News Media At It Again With More Scare Tactics!!!!!

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Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

 This evening I listened to a news broadcast about how Borrowers are all the sudden unable to get a mortgage.  I just sat there shaking my head at the negativism and false information that the News Media was spreading.  They tried to paint a picture that people who were in two year ARM’s are not able to get out of them, because Lenders have tightened up their requirements to the point were they can not get a new loan.  They interviewed a Borrower that he and his wife make a six figure income between them and could not get a loan.

Well let me start by filling in a few holes that I believe they obviously left out.  First of all if it was a two year ARM it was probably a Subprime Loan.  Meaning that these people most likely had bad credit when they got the loan.  It dose not matter how much money they make now, if they did not clean up their credit in the last two years, then who’s fault is it that they can not get out of that Subprime Loan, into a conventional or FHA loan.

Let me give an example of how bad their credit would have to be for them to not be able to get a new loan.  This week I Pre-Approved a Borrow for a 100% Loan (no money down), Seller Paid Cost, had a middle Credit Score of 589, 64% Back Ratio, and very little money in the bank. Now let me also say that the reason why I am not concerned about Pre-Approving this Borrower is because he has additional income from a second job that we can not use, because he can not document it.  But the Automated Underwriting System does not know this, and it still approved him.  If he had enough money for a 3% downpayment, it would have been even easier  approving him with a FHA Loan.

So if someone like this can get an approval on a Conventional Loan, how bad do you think that the Borrowers Credit was that they interviewed?  I would say pretty bad.  But they made it seem like he was a good Borrower and that all the sudden Lenders are tightening things up so bad, that good Borrowers can not get a Loan.

Subprime might be almost a thing of the past, but Conventional and FHA Loans are alive and well, including 100% Loans.  They have not tightened up, in fact I have been getting approvals on Borrowers lately that I could not get an approval on just a few months ago.

So once again the News Media is more concerned about drumming up hype than reporting the facts.  So what else is NEW?????

 

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

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Ambassador
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert
Jeff D, between all of us on here, we should be able to maintain a balance between the Media and reality.
Apr 14, 2007 03:16 PM #13
Rainmaker
298,347
Ray Saenz
Exit Realty Laredo - Laredo, TX
Homes for Sale in Laredo, TX - Texas, Realtor

George,

what is happening in colorado, it is that a lot of homes are not appraised as before, so brokers who put 2 year arms or 3 year arms, when it finishes the 2 or 3 years, people can not refinance because the homes are not appraised, so they get stuck and then they opt to not pay, I have heard a lot of this with some people, very bad, but true.

 

Apr 14, 2007 04:42 PM #14
Rainmaker
579,959
Dena Stevens Coriz
Rocky Mountain Realty - Canon City, CO
Putting The Real Into Realtor Since 2004
George, thanks for the information on sub-primes. One of our local lenders held a seminar for about 50 Realtors last week. He used a dry erase board, small words and brought lunch. I think I have a better idea of how this is all working. Best of all a few days later he said he had new clients who were turned down else where.
Apr 14, 2007 04:51 PM #15
Rainmaker
223,300
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL
George - it's really sad how the media does not give the correct information.  They leave so much out and cause such panic.  I've been seeing it in the last month and shake my head every-time.  Again, it's up to us to put the correct and complete information out there for consumers.
Apr 14, 2007 05:51 PM #16
Rainmaker
169,069
Linda Davis
RE/MAX Home Team - Gales Ferry, CT

George - you know I'm in your corner about the main stream media.  I haven't watched since 1992 and proud of it.  Thanks for clarifying the subprime stuff.  AND your graphics are perfect!!

Apr 14, 2007 11:52 PM #17
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
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Ray, you make a good point especially if those two year ARM's were 100% Loans and the market was slow during one or both of those years, there might not be enough equity to be able to refinance also.  But those guide lines have not changed or tighten up, so even there the News media would be creating a scare tactic.

Dena, some Lenders might be turning down people because they are not putting them through the right programs or even trying to put them through those programs. 

Ines, you are absolutely right.  If we do not correct the mis-information that the Media is spreading then people will take it as fact.

Linda, thank you.  I wish I could keep myself from watching it also, but I am not as disciplined as you.

 

 

Apr 15, 2007 12:54 PM #18
Anonymous
Mikey

"Well let me start by filling in a few holes that I believe they obviously left out.  First of all if it was a two year ARM it was probably a Subprime Loan.  Meaning that these people most likely had bad credit when they got the loan.  It dose not matter how much money they make now, if they did not clean up their credit in the last two years, then who's fault is it that they can not get out of that Subprime Loan, into a conventional or FHA loan."

Where lenders are wrong (and brokers by association) is that there should be loans that are short term "gateway" loans that the borrower could not actually payoff, only refinance. The way these subprime loans are designed, the terms are so onerous that they are destined to fail.

This is exactly why the FDIC in their guidance has mandated that borrowers be qualified at the fully indexed rate, they are saying an originated loan should be able to be paid off by the borrower as their situation stands today.

Lenders and brokers have been grabbing the short term money. Desigining loans (and putting people into) short term loans requiring refinance sounds like a great business model, but you are now reaping what you sow.

If you look at the 5 C's of lending (Character, Capacity, Collateral, Conditions, Capital) and consider what loans nowadays are really boiled down to (Collateral), you see how far off the path this "new paradigm" has really strayed.

As for your borrower, how do you know they have a second job? If they can't document for the lender, they are either lying to you or cheating the gov't out of taxes (otherwise it'd be on the tax returns and documented). I'm sure you passed this information onto the lender so that the underwriter can fully consider the borrowers character.

