Mortgage Predatory Lending

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2007-03-09T17:02:00.000-08:00

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Mortgage servicing fraud

2007-03-09T16:59:00.000-08:00

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Nightmare Mortgages

2007-02-21T17:34:00.000-08:00

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COVER STORY

Nightmare Mortgages
They promise the American Dream: A home of your own -- with ultra-low rates and payments anyone can afford. Now, the trap has sprung

COVER STORY PODCAST

For cash-strapped homeowners, it was a pitch they couldn't refuse: Refinance your mortgage at a bargain rate and cut your payments in half. New home buyers, stretching to afford something in a super-heated market, didn't even need to produce documentation, much less a downpayment.

Those who took the bait are in for a nasty surprise. While many Americans have started to worry about falling home prices, borrowers who jumped into so-called option ARM loans have another, more urgent problem: payments that are about to skyrocket.

Slide Show >>The option adjustable rate mortgage (ARM) might be the riskiest and most complicated home loan product ever created. With its temptingly low minimum payments, the option ARM brought a whole new group of buyers into the housing market, extending the boom longer than it could have otherwise lasted, especially in the hottest markets. Suddenly, almost anyone could afford a home -- or so they thought. The option ARM's low payments are only temporary. And the less a borrower chooses to pay now, the more is tacked onto the balance.

The bill is coming due. Many of the option ARMs taken out in 2004 and 2005 are resetting at much higher payment schedules -- often to the astonishment of people who thought the low installments were fixed for at least five years. And because home prices have leveled off, borrowers can't count on rising equity to bail them out. What's more, steep penalties prevent them from refinancing. The most diligent home buyers asked enough questions to know that option ARMs can be fraught with risk. But others, caught up in real estate mania, ignored or failed to appreciate the risk.

There was plenty more going on behind the scenes they didn't know about, either: that their broker was paid more to sell option ARMs than other mortgages; that their lender is allowed to claim the full monthly payment as revenue on its books even when borrowers choose to pay much less; that the loan's interest rates and up-front fees might not have been set by their bank but rather by a hedge fund; and that they'll soon be confronted with the choice of coughing up higher payments or coughing up their home. The option ARM is "like the neutron bomb," says George McCarthy, a housing economist at New York's Ford Foundation. "It's going to kill all the people but leave the houses standing."

Because banks don't have to report how many option ARMs they underwrite, few choose to do so. But the best available estimates show that option ARMs have soared in popularity. They accounted for as little as 0.5% of all mortgages written in 2003, but that shot up to at least 12.3% through the first five months of this year, according to FirstAmerican LoanPerformance, an industry tracker. And while they made up at least 40% of mortgages in Salinas, Calif., and 26% in Naples, Fla., they're not just found in overheated coastal markets: Through Mar. 31 of this year, at least 51% of mortgages in West Virginia and 26% in Wyoming were option ARMs. Stock and bond analysts estimate that as many as 1.3 million borrowers took out as much as $389 billion in option ARMs in 2004 and 2005. And it's not letting up. Despite the housing slump, option ARMs totaling $77.2 billion were written in the second quarter of this year, according to investment bank Keefe, Bruyette & Woods Inc.

The First Wave
After prolonging the boom, these exotic mortgages could worsen the bust. They also betray such a lack of due diligence on the part of lenders and borrowers that it raises questions of what other problems may be lurking. And most of the pain will be borne by ordinary people, not the lenders, brokers, or financiers who created the problem.

Gordon Burger is among the first wave of option ARM casualties. The 42-year-old police officer from a suburb of Sacramento, Calif., is stuck in a new mortgage that's making him poorer by the month. Burger, a solid earner with clean credit, has bought and sold several houses in the past. In February he got a flyer from a broker advertising an interest rate of 2.2%. It was an unbeatable opportunity, he thought. If he refinanced the mortgage on his $500,000 home into an option ARM, he could save $14,000 in interest payments over three years. Burger quickly pulled the trigger, switching out of his 5.1% fixed-rate loan. "The payment schedule looked like what we talked about, so I just started signing away," says Burger. He didn't read the fine print.

