As I've participated in the process as the most recent banking disaster has unfolded over the past 18 months, it seems that the major problem is lack of common sense. Presently, even well-qualified borrowers are having difficulties securing financing. Nearly all appraisals are being reviewed at least once. Everyone distrusts the other participants of the process.
I believe the following:
1. The majority of mortgage bankers and loan officers are honest.
2. The majority of appraisers are honest.
3. Everyone wants another group to take the fall for this mess.
4. Lenders are restricted from assisting foreclosure-threatened borrowers due to their dated mindset of "collect at any cost".
Further, here are some simple solutions:
1. License and regulate mortgage bankers and loan officers. The appraisal industry underwent licensing following the S & L debacle. Education requirements and accountability will only strengthen the industry.
2. Allow appraisers to accurately value property without coercion from lenders wanting specified values for loans nor underwriters with no appraisal training and review appraisers lacking local knowledge critiquing the work. And slow down a little bit! I'd prefer having a well-thought out appraisal value conscientiously developed than one rushed and slapped together to meet a lenders 24 hour timetable.
3. Work together as a team with each member of the process properly doing their part so there's no need to assign blame.
4. Recognize that foreclosure should be a last resort. Work with troubled borrowers to restructure loans allowing them to continue making payments. Very few people have lost their homes intentionally. Lenders taking homes and selling at a loss has no positive result causing homelessness, destroying family life, deflating community values, and too many additional negative consequences to completely list. If the borrower wants to remain in the home and make payments, structure it so they're able.
Summarizing, if we get back to the business we know and make good loans to borrowers able to make the payments, the capital will be restored for continued lending and we can pull ourselves out of this mess. Rates are great and prices are reasonable. I'm sure this is too simple to actually work, but so often the most simple solution is the best.
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