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Subprime Lenders Got What They Deserve -

By Leo Namiot - LeoLends.com

Mortgage and Lending with Canopy Mortgage - Leo Namiot 89769

July 29, 2007 03:49 AM

With now a reported 105 Major SubPrime Lenders Lenders Shutting Shop (http://ml-implode.com/) We all see that the subprime market got what they deserve. I can't figure out why anyone should be held responsible for their bail out? They well knew what they were heading for.

We all want to help people buy their own home but how do you lend 100% financing to a person with 500 FICO scores and not think you were going to foreclose on that property shortly down the road? Let's be realistic, you have a person with a 500 FICO score they have collections from just about every person they ever had credit extended from but they had a couple of open and active trade lines so that's make it okay to lend them 100% LTV on a home?

Whats the risk to these buyers ZERO, they look at it as a FREE RENTuntil they get forced out 12-18 months after they stop making payments to the lender, in most cases the deals were sctructured so that the sellers paid the closing costs so the buyers had NOTHING invested in the deal. Do you think the buyers are concerned about the FC on their credit report? LOL..... Not a chance, their credit was shot well before this and they did not care.

So with all the talk in congress and from Freddie and Fannie it just makes me sick that they would even suggest a bail out that comes back to bite us, the working tax payers.

These deals made no sense to begin with and the lenders knew the risks involved. They are now taking back properties financed 100% with FC costs, property taxes which I am sure were not paid and a down market equals a BIG LOSS which the lenders should suck up. I don't think these lenders would share with us any of the 10%-12% interest they were charging on the 2/28 ARMS if the deals did not fall apart.

There are a handful of people who had low credit scores and were in need of these loans but these people are those who took a 2/28, rebuilt their credit and can not refinance to a better deal, we should offer help to those who worked hard to rebuild their credit, but for the most part these loans were given to people who should not have gotten a mortgage in the first place!

If you play with fire you will get burned.

Subprime lenders - Face your fate -

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Robert Kerr

Kerr Financial - Warwick, RI

Leo, when the scoundrels complicit in this massive fraud upon investors, the government and, eventually, the taxpayers, start going to jail for fraud and losing their personal assets, then they will have gotten what they deserved.

They haven't begun to get what they deserve. This financial mess is getting very bad, very fast and at some point the government will hopefully step in and start chasing those responsible, especially the brokers and lenders who knowingly overstated incomes or home values or facilitated a fraudulent "money back at closing" scheme.

Jul 29, 2007 08:43 AM

Rebecca Savitski

BSR Real Estate Group - Cary, NC

NC Real Estate Listings

I agree with your point. But we need to remember that not every subprime buyer is looking to take advantage of their home ownership responsibilities remember each loan is attatched to person. Someones Mother, Father, Daughter, Son, Sister, Brother remember there are always scamartist but they are not everyone.

Jul 29, 2007 09:57 AM

Gareth Bourriague

Benchmark Mortgage of Louisiana - Baton Rouge, LA

Benchmark Mortgage

Hi Leo,

Hope all is well with the new branch.

Interesting comments...I place more blame on the investor side, though. I have quite a bit of experience in the secondary market, and the blame should be placed on Wall Street, who provided the warehouse lines to fund the loans, and then purchased the securities backed by these risky mortgages. In my experience, the lender can only offer what the investor authorizes them to offer. For example, the investors are no longer buying 2/28 ARMs, so lenders are pulling the program. Before the market crashed, these greedy investors couldn't get enough, so the guidelines became more and more lax. Once these loans started to default, they panicked and pulled their lines. However, in the whole grand scheme of things, the percentages still favor the investors - there are many, many more good loans than bad.

Take care,

Gareth Bourriague - Benchmark Mortgage Baton Rouge, LA

Jul 29, 2007 10:37 AM

Thomas Weiss

Thomas R. Weiss - West Palm Beach, FL

Leo,

I do agree that some have had it coming there way for a while now, but I have had A paper and B/C loans that i've done and I am happy to say I have a zero Foeclosure record, but the clients are at fault as much as the lenders and what about the brokers that wrote up these bad deals, it's a group problem and they are learning now...