After two months Burger noticed that the minimum payment of $1,697 was actually adding $1,000 to his balance every month. "I'm not making any ground on this house; it's a loss every month," he says. He says he was told by his lender, Minneapolis-based Homecoming Financial, a unit of Residential Capital, the nation's fifth-largest mortgage shop, that he'd have to pay more than $10,000 in prepayment penalties to refinance out of the loan. If he's unhappy, he should take it up with his broker, the bank said. "They know they're selling crap, and they're doing it in a way that's very deceiving," he says. "Unfortunately, I got sucked into it." In a written statement, Residential said it couldn't comment on Burger's loan but that "each mortgage is designed to meet the specific financial needs of a consumer."

The loans certainly meet the needs of banks. Option ARMs offer several payment choices each month. Among Burger's alternatives were one for $2,524, about what a standard fixed-rate mortgage would be on the new amount, and the $1,697 he pays. Why would his bank make the minimum so low? Thanks to a perfectly legal accounting practice, no matter how little Burger pays each month, the bank gets to record the full amount.

Option ARMs were created in 1981 and for years were marketed to well-heeled home buyers who wanted the option of making low payments most months and then paying off a big chunk all at once. For them, option ARMs offered flexibility.

So how did these unusual loans get into the hands of so many ordinary folks? The sequence of events was orderly and even rational, at least within a flawed system. In the early years of the housing boom, falling interest rates made safe fixed-rate loans attractive to borrowers. As home prices soared, banks pushed adjustable-rate loans with lower initial payments. When those got too pricey, banks hawked loans that required only interest payments for the first few years. And then they flogged option ARMs -- not as financial-planning tools for the wealthy but as affordability tools for the masses. Banks tapped an army of unregulated mortgage brokers to do what needed to be done to keep the money flowing, even if it meant putting dangerous loans in the hands of people who couldn't handle or didn't understand the risk. And Wall Street greased the skids by taking on much of the new risk banks were creating.

Now the signs of excess are crystal clear. Up to 80% of all option ARM borrowers make only the minimum payment each month, according to Fitch Ratings. The rest of the money gets added to the balance of the mortgage, a situation known as negative amortization. And once balances grow to a certain amount, the loans automatically reset at far higher payments. Most of these borrowers aren't paying down their loans; they're underpaying them up.

Yet the banking system has insulated itself reasonably well from the thousands of personal catastrophes to come. For one thing, banks can sell some of their option ARMs off to Wall Street, where they're packaged with other, better loans and re-sold in chunks to investors. Some $182 billion of the option ARMs written in 2004 and 2005 and an additional $83 billion this year have been sold, repackaged, rated by debt-rating agencies, and marketed to investors as mortgage-backed securities, says Bear, Stearns & Co. (BSC )Banks also sell an unknown amount of them directly to hedge funds and other big investors with appetites for risk.

The rest of the option ARMs remain on lenders' books, where for now they're generating huge phantom profits for some lenders. That's because, according to generally accepted accounting principles, or GAAP, banks can count as revenue the highest amount of an option ARM payment -- the so-called fully amortized amount -- even when borrowers make only the minimum payment. In other words, banks can claim future revenue now, inflating earnings per share.

For many industries, so-called accrual accounting, which lets companies book sales when they contract for them rather than when they receive the cash, makes sense. The revenues will eventually come. But accrual accounting doesn't apply well to option ARMs, since it's more difficult to know if unpaid interest will ever cross a banker's desk. "This is basically an IOU that may never get paid," says Robert Lacoursiere, an analyst at Banc of America Securities. James Grant of Grant's Interest Rate Observer recently wrote that negative-amortization accounting is "frankly a fraudulent gambit. But what it lacks in morality, it compensates for in ingenuity." The Financial Accounting Standards Board, which is responsible for keeping GAAP up to date, stands by its standard but told BusinessWeek in a written statement that it is "concerned that the disclosures associated with these types of loans [are] not providing enough transparency relative to their associated risks."

