When I started in the mortgage industry 16 years ago, there was no automated underwriting systems! We did not have the MTA's, stated no income no asset loans. Credit Scores were not even a factor yet. We actually had to use our brains to put a loan together. It amazes me what has transpired and part of me feels like I have wasted all of these years. "Greed" has played a very large part in what has happened in our industry! I personally watched upper management get richer and richer! Their influence certainly did not help the situation. There are still some of us left that truly are in this business to make a difference! And yes most of our consumers do not have the financial savvy to know what they are getting into. Its a loan officers job to properly explain the procedure. To give them that warm and fuzzy feeling! Unfortunately, with the programs and products out their, the income potential a loan officer has, they just sell the most expensive loan they can with the most amount of premium in the rate. I posted here today to basically say, not all of us are greedy lenders, some of us actually love what we do and wish that things would get tightened up a bit. Those who truly are good at their jobs will make it through! Since 2006, 210 mortgage lenders have shut their doors! There will be many more to come and those who survive, hopefully will be the companies, the consumer can go to and get the TLC they deserve!
When Mortgages Made Sense
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But over the years things became more complicated. Greenstein recalls reacting skeptically when adjustable rate mortgages first became popular in the 1970s, and he tried to encourage people to behave conservatively with them. For instance, when qualifying a borrower for an ARM, he didn't just look at their ability to pay the mortgage at the introductory rate; he also tested how their finances would hold up as the rate began to increase. When his children became old enough to buy their own homes, he encouraged them to obtain fixed-rate mortgages.
He recalls in the 1970s, when financial innovators first began "securitizing" loans to resell them to investors. That step was one example of how the overall mission of the industry seemed to change. "Now it's no longer about providing financing for someone to buy a home," he says. "It's about providing a vehicle for return-on-capital."
And he recalls how, by the late 1990s, the whole idea of "underwriting" a loan—doing the due diligence required to make sure a buyer's income can support the payment and that the house is worth what they're paying—began to crumble. "All of this was obliterated during the so-called boom, when they were financing purchases just on a signature, with no credit check," he says.
Now, as the pain caused by that laxity has spread, where do we go from here? Greenstein says loan modifications—whether done on a case-by-case basis or via the standards recently set out by the Bush administration—are the logical starting point. He also wonders if we'll hear more about steps to help people who have invested in securitized mortgages, which are now suffering losses.
He hopes the lending process will move back toward stricter underwriting, to a time when people wouldn't be issued a mortgage that would consume 40 percent of their income. The Fed's reforms will help, but Greenstein says he'd also like to see the loan documents borrowers sign become more comprehensible. Lately some consumer advocates have talked about reforms that would make mortgage disclosures just easy to understand as the nutritional labels the FDA requires to be put on food. However, Greenstein says those disclosures aren't necessarily a panacea. "I read those boxes in the grocery story all the time, and I don't understand them. Carbohydrates, sodium, transfat—I wouldn't want to go with that disclosure," he says.
Greenstein points to another moral in those nutrition labels: they're based on the fallacy that Americans eat food in the standard serving sizes nutritionists use. Anyone who has ever compared a "normal" portion of pasta, cereal or French fries against the nutritional standards knows Americans tend to go overboard. So too with mortgages. That's why better disclosures aren't the only element of the mortgage system that should be reexamined in the months ahead. Perhaps we also need to be looking at whether old-timers like Greenstein and their 28/36 ratios had the right idea—and whether the "serving sizes" on America's mortgages should be a bit more slender than they became during the boom.
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