Tom Weiss

Jul 29, 2007 10:42 AM

Suburban Chicago Illinois Real Estate

Suburban Village Realty - Barrington, IL

NOBODY should be paying to bail out sub-prime lenders, NOBODY.

Jul 29, 2007 11:18 AM

Matthew J Blum - (retired from the business)

Palm Beach Gardens, FL

Being only an "A" lender explains alot. But funny thing Fannie mae..I would consider a "A" programs... still allows a DTI of 60% on MyCommunity. and maybe I am wrong but I never know any subprime lender allowing this.

Jul 29, 2007 11:20 AM

Steve Norris

Meridian, Idaho - Meridian, ID

Silvercreek Realty Group

Were they bad business? Maybe. According to the Fed, we are looking at an 11% default rate in the sub-primes. High? Compared to conforming products, sure, but this means that 89% of the folks who had the opportunity to buy a home under these programs are making their payments as agreed and probably at an interest rate that most of us would choke on. An argument could be made that the benefit of that many additional homeowners outweighs the detriment of the defaults. Just a thought.

Jul 29, 2007 12:24 PM

Diane Bell, Hilton Head Real Estate, Bluffton

Charter 1 Real Estate, Hilton Head, Bluffton, SC - Hilton Head Island, SC

But we are now having an over correction from the lenders--typical. I totally agree and have no sympathy for the subprime lenders. Too bad it's spilling over into the legitimate aspects of our business.

Jul 29, 2007 12:59 PM

Susan Milner

Florida Future Realty, Inc. - Cape Coral, FL

Cape Coral Real Estate Broker, FloridaFutureAgents

I agree. This makes me very angry. These lenders made billions offering these loans & are now probably only losing millions....so I guess it all made financial sense to them. It's very sad & I am getting all kind of calls from people who can't afford their home anymore. Not sure if they just weren't informed or if they just had fairy tale visions of the future. Either way, its not helping our current market.

You have to place responsibility on the consumers too because they asked for these programs & took the lenders up on them. I'm sure many lied on their applications & went stated when they didn't qualify.

Unfortunately, we all end up paying for it in the end.

Jul 29, 2007 01:04 PM

Robert Kerr

Kerr Financial - Warwick, RI

We are looking at an 11% default rate in the sub-primes. High? Compared to conforming products, sure, but this means that 89% of the folks who had the opportunity to buy a home under these programs are making their payments as agreed and probably at an interest rate that most of us would choke on.

Defaults are off the charts for 05/06 vintage subprimes and accelerating in Alt-A now. Foreclosures in LA County are up almost ten-fold. These are prime borrowers and high-end markets

And you characterize it as "89% of subprimes can still make their payments?"

Upton Sinclair was right: "It's difficult to get a man to understand something when his job depends on not understanding it."

Jul 29, 2007 01:52 PM

Neal Bloom

Brokered by eXp Realty LLC - Weston, FL

Realtor CRS-Weston FL Real Estate

Leo,

Amen...I'm a Realtor(R) and all I can tell you is if what you said is true..one of the reasons our market tanked was part of the problem...not the whole problem but part of it. I hope they were not giving loans to people with that low of a score...if so how in the world did they think they could make the payments?

Jul 29, 2007 01:59 PM

All-Real Estate Affordable Real Estate Classifieds

AllReal-Estate.com - Real Estate Classifieds - Holts Summit, MO

Interesting article

Jul 29, 2007 04:05 PM

Joe Zapata

Keller Williams Realty Media World - Burbank, CA

Your Burbank Real Estate Expert

I am with you on this 100%. To many people were given the green light to buy who were simply not ready to be home owners. Now the subprime lenders have to face the music for the chaos they created in the market.

I say let them sweat it out and do not punish those who deserve to have what they have worked so hard for.

