Predatory Lending and Decadent Spending

Managing Real Estate Broker with San Diego Previews Real Estate CA BRE# 01101958

 Yesterday was spent constructing yet another short sale file. A home purchased less than two years ago with 100 percent financing had been refinanced a few months ago with two loans totaling $120,000 more than the original purchase price. I'm sure hefty points were back- ended into the loan, but the buyer pulled enough cash to buy a new car, furniture, and who knows what else--and is in serious arrears (over $50,000) with both loans. Good credit has never been his strong suit.

The home is in a lovely neighborhood and will probably sell fairly quickly--at around $685,000, or what was initially paid for the property. Meanwhile, the seller is out of the country, scheduled to return sometime around the end of the month. I will present the offer(s) to the lenders and will await their reply.

In the meantime, I am wondering about appraisals and shaky credit and investors, somewhere, who are going to get burned. We want to point fingers, but need several to do the job justice. Two would point to brokers and lenders who were accepting easy money and passing the risk on to others. Another would point to ignorant or greedy borrowers who believed property values had nowhere to go but up. Some surely knew what was happening, and took lenders for all they could.  

The bottom line is greed.

The amazing thing is that this partiicular lender (Countrywide) is STILL sending mailed notices to these defaulted homeowners advising that they could immediately qualify for over #100,000 in credit!

Where does the madness end?



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Kristal Kraft
The Berkshire Group Realtors - Denver, CO
Selling Metro Denver Real Estate - 303-589-2022

Roberta, that is  madness!  I wonder if an affiliate marketer is sending the Countrywide notices?  My hubby remarks that between the both of us we get mulitiples of the same type of stuff for credit cards/loans etc.  I can't believe that the lender would waste money sending multiples.  It must be an affilitate looking to make a referral fee.

As per the 100% madness...when will it stop?  The expectation of forever increasing values is unreal.  Using your home like an ATM means you will soon be sleeping in the lobby of a public place next to a real sick.


Good post!

Oct 12, 2006 04:30 PM #1
Angus in Naperville IL
RE/MAX of Naperville - Naperville, IL

I'm afraid that we'll see more of these as these interest only loans take their toll. They managed to make negative am popular again... this time in form of high roller loans. I remember the problems in the 80's


Oct 12, 2006 04:56 PM #2
Ray Saenz
Exit Realty Laredo - Laredo, TX
Homes for Sale in Laredo, TX - Texas, Realtor


Read it, :)


Oct 12, 2006 04:58 PM #3
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA


Another good blog!  I am most grateful that you pointed the finger at BOTH of our respective industries however you hit the nail on the head when you cited "greed" as the motivation.

I moved to SD from Phoenix in 2003.  I spent twice as much money for half the house.  I could have qualified for a larger home but elected to be prudent and live in a townhouse by the beach.   

-I did NOT pull money out of the house ( or retirement plan) as times slowed this past year. I cinched the belt and made things work.

-I did NOT buy a new car I did NOT buy my wife a new car.

-Our furniture is still 7 years old (nice, tasteful but 7 years old).

I guess I'm a bit frustrated to see people levarage up the homestead, flee the country, and leave the banks holding the bag as I elected to "do without".  

And Countrywide needs to update their database.  Getting banks to do that in a timely fashion is akin to turning an aircraft carrier; it just doesn't happen 

Oct 12, 2006 06:44 PM #4
Roberta Murphy
San Diego Previews Real Estate - Carlsbad, CA
Carlsbad Real Estate and Homes

Brian: (Sigh) and I am still in the same home we bought in 1998 because I am too lazy/busy to move (and three sons are still at home). I am still dreaming of a small Zenny home by the beach with gaudy sunset views.

 In the meantime, I am growling at debt-burdened homes with toy-laden owners who have milked lenders for every cent of equity that could have ever existed for their homes.  Someone, somewhere, will pay for this greed. Grrrrr!

Oct 12, 2006 07:00 PM #5
Sharon Simms
Coastal Properties Group International - Christie's International - Saint Petersburg, FL

Part of the blame is also with our tax laws, which encourage more debt on our home by allowing you to deduct (with limits) the interest on money you take out of your house to spend elsewhere.

Some people say it's crazy to pay off your mortgage when you can be deducting interest and using the money for something else (certainly not the stock market, where you can lose it even faster than in a real estate downturn), but there are a lot of us that like the security of having a debt-free home, which is more important to us than Toys. 

