Whose Fault Is This?
The mortgage industry defends itself.
As the housing downturn continues, the blame game is only getting started.
Yesterday the National Association of Home Builders reported handing over just 774,000 sets of new house keys in 2007, a 26 percent drop from 2006, which is the biggest decrease in at least four decades. Forecasters see the continuing weak sales and high inventory as signs that the market for residential real estate is unlikely to turn around soon. Next week a Congressional committee will question Countrywide CEO Angelo Mozilo, whom the New York Post has called "the public face of the subprime mortgage mess." Up until last week Mozilo was set to receive a $75 million "golden parachute" (i.e., severance package), when Bank of America completed its $4.1 billion buyout of Countrywide. But on Monday Mozilo voluntarily agreed to significantly pare down his windfall by giving up lucrative consulting fees and perks like golf club memberships and corporate jet travel. He'll still receive $37.5 million.
Mozilo's lifestyle has little in common with that of Steinunn Seay, an operations manager for a mortgage lender in Kenosha, Wis. But Seay and Mozilo share a couple of things in common: they both make a living helping Americans borrow to buy homes, and they both feel tarnished by the mortgage crisis that's been front-page news for nearly six months now.
Seay is not a mortgage broker, and she has never earned a commission by selling a loan. Instead, she's one of the many thousands of support staffers who work behind the scenes, processing the paper, cutting the checks and dotting the i's on those giant stacks of mortgage documents we all tend to sign without reading whenever we refinance.
The number of people working in these jobs multiplied over the last decade. More Americans were buying homes, and existing homeowners became increasingly accustomed to refinancing whenever interest rates dipped, requiring more manpower inside mortgage companies. In January 2000 total employment in the real estate credit and brokerage sectors totaled 298,000, according to the Bureau of Labor Statistics. By October 2005—the height of the real estate boom—that number peaked at 504,000. By last November it had dropped by 22 percent, to 392,000.
Seay has felt this pain. She began working in a mortgage office right out of high school, in 1992. Over the years she advanced and changed jobs, eventually earning as much as $65,000 a year as a statewide operations manager. Just a year ago, if she'd wanted to change jobs she would have had her choice of offers, she says. But last August her employer suddenly closed, a victim of the mortgage crunch. She found a new job within a week, but her new employer doesn't offer the generous bonuses she earned before. As a result her income has dropped by half. With two kids to support, she has pulled her nine-year-old daughter out of horseback riding lessons and has postponed plans to enroll her four-year-old in ballet class.
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Member Comments
Posted By: pduncan2000 @ 03/13/2008 1:02:27 PM
Comment: A few Broker's were were parlt reposible for the qualifying of certain borrowers., But the biggest responsible party was the wholesale lender that was offering terms with high debt ratios allowed, up to 60% or more of your total gross income for a house payment, before you even pay your taxes, groceries, utilities and insurance and clothing. The lender wouldalso allow the waiving of monthly escrow to collect the property tax payment every month. And then comes along the rate adjustment period 24 months after the loan began. It is always a 1 percentage point increase in your rate, which will drive your payments up by as much as 30%. And it doesn't stop there. The rate then increases by another 1% every six months until it hits usually 12%.
Now at the start of the loan they had a rate of say 6.5%, then, two years later it goes to 7% then six months later to 8% then six months later it goes to 9%, etc. Can you see that the problem is the loan product, not the borrower. He can't keep up with those increase in interest rates. Am I making sense here? Then you also have to pay your property taxes at the end of the year on top of being cash poor already. The system was rigged to fail from the beginning. But the secondary market could sell these potentially profitable loan packages in blocks of $5M-$10M bundles to unsuspecting buyers because for great sums of money on wall street because of the illusion of safety in U.S. Mortgages. Why not feel safe. U.S. Mortgages have been historically safe for generations. because of regulated policies that forbod them to sell such shoddy high risk ventures. Blame Wall St. and trhe greedy lightly regulated (FREE-MARKET) Banks.
Pat in Plano, TX
Former Mortgage Broker
Posted By: pduncan2000 @ 03/13/2008 1:02:08 PM
Comment: A few Broker's were were parlt reposible for the qualifying of certain borrowers., But the biggest responsible party was the wholesale lender that was offering terms with high debt ratios allowed, up to 60% or more of your total gross income for a house payment, before you even pay your taxes, groceries, utilities and insurance and clothing. The lender wouldalso allow the waiving of monthly escrow to collect the property tax payment every month. And then comes along the rate adjustment period 24 months after the loan began. It is always a 1 percentage point increase in your rate, which will drive your payments up by as much as 30%. And it doesn't stop there. The rate then increases by another 1% every six months until it hits usually 12%.
Now at the start of the loan they had a rate of say 6.5%, then, two years later it goes to 7% then six months later to 8% then six months later it goes to 9%, etc. Can you see that the problem is the loan product, not the borrower. He can't keep up with those increase in interest rates. Am I making sense here? Then you also have to pay your property taxes at the end of the year on top of being cash poor already. The system was rigged to fail from the beginning. But the secondary market could sell these potentially profitable loan packages in blocks of $5M-$10M bundles to unsuspecting buyers because for great sums of money on wall street because of the illusion of safety in U.S. Mortgages. Why not feel safe. U.S. Mortgages have been historically safe for generations. because of regulated policies that forbod them to sell such shoddy high risk ventures. Blame Wall St. and trhe greedy lightly regulated (FREE-MARKET) Banks.
Pat in Plano, TX
Former Mortgage Broker
Posted By: pduncan2000 @ 03/13/2008 1:00:07 PM
Comment: A few Broker's were were parlt reposible for the qualifying of certain borrowers., But the biggest responsible party was the wholesale lender that was offering terms with high debt ratios allowed, up to 60% or more of your total gross income for a house payment, before you even pay your taxes, groceries, utilities and insurance and clothing. The lender wouldalso allow the waiving of monthly escrow to collect the property tax payment every month. And then comes along the rate adjustment period 24 months after the loan began. It is always a 1 percentage point increase in your rate, which will drive your payments up by as much as 30%. And it doesn't stop there. The rate then increases by another 1% every six months until it hits usually 12%.
Now at the start of the loan they had a rate of say 6.5%, then, two years later it goes to 7% then six months later to 8% then six months later it goes to 9%, etc. Can you see that the problem is the loan product, not the borrower. He can't keep up with those increase in interest rates. Am I making sense here? Then you also have to pay your property taxes at the end of the year on top of being cash poor already. The system was rigged to fail from the beginning. But the secondary market could sell these potentially profitable loan packages in blocks of $5M-$10M bundles to unsuspecting buyers because for great sums of money on wall street because of the illusion of safety in U.S. Mortgages. Why not feel safe. U.S. Mortgages have been historically safe for generations. because of regulated policies that forbod them to sell such shoddy high risk ventures. Blame Wall St. and trhe greedy lightly regulated (FREE-MARKET) Banks.
Pat in Plano, TX
Former Mortgage Broker