Jul 29, 2007 05:00 PM

Peter Hackett

HutHub Inc. - Oakland, CA

The National Real Estate Network, HutHub.com

I truly believe that all of our hands are covered in blood on this one.......subprime borrowers are simply renters with a goal, and I'm not going to commit to the idea that 500 fico score individuals are ALL lazy-good-for-nothings.

Admit it.....A paper & Alt-A lenders, loan agents, and borrowers benefitted nicely from the subprime market, if only because the majority of borrowers fall into the subprime catagory and their zeal to buy a house is what has bolstered home values market-wide and made A LOT of people in this industry RICH, including Agents, Investors, and otherwise credit worthy Homeowners.

I'm not saying that subprime lenders are blameless....there was and still is a LOT of stupid loans out there...such as 1% Neg. Am. loans for anyone with under a 620 Fico. BUT we all created and profited well from this monster, so now that its time to pay the piper, we can just scream "unfair"!

Most of the people who defaulted on these loans did so out of "payment shock" or in other words, because their loan agent never EDUCATED them as to how the loan product actually works......most loan officers are taught to sell two things: payments & benefits.....for a renter whose never dealt with anything more complicated than a security deposit and an occasional rent hike, things like 'indexes', 'margins', and 'cap rates' have got to sound like Latin.

Education is the key here, and unless the loan industry starts requiring LOAN PRODUCT EDUCATION for subprime borrowers, this sort of thing is going to happen no matter WHAT sort of Fico restrictions are placed on borrowers.

Jul 30, 2007 12:17 AM

Al Maxwell

Keller Williams - Marietta, GA

Real Estate Agent

Very well done and also very true. We will look back on the mid 2000's as another time when lenders went under and changed the way people buy real estate. We go through this about every 15 years.

Jul 30, 2007 01:38 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Leo.... I just want to warn you that my comments might sound harsh. Just replying to your comments and a few others that I happen to agree with.

I have been in lending for 14 1/2 yrs.... I am a stickler for correct info when calling people out. What company allowed for 100% financing??? I agree with what Joe Sampson had asked. And then you give us a link that you mentioned 550 scores for 100%. I went to the link and it said 580 fico scores. And if you read the small print, they lend in Texas. If anyone paid attention to 100% subprime financing, all companies were at 580 back in February. There was one for a year that went to 570. Yes, there were some at 500 to 520, but they weren't national companies. They were in 6 to 8 states and funded their own money. The 580 and higher up to 100% all took place on Wall Street.

Then let's take what Jason Romrell mentioned. He hit the nail on the head. You can't judge all borrowers based on FICO. I personally think you jumped on the bandwagon here, in regards to how you are pointing the fingers. I guess it's your comments in regards to the 100% financing and the 500 credit scores. And then Brian Brady goes on to say... " This is a joke, right?" My problem is that I will just speak my mind and sometimes look mean and rude. Brian is being politically correct here in keeping his mouth shut.

Overall.... Leo, I know you are good at what you do, at least you know what you are doing. But this post confuses me. Are we lashing out to get recognized on here? So realtors go.. you speak the truth? First off, this crap happened over 6 months ago. Are you just now catching up with the news?

The end result.... things happen. Did lenders get greedy? Yes.... did many push the envelope...? yes.... but we can blame so many and not just the lenders. Help, I can't make my mortgage payments.......

I guess it was the certain comments made within the blog that has my head spinning. What was your main point? That lenders screwed up and should take all of the blame? I agree some should and are you really going to think the gov't will follow up with half of this? In regards to the bailout.... did you read into it, what they are pushing? Read it.... it doesn't sound 100% like the title, that they will bailout the lenders. Just my .02.

jeff belonger

Jul 30, 2007 04:07 AM

Tom Burris

NMLS# 335055 - Baton Rouge, LA

Texas/Louisiana Mortgage Pro - 13 YRS Experience

Bailout?