Camouflaged Losses
Risks or not, the accounting treatment is boosting reported profits sharply. At Santa Monica (Calif.)-based FirstFed Financial Corp. (FED ), "deferred interest" -- what an outsider might call phantom income -- made up 67% of second-quarter pretax profits. FirstFed did not respond to requests for comment. At Oakland (Calif.)-based Golden West Financial Corp. (GDW ), which has been selling option ARMs for two decades, deferred interest made up about 59.6% of the bank's earnings in the first half of 2006. "It's not the loan that's the problem," says Herbert M. Sandler, CEO of World Savings Bank, parent of Golden West. "The problem is with the quality of the underwriting."

In the middle of one of the hottest U.S. markets, Coral Gables (Fla.)-based BankUnited Financial Corp. (BKUNA ) posted a $14.8 million loss for the quarter ended June, 2005. Yet it reported record profits of $23.8 million for the quarter ended in June of this year -- $20.9 million of which was earned in deferred interest. Some 92% of its new loans were option ARMs. Humberto L. Lopez, chief financial officer, insists the bank underwrites carefully. "The option ARMs have gotten a bit of a raised eyebrow because we generate and book noncash earnings. But...it's our money, and we do feel comfortable we'll get it back."

Even the loans that blow up can be hidden with fancy bookkeeping. David Hendler of New York-based CreditSights, a bond research shop, predicts that banks in coming quarters will increasingly move weak loans into so-called held-for-sale accounts. There the loans will sit, sequestered from the rest of the portfolio, until they're sold to collection agencies or to investors. In the latter case, a transaction on an ailing loan registers on the books as a trading loss, gets mixed up with other trading activities and -- presto! -- it vanishes from shareholders' sight. "There are a lot of ways to camouflage the actual experience," says Hendler.

There's no way to camouflage what Harold, a former computer technician who asked BusinessWeek not to publish his last name, is about to face. He's disabled and has one source of income: the $1,600 per month he receives in Social Security disability payments. In September, 2005, Harold refinanced out of a fixed-rate mortgage and into an option ARM for his $150,000 home in Chicago. The minimum monthly payment for the first year is $899, which he can afford. The interest-only payment is $1,329, which he can't. The fully amortized payment is $1,454, which his lender, Washington Mutual (WM ), gets to count on its books. WaMu, no fly-by-night operation, said it couldn't comment on Harold's case, citing confidentiality issues. A spokesman says the bank "accounts for its option ARM product in accordance with generally accepted accounting principles." WaMu has about $12 billion in loans negatively amortizing right now, up from $2.5 billion in 2005, estimates CreditSights' Hendler. In a written statement, WaMu said "borrowers who request an adjustable loan with payment options should understand those options and potential adjustments throughout the life of the loan. We make detailed disclosures to customers that are designed to develop a more informed consumer of mortgage products and ensure that our customers are comfortable with the loan products they select."

Hard Sell
To get the deals done, banks have turned increasingly to unregulated mortgage brokers, who now account for 80% of all mortgage originations, double what it was 10 years ago, according to the National Association of Mortgage Brokers. In 2004 banks began offering fatter sales commissions on option ARMs to encourage brokers to push them, says Gail McKenzie, assistant U.S. attorney in Atlanta, who is investigating mortgage brokers for improper practices.

The problem, of course, is that many brokers care more about commissions than customers. They use aggressive sales tactics, harping on the minimum payment on an option ARM and neglecting to mention the future implications. Some even imply verbally that temporary teaser rates of 1% to 2% are permanent, even though the fine print says otherwise. It's easy to confuse borrowers with option ARM numbers. A recent Federal Reserve study showed that one in four homeowners is mystified by basic adjustable-rate loans. Add multiple payment options into the mix, and the mortgage game can be utterly baffling.

