lenders anyway?
Sorry to disappoint you, the underwriters are the final word. They have seen enough proper loans and they know when they are being fudged. The underwriter can call to verify anything that is on the loan application, employment, funds, w-2's etc...
If the banks don't approve the loans, they don't get the doc prep fees, interest on the funds loaned. They are the ones willing to take the risk. Now the home insurance companies can kill the loan if they don't like the borrowers credit. The PMI companies should have better protected themselves. If the government bails out the banks on this one, we will all be majorly hurting.
You're not disappointing me....if anything, you're just not clued in. But that's ok, you're not alone.
You naively think that UWs have all the tools available to them but you refuse to recognize that some of those tools are based on info provided by others. Do you really think it's all about the the borrower's income and assets? Does the borrower do the appraisal as well? Go back to the beginning and read Mike's blog post and think thoroughly before posting on here. There are many different entities that all share in the blame and to place that on the lender/UW alone is assinine.
Mike,
I did not even think about reading all the comments - that is your job. And I will forgive if you fail to get to this comment. Real estate agents and customer alike knew the game - I still get requests for stated or bank statements documentation.
We put pressure on appraisers and on lenders.
We pressured and we caved. And there were plenty of times when I had to explain to others why another broker could close a loan that I could not close.
Even when we all were caving in and pressuring, there were lines I could not cross. But there was always someone who would cross that line.
Now I am hearing about lawyer assisted credit repair, which at its extreme is actually more like creating a completely inaccurate credit history.
Is this any better? Lying about income or about the home value or about the credit history. Using a lawyer does not make it OK, does it?
Will I be pressured to follow suit, just to stay in the game? Will I soon hear from an agent that the LO at the other place will just put the clients in credit repair and get them qualified?
Richard
Hmmm, I've always wondered why lenders were not held to the same standards of practice as Realtors. This whole thing is like the Poseidon Adventure...the subprime mess is like a rogue wave coming from the middle of nowhere, taking a lot of people down (agents, lenders, banks, 'investors', and property values), only a few will survive. Stay tuned.
Tamara,
In answer to you, please see my post above on 7/20 at 12:04pm. Again, it's always best, when referring to a particular group, to not make all-encompassing statements such as "wondered why (all) lenders were not held to the same standards of practices as Realtors."
If one were to come on Active Rain and say "all Realtors are shysters" because one had had a horrible experience with one, I feel fairly confident you (and probably a minimum of 5000 other Realtors on the board) would rise in righteous indignation- and justifiably so.
In the past, I know of loan officers/brokers who've had licenses yanked by the state's for fraudulent practices, just as I've known realtors to have the same done.
Again, as I've said before, I hope that all of us here, Realtor, broker, loan officer, appraiser, etc. who hold themselves as ethical and responsible professionals, can work together in mutual respect to weed out the "bad apples" and win back the credibility of the public that has been lost due to this meltdown.
Thanks!
Yes our job is to qualify buyers. Not only to approve them but to decline them for excessive loan amounts we guide them but again now and again buyers always want to push the envolope too!!!!!!!! The blame is not on only one side of the equation with out the loan we have no purchase as the Real Estate goes and the buyer can't buy without the loan and the LO doesn't eat with out the Loan but the lenders are the ones who set the products and it is up to us the LO to find the right product and financing for each and every buyer.... We are always careful but not perfect we should always try to watch the buyers best interest......
I'm so very late to this fiesta. I'll be back, before I am... very nice job, Mike. You pot stirrer:-)
I think this recent video I saw on Yahoo News says alot. Leave the politics out of it and listen to what he says.....
http://cosmos.bcst.yahoo.com/up/player/popup/index.php?cl=8945671
Rudy, good video. It is true, but this does not mean realtors, title companies, appraisers, etc... did not play a part. I don't think he said that. These lenders made some good decisions on loans that were fraudulently presented to them. Every person I see from the mortgage side seems to think both sides, if not every profession within the industry, including borrowers, played a part in this mess.
Don't know why you, Mike in Iraq, and a few others keep trying to push the blame on one part of the industry.
Aaron gave plenty examples of realtors that were guilty. I have seen tons of stories with people from all professions within the mortgage industry in the headlines.
Do you really think only Mortgage companies and Wall Street are to blame? Not every person was guilty, but there were people from every profession that were guilty.
It's time to put that argument down and realize all professions played a part and stop trying to point the finger. The vast majority in these blogs feel that everyone played a part. It's overwhelming. And, I have personally discovered and investigated tons of fraud from brokers, loan officers, realtors, title companies, appraisers, and borrowers. The underwriters and Wall Street had some many fraudulent loans submitted, it was impossible to find all of them.
Mike, I can remember havig to let a loan officer go because he manipulated the numbers just to make a deal work. And what he could not figure out was he closed 10 loans that month.
Loved the dialog on both posts. Some points were relevant, some were hasty. While I try to be a solution type of guy, knowing parts of the problems is vital to ensure they don't happen again. I think Bob Lowery's comment above hits the proverbial nail on its shiny, little head.
Off with the fingers now, let's help solve this situation.
Well done, Mike.
Wait a second Sardi. It took you how long to come back and comment? Were you abducted by Aliens or something?
I can't tell you how many people came up to me at Inman and thanked me for "having the guts to write that post."
Sorry, it wasn't guts. Just a gut reaction I guess. And you are welcome!
I just ran across your blog, I don't have time to read ALL the comments and would just like to say:
How about putting some blame on the consumer. The one who has to have the house, claims they can afford it and will go to all ends of the earth to find a lender to get it for them!
I have NEVER recommended to a buyer to purchase more house than they can afford. I have turned AWAY business because the buyer is lying about income. I just won't be any part of a shady deal. Not happening - not in my lifetime.
There's my 2 cents.
Mike, ever heard of "personal responsibility"? Seems to me, there is plenty of blame to go around, but the final decision is always the buyers/lendees.
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