Apr 15, 2007 02:05 PM #19
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George Souto
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Mikey, if you go back and read my comment to Jeff you would see that he only had the second job for six months, and I can not use income from a second job unless the borrower has had the job for at least one year  in this loan program.

As far as the other undocumented income and letting the underwriter know about his character, that has nothing to do with his ability to pay, and that is what the underwriting decision is based on.  There is no place on the 1003 to give on opinion on a borrowers moral charter, in fact that you probably be grounds for a huge law suit if a loan was ever turned down for moral reasons.  And unless documentation can be gotten to show that he is doing something illegal we can't do anything but approve the loan if he qualifies based on the income that he can document.

Also I would disagree that Subprime loans are designed to fail. Suprime Loans have never accounted for much of my business, I don't like them and I am usually successful in getting the Borrower into a conventional or government loan program.  But the very few that I have done, the Borrowers that did what I told them and cleaned up their credit in the two year fixed period, were all able to Refinance.  Those that kept on doing what they had done in the past could not.  Once given the knowledge of what they need to do, it is their responsibility to do it and no one else’s. 

Apr 15, 2007 02:38 PM #20
Anonymous
Mikey

"if you go back and read my comment to Jeff you would see that he only had the second job for six months, and I can not use income from a second job unless the borrower has had the job for at least one year  in this loan program."

"Now let me also say that the reason why I am not concerned about Pre-Approving this Borrower is because he has additional income from a second job that we can not use, because he can not document it."

-----

As for the character issue, it is one of the reason why lenders are starting to only allow the more risky loans to be originated in house because the brokers do not have their best interest in mind, things like character ARE a component in lending, and people are just now starting to get back to it. Like I said, people reap what they sow.

 

As for subprime being designed to fail, they are designed to be refinanced not paid off, everyone knows this. Any loan designed not able to be paid off to full term, is designed to fail. People are learning that destroying your customers isn't a viable long term strategy.

Apr 15, 2007 05:34 PM #21
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
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Mikey, I am not a Broker, we originate, underwrite, and close all of our loans in house except for Subprime, and service many of the Loans we close.  So that being said, loans are based on credit history and ability to pay, it is a financial decision, we do not make moral judgments on approve loans based on peoples character.  If Automated Underwriting gives an Approved/Eligible, the only thing that underwriting will do is verify the information given for accuracy, it all checks out the loan is approved.  Loan approvals are based on facts knows not character assumptions.

Second, the average loan these day, regardless of the loan product stays on the books for an average of 5 years, that is an industry wide average.

Fail to me means default, no one designs loan programs that the objective is for them to default.

 

 

Apr 16, 2007 06:04 AM #22
Rainer
139,950
Jay McGillicuddy
Berkshire Hathaway HomeServices Verani Realty - Exeter, NH
Real Estate Broker

Leave it to the media to stir things up. When I was NH state president elect  in 2003 the media would call and ask when the bubble was going to burst. I kept telling them it wasn't bursting and they said that's ok we'll just call someone else.  Every couple of months they would call again, I'd give them the same answer. Of course, they never would print anything I said. They wanted only the Bubble story.

That's one of the reasons I hate the media.

Apr 16, 2007 01:26 PM #23
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
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Jay, isn't it amazing that they only want to hear and report the negative, and the more negative it is the better they like it.

Thank you for sharing that experience with us Jay. 

Apr 16, 2007 01:45 PM #24
Rainer
62,624
Nick M.
Certified Residential Appraiser- West Palm Beach Real Estate - West Palm Beach, FL
Realtor-Appraiser in West Palm-South Florida Real Estate Appraiser
 George.. the media feeds on negativity. i rarely watch the news.. its all just bad vibes. with a kitten saved from the tree here and there. and the worst part is that people just feed off this and take it as truth written in stone. what can you do?? my guess is your best, with honesty and integrity. misery breeds company, but so does positivity. :)))  thanks for speaking up! :)
Apr 19, 2007 03:56 PM #25
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
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Nick, I like that "its all just bad vibes. with a kitten saved from the tree here and there" I had not heard it put that way before......LOL
Apr 19, 2007 11:45 PM #26
Rainmaker
659,643
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645
You hit it on the head they must have had el-stinko credit.
Apr 23, 2007 08:26 PM #27
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
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Randy, but isn't it funny that the Media leaves that little bit of information out?
Apr 24, 2007 12:25 AM #28
Rainer
75,626
Ann Guy
NA - Allentown, PA
What everyone needs to remember is that the media is around to tell a story.  The story has to be good or no one will watch.  It's a shame that the media can't focus on postitive things.  Foe example, what about all the customers that refi'd out of a sub prome loan into a conforming? 
Apr 24, 2007 03:14 AM #29
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"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Mortgage George...

I gave up on the media. Why? They remind me of Pinocchio :)

You can't believe anything they say anymore.

TLW...ROAR!

Apr 24, 2007 04:39 AM #30
Rainmaker
468,824
Alexander Harb
Knights Investing - Mesquite, TX
Dallas, Texas Real Estate Investing

George....

You are so always up on what the media is doing.... doesn't that get depressing?

I only read the news through Yahoo mail...I don't even turn on the TV news at all anymore....

Apr 24, 2007 04:52 AM #31
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
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Ann, you are soooooo right.  There are probably more that were able to refi out of Subprime than those that are stuck in Subprime.

TLW, we know that but unfortunately much of the public doesn’t, I guess we will have to straighten them out :)

Alex, I guess I would rather run the risk of getting depressed and know what the Media is up to than not.  I guess I am just a gluten for punishment. 

Apr 24, 2007 08:40 AM #32
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