Billy and Carolyn Shaw are among the growing ranks of borrowers who have taken out loans they say they didn't understand. The retired couple from the Salinas (Calif.) area needed to tap about $50,000 in equity from their $385,000 home to cover mounting expenses. Billy, 66, a retired mechanic, has diabetes. Carolyn, 61, has been caring for her grandchildren, 10-year-old twins, since her daughter's death in 2000. The Shaws have a fixed income of $3,000 a month that will fall by about $1,000 in November after Billy's disability benefits run out. Their new loan's minimum payment of about $1,413 is manageable so far, but the fully amortized amount of about $3,329 is out of the question. In a little over a year, they've added some $8,500 to their loan balance and now face a big reset if they continue to pay only the minimum. "We didn't totally understand what was taking place," says Carolyn. "You have to pay attention. We didn't, and we're really stuck here." The Shaws' lender, Golden West, says it routinely calls customers to ask them if they are happy and understand their mortgage loan.

Then there's the illegal stuff. Mortgage fraud is one of the fastest-growing white-collar crimes in the nation, costing $1 billion in 2005, double the year before. A slower housing market could foster more wrongdoing. "With a tighter market, you are going to find there is more incentive to manipulate," says Tim Irvin of Irvin Investigations & Research Services in Spring, Texas. "Brokers are having a harder time getting business, so they're getting creative."

Concerns like these haven't curbed Wall Street's hunger for option ARMS. "At a price, you can originate or sell anything," says Thomas F. Marano, global head of mortgage and asset-backed securities at Bear Stearns. Hedge funds have been particularly active, buying risky loans directly from banks and cutting out the bundlers in the middle. Kathleen C. Engel, an associate professor of law at Cleveland-Marshall College of Law at Cleveland State University, says Wall Street and hedge fund money has helped to finance widespread lending abuses, particularly among the most vulnerable borrowers.

Pros Go Unscathed
Why are hedge funds willing to buy risky loans directly? Because they can demand terms that help insulate them from losses. And banks, knowing what the hedge funds want in advance, simply take it out of the hides of borrowers, many of whom qualify for lower rates based on their credit histories. "Even if the loan goes bad, [the hedge funds are] still making money hand over fist," says Engel.

Eventually, some of it will go sour. But the Wall Street pros who buy option ARMs are in the business of managing risk, and no one expects widespread losses. They've taken on billons in iffy option ARMs, but the loans are no shakier than the billions in emerging market debt or derivatives they buy and sell all the time. Blowups are factored into the investing decision.

Banks that hold lots of option ARMs on their books will surely be hit by loan defaults in coming years. "It's certainly reasonable to expect to see some excesses wrung out," says Brad A. Morrice, president and CEO of New Century Financial Corp. But even here the damage will likely be limited. Banks use insurance and other financial instruments to protect their portfolios, and they hold real assets -- homes -- as collateral. Christopher L. Cagan, director of research and analytics at First American Real Estate Solutions, a researcher and unit of title insurer First American, forecasts total defaults of $300 billion across all types of loans, not just option ARMs, over the next five years -- less than 1% of total homeowner equity. (In comparison, JPMorgan Chase & Co. alone has a mortgage portfolio of $182.8 billion.) Cagan estimates that banks will end up losing only $100 billion of it all told.

Most of the pain will be born by ordinary people. And it's already happening. More than a fifth of option ARM loans in 2004 and 2005 are upside down -- meaning borrowers' homes are worth less than their debt. If home prices fall 10%, that number would double. "The number of houses for sale is tripling in some markets, so people are not going to get out of their debt," says the Ford Foundation's McCarthy. "A lot are going to walk."

Jennifer and Eric Hinz of Somerset, Wis., are feeling the squeeze. They refinanced out of a 5.25% fixed-rate, 30-year loan in June, 2005, and into an option ARM with a 1% teaser rate from Indymac Bank. The $1,483 payment for their original mortgage dropped to as low as $747 with the new option ARM. They say they had no idea when they signed up, however, that the low payment adds $600 in deferred interest to their balance every month. Worse, they thought the 1% would last three years, but they're already paying 7.68%. "What reasonable human being would ever knowingly give up a 5.25% fixed-rate for what we're getting now?" says Eric, 36, who works in commercial construction. Refinancing is out because they can't afford the $15,000 or so in fees. "I'm paying more, and the interest is just going up and up and up," says Jennifer, 34, a stay-at-home mom. "I feel like we got totally screwed." They say their mortgage broker has stopped returning their phone calls. Indymac declined to comment on the loan's specifics.