Oct 12, 2006 10:38 PM #6
Gena Riede
Riede Real Estate, Lic. 01310792 - Sacramento, CA
Real Estate Broker - Sacramento CA Real Estate (916) 417-2699

I was under the impression that the Feds were investigating these lenders...any news on that? It should seem obvious to the Feds that having some of these loans out there is not only not good for the consumer but not good for the economy as a whole.

I know as a homeowner, I receive countless calls and mailings about refinancing, daily and some of these ATM users don't get that you must pay the piper at some point. There really should be some safe guards put in to protect the public against themselves since they obviously don't understand what they are getting into with some of the programs out there.

Can't wait to see your new "@#*", I'm working on one, too!

Oct 13, 2006 01:30 AM #7
Home Design
Alpharetta, GA
Home Design and Real Estate

Negative AM loans were silly to begin with, and I'm sure that's why bankruptcies are at an all time high again.

Woodstock Real Estate

Oct 13, 2006 06:52 AM #8
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Roberta....   Aaaarrrrggghhhh.... as my day goes on, I was actually working on the same type of post. I thought....let me hit a topic that hasn't been talked about as much.  I even the "Origination News" in front of me from this month and it has an article in it. Brian Brady pointed out....thanks for not picking on just the lenders. But we are the ones that can control this with either a "yes" or "no".

Someone did point out why the Feds don't do anything about this. You need to argue these points in front of Congress to get Bills passed. It comes down to the House Financial Services Committee.

In regards to Countrywide sending something to the client. Mortgage companies can get all of this info from tax records, they can get the important info at the records office at the municiple office....and now, companies are offering these services online to other mortgage companys. Then you have zillow and other online companies that give you values of your house....which aren't allows accurate. could be Countrywide and also 10 other lenders trying to get them to refinance. Realtors... you have seen a slow down? So have mortgage companies. I just heard two new ads on the radio today.

Last... Countrywide lost reported that they were down $27 million from several quarters ago. Business has dried up.... foreclosures will be high. Arms will be expiring.....  time to build a new planet.... lol

Oct 13, 2006 07:21 AM #9
Mark Wojewnik
Equity Source Home Loans, LLC - New Port Richey, FL
It's truly shame.  There is great deal of money to be made in real estate.  Whereever there is money there is also greed.  Some people and companies fueled on greed will do just about anything to feed this mass greed.   
Oct 13, 2006 07:44 AM #10
Roberta Murphy
San Diego Previews Real Estate - Carlsbad, CA
Carlsbad Real Estate and Homes

Jeff: Prudent borrowers with sensible loans will be hurt in this market, which will be further bled by greedy borrowers and opportunistic lenders. Many of these latter loans are fraudulent, and I only wish the Feds would pursue the offenders.

 I reported one blatant case to the FBI, and nothing happened. A dedicated FBI task force is needed to tackle the problem.

Oct 13, 2006 07:59 AM #11
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Roberta....  everyone keeps talking about the Feds (Federal reserve) and the FBI....  does everyone remember when Arms came out in the late '80s?  I wasn't around...I came into this business in 1992. But when arms were extremely low in 199 to 1993...mostly 1992, this was the hotest product out there when you got the chance to explain to the client that there were caps now. Prior to this, most arms didn't have the traditional caps that you see now. 2/6 caps on a 1 yr adjustable. Meaning...your rate couldn't go up 2% a year and 6% life of the loan. But you still see people getting these arms or the 3/1 arm. The rate is discounted.

Well... again, I am not selling the option arms.... but they still operate slightly like the 1 yr arm. The pay options arms have caps also. They just discount the rate a lot cheaper...and yes, you have to pay the piper at sometime. That is the bottom line... just like fixed rates. Each loan has a price of it's own, no matter how you look at it. The problem with the Option Arm is that you, the client, is given more control in what you can do with it. Meaning.... you can take the difference and pay it down.....or just take the extra money that you are spending, because of the mtg payment being lower, and save it or apply it to some type of savings plans. Which we know that the average public is not responsible in saving this money.