Bailout who? Wallstreet is eating their losses. And so are those The lenders went under because they didn't have anything to sell..... and that isn't my fault. I don't wAnt to see anyone bailed out..... except those who are trying really hard to keep their homes and want to pay their mortgage. For them, I would like to see some lenders step up and do some reduced fee refinances. For those that aren't paying on time?!?!?!? Well, they can go back to renting..... like they should have been all along!!

Jul 30, 2007 05:09 AM

David A. Podgursky PA

THE PODGURSKY GROUP @ Re/Max Direct - Boynton Beach, FL

THE PODGURSKY GROUP - Make the Right Move!

I throw out a ditto to Brian Brady

and I want to also say that there is NO ONE in foreclosure COASTING rent free...

many people made their financial decisions before and after their subprime mortgages and never did stand up for themselves ... despite a lender's offer to give them funding.

no one is coasting because the foreclosure itself will cost TENS of THOUSANDS of dollars for the rest of their lives!

Jul 30, 2007 08:54 AM

Anonymous

Mary

You want to know who's responsible for all this? All the greedy debt buyers out there. All the greedy credit card companies and all the greedy banks. I was at the beginning of this slide. I had lived quite well in a 1200 sq ft house in a nice neighborhood for 12 yrs with never a late mortgage payment and had built up a lot of equity so when I saw my dream house, and was told "Yes, you can" I did. And I'm sorry I did. I had a FICO score of 730. Not shabby. I put $50,000 down. I took an interest only no doc loan. Then my fiance lost his job. And the bottom fell out. I had credit cards I couldn't pay because I was trying to pay the mortgage until I could sell the house. One month turned into 3, then into 6 and then the credit card companies charged me off. Mind you, I have had good credit for 30 years. They turned on me like pit bulls would. They all wanted a piece of me. Finally after 8 months I sold the house, lost my entire $50,000 and moved into an apartment. Did that end the nightmare? NO. The pirrhanas who bought the debt from Chase and Capital One called all day long. Almost made me kill myself. Law firms were buying debt and suing. I finally got a judgement (my first ever!) and decided to file chapter 13. When the claims came back, 3 of my charge offs were being claimed by a company I'd never heard of. I found them on the net and they are a vulture investment firm. Now they aren't only buying up Chapter 11 debt, they are picking on the little people. But here's the thing. If you beat all the slaves to death, who will support the King? And who will clean up after him? No one. And THAT'S what is happening. Because of their being no one to police these vultures, they just go merrily along making money they are not even owed. They bought my Chase account for probably about $100. I owe them $15,000. Why is this legal? If their name was Soprano, they'd be in jail. So am I ever going to get credit again? NO. (Not that I want it ever again). So multiply me by about a million and you get what they call the domino effect. If the little people don't have any money to buy anything or any charge cards to buy anything, than the big people are going to feel it in the wallet. And THAT'S what's happening too. These vultures will ultimately be responsible for the ruination of our economic society. And for what? How much money do they need??? Where is the government? Why are these things being allowed? Bankuptcy is not a picnic. I am doing a 100% repayment for the next 5 years. I am renting. I do not use anything but cash anymore and if I don't have the money, guess what? I'm not buying. And so aren't about a million other little people like me. And then they'll start laying off more workers because there isn't enough sales. And then those people will stop buying stuff and so on and so on. See the big picture now? I say let them whip in the wind. I hope they know how we all feel now. I hope someone calls their house 25 times a day and call them names like 'deadbeat' and 'lowlife'. No one deserves to be treated like that. It's only now that the rich are being affected that someone will do something. But, too late. I say put your money under your mattress and sleep well tonight. Thank you.

Aug 10, 2007 01:35 PM

#46

Esko Kiuru

Bethesda, MD

Leo,

There were lots of people who took advantage of these subprime goodies and don't care if they go belly up later on. That's the way they are. And the banks that lent them the money to make an extra buck, goodbye. But there are also many borrowers who got subprime loans and are making payments and really want to make it. It's those weasels that we shouldn't bail out.

Aug 10, 2007 04:43 PM