Stories like these can be found across the socioeconomic spectrum, says Allen J. Fishbein, director of Housing & Credit Policy for the Consumer Federation of America. In a May focus group, the CFA found that option ARM customers at all income levels said the loans were the only way they could afford their homes. While many recognized that their mortgages could increase, "they professed complete surprise that they could increase as much as they could," says Fishbein. That lack of diligence will cost them over time.

Not that all option ARM holders go in blindly. While the loans are marketed aggressively, plenty of holders know exactly what they're getting into. Jon and Meghan Bachman of Portland, Ore., consider them wealth-building tools. "We want to own a bunch of houses," says Meghan. "We're hoping for early retirement."

So far they have stayed out of the fire. The couple, who are in their 30s, bought their first home, a 100-year-old farm house in Portland, Ore., in October, 2005, with a no-money-down loan for $200,000 from GreenPoint Mortgage, a unit of NorthFork Bancorporation Inc. By May, the value of the house had soared to $275,000. Rather than sit tight as their grandparents might have, the Bachmans, with an annual household income of $70,000, took out a home equity loan to put a $30,000 downpayment on an investment property in an up-and-coming neighborhood nearby. They pay a minimum of just $825 on their new $191,000 mortgage, and rent the house out for $100 more than that. Sooner or later, the payment will rise. Then they'll have to raise the rent to stay in the black. If the still-strong Portland housing market tanks, they could find themselves in deep trouble. It's a risk they say they're willing to take.

Public policy has yet to catch up with the new complexities of the lending industry. Comptroller of the Currency John C. Dugan, the banking industry's main regulator, wants banks to clean up their act. A source inside the federal Office of the Comptroller says Dugan intends to raise lending standards, as he did last year on credit cards, where super-low minimum payments made it improbable that cardholders would ever pay down debts. New guidelines are expected this fall.

Fair-housing pundits suggest that mortgage lenders follow the lead of the securities industry and require that mortgage borrowers be not only eligible for a product but also suitable -- meaning the loan won't impose hardship. Says Consumer Federation of America's Fishbein: Buyers have to have a "reasonable prospect of being able to handle the payments, not at the initial rate, but [assuming] the worst-case scenario."

So far, banks have shown little desire to raise their standards. In February, Golden West announced it would raise its minimum option ARM payment to 2.6% of the loan. In March, Golden West's Sandler wrote a nine-page letter to the Office of Thrift Supervision decrying the lax lending standards he was seeing. "Foolish lenders who eventually stumble under the weight of their missteps will bring down innocent borrowers with them and leave the rest of us to clean up the mess," he wrote. But on May 7, Golden West announced it was selling out to Charlotte (N.C.)-based Wachovia Corp. (WB ). By June it had dropped its option ARM rate back down to 1.50%. Sandler says the rates were changed according to the bank's interest rate outlook.

Analyst Frederick Cannon of Keefe Bruyette & Woods says most banks don't apologize for their option ARM businesses. "Almost without exception everyone says [the option ARM] is a great loan, it's plenty regulated, and don't bug us," he says. In an April letter to regulators, Cindy Manzettie, chief credit officer for Fifth Third Bank in Cincinnati, said it's not the "lender's responsibility to help the consumer determine the appropriate payment option each month.... Paternalistic regulations that underestimate the intelligence of the American public do not work."
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Portfolio Service Update

Exposing Fraud and Damages in Home Mortgage Loans

2007-02-21T15:08:00.000-08:00

Home | About Us | Our Services | Foreclosure | News & Media | Legal Counsel | Case Law | Contact | Consultation

NEWS AND MEDIA

Exposing Fraud and Damages in Home Mortgage Loans

Within the United States predatory lending has grown substantially. What the industry fails to do is to make consumers aware of lending institutions that have been found liable for violations of Federal and State lending laws, such as, the Truth in Lending, Regulation Z; Real Estate Settlement Procedure Act. Below are only a few articles that have appeared in the news or media concerning predatory lending.

