I WANT your SKIN in this game !!! Give it up !!!

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

money on the line

Give it to me all..... the more that you have down, the more things will work out, that you won't leave your home. And as an investor, I will feel much better. Give it to me, every dime.

Here is my point.  There have been a few articles written in the last week or so and several of the comments are screaming for more skin in the game. These comments aren't just coming from realtors and loan officers, thinking that this will help correct the foreclosure market and the housing market, but this is also coming from the government.

There was an article written last week titled : Proposal would boost FHA Down-payment requirement. Some Congressman wanted to raise the FHA downpayment to 5%, adding 1.5%. Hence what propelled me to write : FHA loans to 5% down?  

 

 

 

rescurring foreclosures

Now, do we really think that an extra 1.5% down will correct and or help the foreclosures? In my opinion, I don't think so. Lenn Harley gave a good comment in my FHA 5% down article. Here is a snap shot of what she stated...

"ZERO down payment loans are no riskier than 20% down loans IF THE MORTGAGE COMPANY HAS FULLY DOCUMENTED THE BORROWERS INFORMATION AND DETERMINED THEIR ABILITY TO REPAY. -  Ability to repay.  What a concept."

Bingo... and here is what angers me with those on Capital Hill that apparently have no clue and or just don't do their research. Did anyone read this article by Kenneth R. Harney. Who's most likely to walk away from their mortgage? -

Wow, someone actually did some research that might blow your socks off per se. Yes, common sense says that more skin in the game would be best, more practical. I don't mind opinions, but assumptions without doing your research and or putting 1 and 1 together does get my blood boiling. Besides, here is a hint to who might walk away: "It's probably not who you think."

Let's take it a step further. Howard Sumner wrote : deliquency and foreclosure study. In this article they talk about the different types of real estate markets and where they see foreclosures most.

 

 

 

Real Estate SOLUTIONS ???

 

The Thinker by Rodin

So how can we help correct this real estate market and keep foreclosures from happening?  There will be many that will say more money down, because that is how it was done 20-30 years ago. 2 things on that blind statement. First off, this is 2009, not 1970 or even 1990. The cost of living is more expensive now. Secondly, FHA still allowed for less money down than your conventional loans in the 70's and 80's.  So how come there weren't tons of foreclosures then? Is it the down payment?  I don't think so, just an excuse.

Solutions?

  --  Maybe lower debt to income ratios a little?

  --  Possibly qualify borrowers just as we do for VA loans?  In the calculations, we have to find out family size and to use utility/electric costs also.

  --  Esko Kiuru wrote this article : Mortgage Lenders now more inclined to lower principal. Please read this, because this can be a good solution.

  --  Claudette Millette shares this article with us : New Housing bill will force loan modifications. At least the lenders will have to explain specific options. Claudette states - "All lenders will be required to perform what the bill terms as a "net present value" test for all seriously delinquent borrowers." - Bravo... it's a start.

  --  I wrote this article 3 months ago, Call To Action - We must fix this real estate market ourselves. I made a pledge and I am still working on this. We need to put our heads together and make the gov't realize more issues and not the common sense approaches.

 

 

 

Food for thought to a main solution….

Did we ever come to realization that a lot of these messes are because of unemployment?  The loss of jobs and income?  Our government spending habits?  And that we need to focus on small businesses, which are a large part of America's work force....  Besides, if we ask for 1.5% more upfront, doesn't that deplete the savings of a borrower that could use that extra money for fixing up the house?  For moving?  For emergencies?

My main reason for writing this blog?  Please read this, which was mentioned above : Who's most likely to walk away from their mortgage?

 

 

Lenn Harley wrote this :  Raising the downpayment for FHA insurred loans to 5% is ok?

Lenn adds some good insight to this with some good discussion.  People, we need to stand up and fight this, letting the gov't know not only how we feel, but what they could possibly do to the real estate market.

 

 

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_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Re-Blogged 6 times:

Re-Blogged By Re-Blogged At
  1. Gene perez 10/07/2009 04:14 PM
  2. Lenn Harley 10/07/2009 09:53 PM
  3. Gabe Sanders 10/07/2009 10:32 PM
  4. Rebecca Gaujot, Realtor® 10/08/2009 02:06 AM
  5. Jayne Williamson, REALTOR, Broker, GRI 10/08/2009 04:16 AM
  6. Kathy Jackson 10/08/2009 05:55 AM
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Location:
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Groups:
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Realtors Needing the services of the Lending Powers
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Tags:
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loan modifications
fha downpayment 5 percent down
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Rainmaker
118,194
Pam Dunn
RE/MAX Premier Choice - Crossville, TN
Relocation Specialist

Thanks for all the great information-I will return to read when I am fresh tomorrow morning with my cup of coffee!

