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Confessions of a Subprime Lender
"The rate of property appreciation experienced on a national basis over the last seven years was not only a function of market demand, but was due, in part, to the subprime industry's acceptance of overvalued appraisals, coupled with a high percentage of credit-challenged borrowers who financed with no money down," Bitner writes.
Bitner says his company did its best to figure out whether borrowers really would be able to repay their loans. But mostly it deferred to the standards set by industry behemoths to whom it resold mortgages. "They're watching the performance of billions of dollars of loans, so we had to use their judgment for what's acceptable," he says. By the time these giants began seeing massive defaults in early 2007 it was too late, and last year Bitner's former company, which his onetime partners continued to run, was one of dozens of mortgage firms that went belly up.
In Washington, Congress has been holding hearings to explore what went wrong in the subprime industry—and how to fix it for the future. Bitner has his own ideas. He believes mortgage brokers should have to pass national licensing exams, and he's a fan of the growing concept of "up-front" mortgage brokers, who charge a set and transparent fee for their services. He thinks the appraisal process should be overhauled to give appraisers more independence, and he believes subprime borrowers should attend mandatory debt counseling before their loan closes.
But he doesn't believe subprime lending should vanish entirely. Before they became infamous as "liar's loans," so-called "no documentation" loans worked just fine when they were offered only to self-employed people with good credit scores and hefty down payments. Someday, after this crisis ebbs, perhaps subprime lending will re-emerge as a business that works well by targeting a small subset of borrowers—and not the millions of homeowners who are now straining to stay in homes they really can't afford.
Daniel McGinn is a national correspondent for NEWSWEEK and the author of "House Lust: America's Obsession With Our Homes." For more information on the book, click here .
© 2008
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Member Comments
Posted By: Rudedog @ 05/06/2008 6:47:29 PM
Comment: Yep' once upon a time in this country we had Standards of Practice, We enjoyed a Code of Conduct, we had certain Ethical guidelines, and most had a Moral compass. (do unto others) But in the last decade of the last century much of the populace decided all of that was a silly notion, Live and Let Live, if it Feels good do it. To be responsible or accountable was not being very progressive or too judgemental. When those that are in power, or in position of influence, either in the breaucracy or in the private systerm are allowed to hi-jack the system you can expect chaos and disorder. It is not just the real estate industry, mortgage lenders, appraisers, etc. alone that have exclusive rights to the plunder of the populace. Just look at the medical profession, drug manufactures, insurance industry, the education system in this country, etc. etc. And need I mention the MEDIA. So many people are concerned with physical health that no one ever mentions the degradation of our mental health. Americans spend hours and hours every week viewing CRAP on the TV. Most actually believe what they read in newspapers, magazines and what they see on the TV news channels. It is any wonder that so many people make such poor decisions. They seem to bee concerned about themselves or their neighbors eating french fries or oreo cookies but are oblivious to to the garbage that they are putting into their gray-matter. If you have never been screwed-over by someone in the real estate industry, or someone in the medical profession, a lawyer, a contractor, an insurance salesman, car salesman, or any salesman for the matter, I would have to imagine that you must ber under 25 or you have never left your home. Call me old fashioned, but I did like "the good ol days" when things could be get done with a handshake. When a persons word was their bond. When we had standards, a code of conduct, ethics, a compass, moral or otherwise. But now we live our lives like some stupid TV show. No long term thinking, get rich quick, screw the other guy.... Sigh
Posted By: Saccat @ 04/16/2008 7:55:05 AM
Comment: no, you solution is socialist in it's desire to take $$$ from one party and give to another, next you will want to provide the same solution for credit cards, and all forms of poor decisions that people make..
Ya know what?? people are just too uneducated to make their own decisions they have no right to vote either, so lets just make those decisions for them...
Posted By: lolas son @ 04/06/2008 6:30:23 PM
Comment: can somebody turn the foreclosed homes into a rental homes? so we don't have to move out and give our money to a rental appartments. why don't we help each other to lessen the foreclosure. make the foreclosed house into rental house to get something than nothing and loose a lot.. i hope this is not a stupid idea or use this as a guide.
thank you.