Sub-Prime Meltdown? What About My Meltdown?

Mortgage and Lending

I read all the broker bashing going on . . . how lenders and greedy brokers encouraged borrowers to buy
houses they couldn't afford and sign up for payments they couldn't make and about the bailout programs
states are putting in place to keep people in their homes and I think back to conversations I have had with
borrowers over the last few years.

One in particular comes to mind, my client, a well educated and successful business owner, with great credit
and lots of assets had completed an application for an investor purchase.

Noting the $20K a month figure he had put in the salary block, with his hand,  I asked "Did your income tax
return last year show $240,000 in taxable income?"

"No" he said, somewhat indignant.

"Well, was your gross income before deductions $240,000?"

"No," he says, getting more agitated. "Where are you coming up with that?"

"Well, if we multiply $20,000 X 12 months, my math says that is $240,000 . . . Right?"

"Uh, yeah, but this is a stated loan."

"A stated loan?"

"Yeah, a stated loan."

"But, Mr. Borrower, a stated loan means you state what YOU made last year . . . Not what Will Smith netted
on a slow Saturday night."

"Well, what good is it if I have to state what I make?" (I'm guessing this is as opposed to what Will Smith
makes . . . )

"You can state your income, and not have to prove it with income taxes, but you have to state YOUR income. Not what you wish it was, or what it might be, or what you think will get you this loan . . . You state your income, truthfully."

Well, he didn't want to do that and I didn't want to not do that so we agreed to disagree and I haven't done his loan . . . But I can't count the times I've said, "No, if you're not going to live there, you can't have an owner-occupied rate," or "No, having another home in the same subdivision is NOT a second home, even if you do put your ex-wife and children in it," or, "You know, I'd really like for you to have this house" (and I'd really like to close this loan since I've wasted so much time on you) "but what you are suggesting is loan fraud, and I'm not willing to risk jail so you can . . . (fill in the blanks)"

Everyone is responsible . . . Lenders did take loans that met criteria that appeared to be sufficient to cover their exposure and wasn't; borrowers did take loans they wouldn't be able to afford in two years because their wives wanted in a house, and their children needed a good neighborhood. Speculators in the real estate market jumped on the property bandwagon and drove it away, because they could, and because they wanted to.

Because Americans believe in having it all and having it now, and the credit industry (all of it, not just
mortgage lenders) encourages the spend, spend, spend mentality and think about it tomorrow, Scarlet

I've NEVER been a Chicken Little. I'm the extreme optimist . . . but this meltdown, that started out as the
"sub-prime" meltdown, and has turned into

  • the CEO of Countrywide mortgage predicting that the major 10 lenders in the country will go to five
    major lenders soon;

  • Australian funds that are tallying their losses because they bought real estate securities in the US;

  • Lenders scrambling to keep people out of foreclosure with forebearance contracts and payment plans
    and then they go into foreclosure, only it is three months later than they should have.

  • Massachusetts setting up a $250 million fund to help 1,000 homeowners. . . New York,
    $100 million to help 500 homeowners?

So now it is My meltdown. I don't worry about my job anymore, or even about my industry.

Now I'm worried about my country.

Comments (6)

Brian Brumpton
Keller Williams Boise - Boise, ID
Boise Idaho Real Estate

Traci, it's not your job to worry about he country, we have elected leaders for that.  Worry about who you're going to put into office in 08.

Jul 30, 2007 04:34 PM
Alan Mills - Creating Closer Communication
ACN - Spokane, WA

It is despicable that loan applicants chose to lie on their applications. I look forward to the lenders' lawsuits against defaulters when they investigate their income against tax records. Oh, yes. Blatant lies should be tracked back to originating Loan Officers and their employers should be investigated appropriately.

Let's regain control of our industry.

Jul 30, 2007 04:35 PM
Traci Gregory
Alpharetta, GA
Brian, WELL SAID!!!
Jul 30, 2007 04:42 PM
Robin Hardy
The Moosey Group, Inc - Riverside, CA
It is a shame on some of these deals, we have had to turn away several individuals when they have tried to refinance.  I am shocked at what was claimed on 1003's.  My heart breaks when I can not help them.  We just had a client come to us to help save his home, the laon was for $400k and he makes $2000.00 per month, his payment is $2400.00.  Makes you wonder how those LO's slepp at night.  All we can do is keep it in the best interest for the clients we do come in contact with.
Jul 30, 2007 05:32 PM
Vanessa Roberts
Homestar Financial - Smyrna, GA
Anybody watch "House" on TV, his motto "Everybody Lies" is quoted weekly in my office.  As soon as someone says to me "well, the truth is..." or "Honestly..."  you can hear a corus of "RED FLAG!!!" go up. Gotta watch out. Hopefully this "slow down" will just weed out the bad apples and re-train America on what it takes to get a loan. 
Jul 31, 2007 07:55 AM
Scott Daniels Florida Real Estate 2.0. Agents Earn 100% Commission.
Florida List For Less Realty, Inc. Broker/Owner. - Cooper City, FL
ABC just Ko`d one of our deals too....
Aug 01, 2007 12:12 AM