Oct 08, 2009 01:34 PM #72
Rainmaker
325,771
Esko Kiuru
Bethesda, MD

Jeff,

We ought to look at a set of solutions to get this mess squared away. One single adjustment isn't going to do it. By the way, thanx for mentioning my blog. That could be one of many solutions to consider. 

Oct 08, 2009 02:33 PM #73
Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

MISSY... comment # 67 ... . what, you didn't read all of the comments, 50% of them saying the same thing?  ;o(   Seriously, most of us agree that even a slightly larger down payment will hurt the first time homebuyers.  I just wonder if the gov't actually wants the real estate market to fail. They give out tax money, that we have to pay for in one way or another, yet it can't truly be applied as the down payment, not unless you use a state program...  they give other handouts that help other people and their friends, yet they don't help out those in trouble... and now they want more money down?  And yes, a larger down payment does make a seller happy and the listing agent, thinking that offer is better.

ERICA... . yes, that article is an eye opener.  .. and yes, so many think a larger down payment is the solution. Hey, it would be common sense, but it's not the case. And I have talked to many that have fit that description... and they told me what they were doing.  thanks

PHIL.... . many of us do think that the extra equity is not the solution. You bring up some good points about higher ratios requiring more reserves. The jumbo world is different than conventional and FHA.  On the conventional level, they are finally coming to their senses, and will have DTI restrictions. In the old days of FHA, reserves did matter.  They still do, but the DU model seems to fit the higher credit scores more... which is what got the 100% fannie mae deals in trouble with the high credit scores, that allowed high sti's... like 43% front and a 55% back.  We do need to make some slight changes in this.  thanks

FRANCE & MARK...comment # 71 ... . well, you do bring up an interesting view point, that less houses sold, the more values come down. But each market is different and in some markets, values are increasing, even with just average # of homes sold. I truly don't think the gov't is thinking this way though, make it miore difficult to buy, thus it would bring home values down.  That in my opinion would not work.  Thanks for your input.

PAM... . my pleasure and I hope you chime in after you read those articles.  thanks

ESKO... comment # 75 ... . I have been looking at solutions.  Not sure if you read my call to action blog? The gov't seems to do things that cost money, costing the tax payer money after the fact. And my pleasure about mentioning your blog.  thanks for your input.

 

Oct 08, 2009 04:45 PM #75
Rainmaker
222,058
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

I agree that we should look at the buyers ability to re-pay as the main factor in loan approval.  The problme is that the loan guidelines are all black and white.  we need to have great underwriters that can really look at a buyers exact situation and make an intelligent decision about whether they can re pay or not.  This will not be easy, but may help us avoid foreclosures in the future.

Oct 08, 2009 05:06 PM #76
Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Jeff,

Back when Loan Officer were in fact Loan Officers and made decisions we not only looked at ability topay but willingness to pay.

Latter underwriters made such judgments.

Today a very arbitrary credit score is weighed to avoid any one having to make a decision.

I've made an awful lot of 100%, 103%, and 107%, not to mention hundreds of $500 down Community Home Buyer loans with out any of them going bad!

Skin has nothing to do with risk! But, more requirements mean fewer and fewer decisions have to be made.

Bill

Oct 08, 2009 06:03 PM #77
Rainmaker
311,805
John Occhi
Mason Real Estate - Temecula, CA
SRES,CPRES.ePRO - Temecula-Murrieta CA Real Estate

Jeff,

Sorry for rambling above (#5) - and you were right (#12) much of what I shared really was not as relevant to your specific post but more ot the stir in the air about the FHA over the past week, with everything going on there.

Guess I was just trying to make the point that this country has gone by the wayside of entitlement and not that long ago it was much tougher to buy a home...

So before I go any further, I say good night...

John

Oct 08, 2009 06:29 PM #78
Rainer
128,855
Dan Quinn
The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD
Dan Quinn

I always enjoy reading your posts Jeff and the ensuing comments.  I read your article that you referenced hoping that it might shed light on the number of 100% mortgages that are defaulting but I didn't see those statistics in that article.  Maybe I missed something.  I did find it good reading and the info helpful though - thank you.