I am not going to get into it anymore, that this loan is bad, good, or evil. But so many are blaming the lenders for selling these. When you go buy a house, do you look at it from the outside and the outside only and say...I'll take it. ???  I hope not. Same thing with a loan. When you get ALL the paper work for this loan, READ it all then. Sure, the loan officer should explain it all, the good, the bad, and the ugly. But most....most don't. But again.... what is the client doing?  This is all in writing, on how it works.  right?  READ it then. take the next week, research it, read it, ask questions...etc etc. Just like when I buy a new car... I research it.... I had a client that wanted the COFI arm, which is the pay option arm. I didn't have to do a thing or even explain a thing. She did all her research. In all honest, she knew just about as much as I did....maybe even a little more. Sad...maybe...but she did her homework. She knew the pitfalls... she wanted it because she was a bartender...she was good with her money.... etc etc.

Sorry Roberta...that this is long. I believe in protecting the client. I believe in laws...guidelines.... the Federal reserve.... and yes, people trust...well, put their trust in too many people because these people say..."trust me" "I promise" etc etc. This bartender picked me out of 7 other loan officers that visited her bar because I didn't push myself on her, when we all knew she was in the market buying. And then when she asked me to do a good faith for her...she said...this is it?  I wasn't charging her any points?  Hey...I knew her for over 2 years....she treated me well, and I do the same for my clients. I was the only one out of 7 others that didn't charge at least 1 pt.  She told me a few charged a pt.... 3 charged 2 pts...and one was charging 2 1/2 pts/

Again..sorry....I am trying to make some points here. And in keeping with this topic....which is a great topic. The blame just can't be on the Feds....  it lies within everyone that touches that loan, even the client.

Okay.... I need a break... lol  That's if anyone reads this whole comment.   PS...  This is probably my 25 comment today. Way over the limit of 10 comments to get my 25 pts... lol But can I get 50 points for this comment?  LOL

Oct 13, 2006 11:47 AM #12
Philip Turner
Mortgage Banker Since 1980
The short term profits made by the lenders/loan officers/appraisers, etc will wreak tremendous havoc on unwitting families that trusted everyone involved, when try to sell the property and come up short.  We all need to consider the effect that this has on families, marriages, children, etc.
Oct 13, 2006 02:20 PM #13
Maureen Francis & Dmitry Koublitsky
Coldwell Banker Weir Manuel - Bloomfield Hills, MI
Coldwell Banker Weir Manuel
I am running into this with my own clients and I hate it.  We have the added "help" of depreciating property values.  Still, when I looked at what one client had been able to borrow, its hard not to be slightly angry at those involved.  Including the client.
Oct 14, 2006 01:40 AM #14
Suzanne Marriott
Keller Williams Arizona Realty - Anthem, AZ
Associate Broker, CLHMS, e-PRO
I think the lenders have rolled all the expected defaults and short sales into their pricing.  Rather than focus on each deal, they are looking at the overall ROI on their pool of funds....
Oct 14, 2006 04:35 AM #15
Dave Rosenmarkle

Interesting post & responses. Yes, it's unfortunate that some people are financially irresponsible, but our job is not play tax man or financial advisor. Certainly, we can express concerns, suggest they review their plans with a qualified advisor, but when they come back to you, are you going to provide the assistance or not?

It is diificult to get federal legislation to discourage this type of lending primarily due to the level of campaign funding support provided by banks, mortgage companies and the credit card industry.

This is a phase and, when we have experienced a sufficient level of foreclosures, there will be token  legislation and, more importantly, greater public awareness of houses going on the auction block, families displaced. That will do more to transition to more stable lending practices than anything else.


Oct 14, 2006 11:33 AM #16
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Suzanne.....  yes, lenders have looked at this....but it will catch up to many in the beginning of next year.

Dave.... here is something that I wrote today. A Predatory Lending Bill that is SLATED for 2007 & what does this mean........  I told Roberta after she wrote this that I was actually working on one...deleted it...but I decided to add a little more to this. Your last 2 paragraphs hit it right on the head. I was trying to make that point....but I guess I was beating around the bush....  lol Not really.... just didn't use your words, which were good.

Oct 14, 2006 12:07 PM #17
Rob Wills
Gilpin Realty Inc. - Everett, WA
I've come across loan officers who get 5% on the front and back. That is really gouging. And the poor people are paying it because they are not educated!
Oct 14, 2006 04:38 PM #18
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Roberta Murphy

Carlsbad Real Estate and Homes
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