How Banks Have Hurt Every Homeowner

The year 2006. Imagine a small street with 5 houses.

House One- Buyer just purchased through Bank "A" $700,000; no money down and no proof of income.

House Two- Buyer just purchased though Bank "B"  $700,000; no money down and no proof of income.

House Three-Buyer just purchased though Conservative Lender $700,000. $283,000 down- Conventional Loan $417,000

House Four- Buyer Purchased through World Savings $700,000. $70,000 down no proof of income but buyer actually thinks he has a 1% loan.

House Five-Buyer Purchases investment property with $300,000 down from money taken from an IRA and has a $400,000 loan.

The year 2010

House One goes into foreclosure and sells for $390,000
House Two goes into foreclosure and sells for $400,000
House Four goes into foreclosure and sells for $397,000
House Three had a goal of owning this home and selling and moving up. House Three now has a value of less than the loan.
House Five wanted to invest and use this property as a 1031 exchange. House Five can now only try to collect rents and hope to break even.

The action of the banks in Houses 1,2,and 4 make the purchasers of Houses 3 and 5 lose their savings.

So, Congress steps in and says "We will put a stop to this.We will get rid of those horrible mortgage brokers that caused this mess. And, by the way Banks we are so sorry that this happened to you that we will support you and pass laws so only you can lend."

When Congress started to come down on lending approximately 75% of the mortgage brokers fled the industry. Where did they go? They went to work for the banks.

The mortgage brokers who remain are for the most part industry committed life time professionals. Who put us in the housing mess by rank? (1) Government with the push to get everyone into a house and their lax management of Fannie, Freddie and FHA (2) Banks who took no responsibility for the loans. They simply funded them and put them into a box marked "secondary market" and said 'see you later' when they collected their check and (3) The rating agencies who took the box marked "secondary market" and never looked inside. They simply marked U.S. Prime AAA. and (4) The unethical mortgage brokers and Realtors who would put clients into homes hoping that appreciation would continue and the client had an exit strategy.

Today Government officials still pass laws that don't make sense and they continue to remain pompous. Today the banks are the hero's and all of their million dollar advertisements continue to woo back the short memoried public. Today the Credit Rating agencies continue to do their jobs and pull in millions of dollars. Today the remaining mortgage brokers scramble to survive because they are small business and as much as government loves to hear itself talk--there is no love for small business.

One last thing: Some of those laws. If an attorney has difficulty and goes bankrupt he can still practice his trade. If a Realtor, or an M.D., or a newspaper reporter goes Bankrupt they can still practice their business with no interruption. If a loan officer at a bank goes bankrupt he can go to his job uninterrupted the next day. If a mortgage broker goes bankrupt-his license is pulled from him.

The economic problems today were not caused by mortgage brokers--The larger percentage of those problems are directly from government, banks and the credit rating agencies.


Doug Jones
Mortgage Magic
NMLS 286668