In regard to me "assuming".  These were not my assumptions, my comment was based on conversations with a colleague I've know in the financial industry in London for many years.  I draw your attention to my post: http://activerain.com/blogsview/1135530/they-called-me-chicken-little-hey-what-did-i-know-

If you read that post, you will see that my comment really wasn't an assumption at all, no rather it was an opinion formed after lengthy conversations with an expert in the field, and because of how accurate my colleague has been in his understanding of our markets in the past, I believe what I said has merit.  "Free money" many times leads to poor behavior in the marketplace and this current economy has suffered from it in my opinion.  I would submit that the entire country was hooked on the cocaine of easy money and promises of property riches in a repeat of many periods in history.  Perhaps I could be persuaded to say that no 100% money mortgages are good, but I won't go that far yet.

Heck, our govt. understands "free money".  They are printing it right now as we live and breathe.  Now, there's a topic for discussion.  Do our politicians have any skin in the game?  Nope.  They spend everyone else's money and I'll bet they will be the first to cut and run when things go sour.

Oct 09, 2009 01:26 AM #79
Rainer
59,603
Krista Fuchs
Prudential Fox & Roach - Exton, PA
Chester County Realtor - (484) 459-8025 - Home Buying and Selling

Once again a fabulous article giving us tons to think/talk about!  I only wish I had the time to read all the articles and comments!

I was quite surprised when I heard the raise in downpayment for FHA.  It seemed counterproductive to what they were trying to do with the Tax Credit.  Did they feel the market has been corrected and it's time to slow things down?  Just made no sense to me...but then I remembered it came from the government so it's status quo.

Oct 09, 2009 01:50 AM #80
Ambassador
659,108
Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Jeff: Thanks for the post. I agree with you. There really isn't a good solution except that government doesn't know best. I remember when we bought our first and only house 16 years ago. Ratios were 28/36 and underwriting was really tough. I can't tell you how many pints of blood we gave to get our loan. At that time, we couldn't even do FHA (loan limits weren't high enough) so we put 5% down, paid mortgage insurance, and got a rate of 7.25% on a 30 year fixed. I too am a free market guy and would prefer that. I'm not sure we would be any further along even with government intervention. And you have to wonder what all this money spent will mean for us down the road! Thanks again!

Oct 09, 2009 02:10 AM #81
Rainer
45,132
Scott Geary
Infinity Home Mortgage Company Inc - Allentown, PA
Your Pennsylvania Mortgage Source

Good post Mr. B! Hope that soon everyone calms down and realizes that the more things change the more they stay the same. Lets take a look back oh, 25 years ago. First, as mentioned above, the '4C's' of credit decisions were closely evaluated by an underwriter. Credit, Character, Collateral and Capacity were reviewed by a real live person. Any recent delinquency would likely get you declined. 2 years employment with the same company was required more often than not. Cash reserves were ALWAYS a part of any loan approval. As Paul mentioned 28/36 were the front and back end ratios. Execptions were made as high as 40 on the back end. Homes sold. Loans were closed. Equity grew a the rapid clip of 1-2% in most areas. Compare all of that to where we were not to long ago.

Seems to me we are just going back to where we were, perhaps a tad extreme. But eventually, this stuff will all come out in the wash, as long as our government allows it to happen naturally.  

Oct 09, 2009 03:35 AM #82
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

JIRIUS.... comment # 78... this has been a critical part of financing in the 90's and we got away from that, with many automated approvals just based on a high credit score, then for other things to follow. And the gov't was a part of this, as they pushed lenders to lend more. Now they want to take away something that has worked, just because... because they think they know?  If they did their research to as why people are walking away, maybe they would think differently. And see some of the real reasons to these foreclosures, like the loss of jobs and income.  thanks

 

WILLIAM.... . bingo, about the credit scores, as I just briefly mentioned to Jirius above you. Many of the models have put more weight on the credit scores, but over-looked some of the basics.  Thanks for that input, which might be another post this weekend. And in regards to all of those kinds of loans that you made, none of them going bad.  That is awesome. Nothing against you though, but there is always luck with this, because if someone lost their job, in most cases, it's hard to have the ability to pay.

Overall, in 17 years, I know of 3 clients of mine going into foreclosures.  2 were 2nd homes which both were done with subprime financing. But both had family and job issues that led to these foreclosures.  And my other one, a FHA loan to where the woman's son co-signed for her and he was supporting her. Well, he suddenly died at an earlier age and she foreclosed.

 

JOHN.... .  don't worry about it. Yes, I don't get a chance to read many of your posts, but from the ones that I have read and from your comments in mine, I have gotten to know you and respect you as a person and as a professional realtor. I can't say that for everyone.. ;o)  Seriously though, it's good to hear certain stories. I do agree that our country has gone by the wayside and that it was much tougher to buy a home, but in some cases. From '93 to '98, even though ratios were lower, people could still get approved, it wasn't hard. But the gov't helped open up the flood gates from 199 to 2005, when they forced Fannie Mae to lend to more, making it easier...  and in 2004, that was when 100% was easy with high ratios of 50%... and then a year later, it went to 55%.  Common sense would tell me that you were looking for trouble. 55% before taxes are even taken out. Shit, what does that leave the homebuyer, for other expenses now.  She, now you got me going.  In any case, thanks for coming back.

 

Oct 09, 2009 04:11 AM #83
Ambassador
3,673,422
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Jeff, I don't see a cure coming until we have unemployment under control.  If someone with a credit score in the 800's buys something with a decent down payment at a price he can easily afford, that all changes when the pink slip shows up later on.  So I think you're spot on with that one.

Oct 09, 2009 04:35 AM #84
Rainer
149,377
Paul Warkow
Paul Warkow-D.G. Weber Law Associates - Hauppauge, NY

Jeff, do not get me started on the issue of HVCC.  Here is my experience with AMC's and the experience with other loan officers I have talked to about this subject:

1.  Appraisal costs have jumped an average of $100.  For example, an appraisal that used to cost $350, is now costing $450 and talking with appraisers they get about half of that money.  So now where an appraiser would be getting $350, he is now getting $225.  The consumer is being charged more, the appraiser gets less.  Where is this money going, to an AMC.

2.  An appraisal that used to take three days now takes 10 days, thus slowing the transaction about a week.  If you need a correction on an appraisal, before HVCC I would have it done in a day.  Now, working through an AMC, even a minor correction takes about a week.

3.  I am getting appraisals from appraisers who are not local and have no idea about the neighborhood where the house is located.  Through an AMC I get appraisals that include REO's as comps and ignore recent sales of homes that where closer.

4.  The level of professionalism is down.  I get appraisals with mislabled photographs, wrong boxes checked, describing the property as owner occupied when it is an investment property or vice versa.

5.  I know of two appraisers who I repsect who have left the business.  One told me that the straw that broke his back is when an AMC was going to pay him $60 for an appraisal when it would have taken him an hour to get to the property (distance was not the problem, it was New York City traffic) and would have cost him $10 dollars in tolls.

6.  HVCC assumes that every time a loan officer or a realtor talks to an appraiser is trying to influence an appraiser.  On refi's, I want to know in advance if the refinance can work.  If I cannot ask the appraiser in advance what he thinks the value of the property will be, it is crap shoot.  I do not want my borrower to pay for an appraisal with an inflated fee and then find out the value will be too low to make it work.  I have several purchase deals killed because the appraisal came in too low as well.  I would like to know in advance what I am dealing with.

7.  This is a nationwide problem.  That is why over 100,000 people nationwide have signed a petition to eliminate HVCC.  Do not want want to take my word for it?  Joesph Canfore of NAR testified the other day in Congress that HVCC is a major stumbling block for consumers.  He said that it has created delays in closing, increased costs for the consumer and failed sales due to artificially low appraisals.  Amen to that.

Oct 09, 2009 04:43 AM #85
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

DAN.... comment # 81...  first off, let me say this, thank you very much for those kind words. Secondly, okay, instead of assuming, I will say that it was a conclusion that you came to, based on something else that someone talked to you about. You mentioned that you read my one article. Not sure if you are talking about the one that I wrote, about the gov't trying to make FHA's down payment to 5%?  No, I didn't give true stats in there. Yes, FHA loans default rate is up to around 8% now, not 3%. But so are VA loans and USDA loans, closer to 6% now. But wait, why is this?  Is it because of easy lender guidelines?  Or how about because so many have lost jobs or have lost some sort of income, in which they were well qualified before. My point to those arguing that you need skin in the game, so you would be less likely to walk away, I have argued this point for years.  Well, someone finally did some research on this one and it wasn't the gov't.  Did you read this article?

Who's most likely to walk away from their mortgage?

 

I did read your blog post that you mentioned...  first off, for those that knew me from 2002 to 2006, I always tried to get my client into a FHA loan first, before I looked into a subprime loan, a stated loan, or a no doc loan. Let me give you a quick story. I had one client that was referred to me, who met with a loan officer that was giving him a stated loan, because he was self-employed. I said, I still want to see your tax returns.  He fought me on this and I said, I don't care what the other guy said, stating that he had to go stated. Well, would you know that I actually closed him as a full doc loan, because I was able to read his tax returns and pull out specific income to make it work. There are a few places that I am going with this.

In your post, you talked about subprime, and that your friend from England said that this was going to be the reason for the collapse of our market/industry.  Yes and no... it was not just subprime. Yes, there were subprime loans to 100% with 50% back end ratios and allowing those with 580 credit scores, one company that actually went to 560. Many of us know that you usually have to have slow pays or semi bad credit to have those kinds of scores...  But what about the Fannie Mae deals that allowed for 100% financing to 55% back, that was underwritten by a machine... and this was because the gov't forced Fannie Mae to extend credit to more homebuyers.

Let's take this a step further...  why did home values increase so much from 2002 to 2005, so rapidly in many cases?  Because stated loans and no doc loans helped increase many values... because people could reach for the stars in many cases, raising the purchase price to what they wanted, because they wanted those bigger homes.

You stated that "free money" leads to poor behavior many times. I won't disagree with that.  But you take 'free market' away completely, or in this case, as the gov't is doing... controlling it or trying to stop it, you kill all small business.  Small businesses make up a large part of who we are today. Can you agree or disagree on that?

 

My whole point to what I said above?  You made this statement.. "Perhaps I could be persuaded to say that no 100% money mortgages are good, but I won't go that far yet."

hhhhmmmm....  so, VA loans and USDA loans, and even FHA loans with 2.25% down (prior to a year ago), ...  they were foreclosing at a small clip in the 90's.  We never heard a peep from anyone or any gov't about foreclosures.  100% or not... when did we start to hear about them?  Maybe around 2006? And more in 2007 and 2008....  As I have stated, I have had the honor at being able to review spreadsheets from 5 different major servicer's who had loans on their books that weren't performing. You know what was odd... many, close to 30% of these, had 10% to 20% down from the time of closing. Could we point the majority of the foreclosure problems to loss of jobs?  Unemployment?  Or just the fact that people walk away from their homes because they have no skin in the game.  Again, please read the artcile that I mentioned above in this comment. Who is most likely to walk away from their home.

 

Overall, I can agree with some of what you are saying. But back to my first comment to you, in comment # 45...  I said.. "In my own opinion, even without reading that article, you are just assuming you have come to the conclusion that those that put less money down, are more in likely to walk away."

I will still say that your conclusion, even based on talking to someone that you respect from England, that works in the financial business, is not completely on target. You use the subprime mess as your answer. I agree with some of that, but it goes much deeper. And keep in mind, the gov't pushed for this, hence controlling 'free market', again. "Free market' should be to where there is not gov't pressure for a specific industry or entity, just because the gov't says so or pushes the envelope. Senator McCain in the late 90's shot down the gov't push for extending credit to homebuyers.  But he lost in the majority vote within congress.  So, I point my stick to the gov't again, for thinking they know best.  Hence the reason why I wrote this.  I can go off of experience and knowledge, with 17 years in this business, and especially look back at most of my clients that bought homes.  Here is what I know to date...

Overall, in 17 years, I know of 3 clients of mine going into foreclosures.  2 were 2nd homes which both were done with subprime financing. But both had family and job issues that led to these foreclosures.  And my other one, a FHA loan to where the woman's son co-signed for her and he was supporting her. Well, he suddenly died at an earlier age and she foreclosed.

Hhhhmmm...  from this and from many others.. and that article written by Kenneth Harney, there seems to be major reason and proof that many of these foreclosures aren't just because their isn't enough skin in the game. 

Again, thanks for coming back to this, adding your input and feedback.

 

Oct 09, 2009 04:58 AM #86
Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

 

PS… I will be back to reply back to the other comments later…  I need to get some work done, since it is 1 pm EST now.   Thanks everyone…

 

Oct 09, 2009 05:03 AM #87
Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Jeff,

We make our own luck!

I didn't say I had no forecloses, only none on those programs.

Only two ever bothered me. I had a million dollar plus first payment default once, the lender called me for help (They wanted my head!) it took weeks to find out what happen. It seems the title company padded the closing, then 3 days after recording called the buyers to pick up their money, leaving the title office in a little English sports car, an 18 wheeler ran over them. They never did make a payment, I sent the lender copies of the police report and they never threatened me again.

One I resent was one of only two 125% loans I ever made. It was a great opportunity I was lowering the couples payments well over $3,000 a month, then the funder overroad me at funding refusing to allow title to pay off the debits and title didn't call me they reissued one check to the borrowers. It took the borrowers 5 days to lose it all in a casino. I had a first payment guarantee on those loans! When I explained to the lenders attorney what happen they never bothered me again.

I never wrote another of these because I couldn't trust the lender! I never used that escrow officer again, didn't use her office until she was gone! The key is client counseling on high risk programs and you have to be able to trust your team. Bill's rules: Protect the license. Protect the client. Protect the referralsource (REALTOR). Protect my commission. In that order! There is no commission big enough to risk a client! You only have to buy back one loan to ruin your day.

The biggest loan I ever personal approved defaulted 6 months later, the debtor was racing a snowmobile in a woods, he went under a tree at 70 mph! Left his head on a low hanging branch.

You can do this for 40 years with out some problems.

Bill

Oct 09, 2009 05:30 AM #88
Rainmaker
504,688
Teral McDowell
Referral Patners LLC - Murphy, TX

Some really great points and yes, I did read the article on who is most likely to walk on a mortgage which did not get near as much coverage as it should have.

Oct 09, 2009 09:53 AM #89
Rainmaker
199,540
Mark Velasco
Sharpstone Realty, Inc - Whittier, CA
Listing Agent-Whittier & Surrounding ciities

Wow Jeff. These are very strange times. Many years ago...walking away was NOT an option.

Oct 10, 2009 05:34 AM #90
Rainer
128,855
Dan Quinn
The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD
Dan Quinn

Jeff, I read that article before and that is what I was referring to.  It was a very good read. 

In that article it did not address the # of people who used 100% loans that were defaulting.  I still would like to see that number.  It used statistics to garner info on the people who defaulted and what similarities they shared, all good stuff, but there is no indication of what kind of loans they had or how much they borrowed; statistics I would like to have seen.  It did state these defaulters are in negative equity markets which is at the crux of the discussion of whether having "skin in the game" makes a difference.  I recognize there are many reasons that people have for defaulting on their loans when they do.  I also know that many 100% loans work out fine and don't end up in default.

I found these points notable from the article (italics mine):

...strategic defaults are heavily concentrated in negative-equity markets - These defaulters have lost their equity in their homes.

...strategic defaulters are clearly sophisticated...they tend not to default on home equity lines until after they bail out on their main mortgages, sometimes in order to draw down more cash on the equity line - These defaulters clearly understand what they are doing. They need or desire more cash and will take it from their equity lines while bailing on their mortgage.

...it's much more likely that when they stop payments on mortgages, the default is intentional and calculated - calculated, it is in their best interest.

Again, I would like to see the statistics that show the # of people who had 100% loans and bailed on their mortgages.  That would be pertinent to this discussion.  It would help clarify my thoughts on this. 

In some of our local markets, where there has been a high walk away factor, we are replete with examples of buy and bail frauds (considered a business decision), straw buyers (where relatives with high scores never intended to occupy the property and didn't care about their credit scores) and stated income fraud.  This speaks to the ethics and intent of the buyers, not to who they are and not necessarily to what their means are.  I do not have those statistics, I welcome anyone who could provide them.

I've said it before, to me, it appears that the entire country was hooked on the cocaine of easy money and promises of property riches in a repeat of many periods in history.  "Easy money" enabled many people to behave poorly and take out loans they otherwise had no business taking on.  The highly speculative nature of the market in the early 2000s can in part be attributed to the excesses of this offering of cash into the economy.  Many people purchased above their means speculating on a rising housing market and bailed when it didn't work out for them.

Let's figure out what caused this mess together and never repeat it again.

Oct 10, 2009 11:51 PM #91
Rainer
11,342
Robert Lowery NMLS 211598
Prosperity Mortgage - Perry Hall, MD

Jeff, I agree with you.  I really don't think another 1.5% is going to reduce foreclosures or FHA losses.  There are other things they could target to improve their situation.  Why do we see companies/LOs bragging about closing FHA loans with borrowers with scores below 580 or consumers with back end ratios above 55%?  If a borrower has a 57% debt ratio, do they really have the ability to repay their mortgage loan in the long term?  

Also, there really is no skin in the game when they put 7k down and get 8k back in a tax credit... The concept doesn't really make sense to me.

 

Oct 12, 2009 09:45 AM #92
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