In a press release issued by the Department of Law in New York, consumers where altered to check their mailboxes in a landmark settlement in predatory lending against Household Finance. Household Finance agreed to pay $484 million dollars in restitution to consumers nationwide, including $37 million dollars to eligible New Yorkers. In New York alone the settlement provided for the following regions to receive:

Long Island and New York City: over 6,200 borrowers will share nearly $10.8 million;
Hudson Valley: nearly 2,500 borrowers will share approximately $4.3 million;
Western New York: over 3,800 borrowers will share nearly $6.7 million;
Central New York: nearly 2,450 borrowers will share more than $4.2 million;
Rochester: nearly 2,100 borrowers will share more than $3.6 million;
Capital Region: over 1,600 borrowers will share nearly $2.8 million;
Binghamton area: more than 960 borrowers will share nearly $1.67 million; and
North Country: nearly 1,300 borrowers will share more than $2.2 million.
Restitution payments to New Yorkers will range between $46 and $23,000. The average award New York consumers will receive is $1,730. For more information see, Press Release, Office of New York State Attorney General, December 2002.

State of Alabama: $34,500,000 verdict involving “predatory lending”:
This case involved a lenders fraudulent action dealing with a home mortgage. In this case, the lender forged Plaintiff's name to mortgage documents. Even though the company was made aware that the mortgage was forged, the company still attempted to foreclose on the plaintiff's home. The jury found this was fraudulent activity and awarded a substantial verdict to try to stop this type conduct in the future. It should be noted that this does happen a lot [emphasis added] http://www.beasleyallen.com/verdicts_list.htm#

First Alliance Mortgage Settles ‘Predatory Lending Charges’ for up to $60 million dollars. See: http://realtytimes.com/rtcpages/20020322_firstalliance.htm

Capital City Mortgage settles a deceptive loan case which included Federal violations in the amount of $75,000.00. Associated Press, February, 2005.

Ameriquest Accused of Boiler Room Tactics: “Customers and former employees of Ameriquest Capital Corp., the nation's largest sub-prime mortgage lender, have claimed in court documents and interviews that the company has engaged in improper practices ranging from forging documents to lying about borrowers' income to qualify them for loans they can't afford.” Associated Press, February, 2005.

This merely touches the amount of news and media coverage that is available on this subject of predatory lending and victims of predatory lending. See how you may qualify for an audit to expose fraud and damages. For additional information contact PMA.

http://mortgagefraudqc.com/blog/2007/02/buyer-beware-mortgage-fraud-scam.html

2007-02-21T13:58:00.000-08:00

http://mortgagefraudqc.com/blog/2007/02/buyer-beware-mortgage-fraud-scam.html

The American way today

2007-01-31T16:02:00.000-08:00

Alert: How Can I tell my family

Blog: The American Way

Welcome to America, where you and your family will be able to fulfill your dreamsYou are required to work hard in order to succeed. I give you the opportunities throughhard work to own your own land. I welcome you to rise up and fight for what you believe in the American dream I welcome you now onto American soil.Good Luck and God BlessWatch the Mortgage corporate today or they will take your American dream away that's the American way of life today Come Come Come Keep the vision alive of what America really is freedom and the American Dream The crooks have taken that away
America represents the last stand for freedom in the world.Welcome! Here in America you will be guarded from harm and protected from enemies. You will prosper your children will grow to be finely tuned to contribute to this land, their land. We together will make this land great. Your times of hardships are not over with the corporate crooks today.
This land is your land. This land is my land.Welcome to the land of the free, land of opportunity, land of Constitutional equalityWelcome to the gates of the America dream. Any and everyone are welcome whether rich or poor. This is the land for Freedom, liberty where hope is alive and where dreams come aliveNow congress you must keep this American Dream alive.
Welcome to America, Come in and enjoy the freedoms that America has to offer. Here you will find endless opportunity and prosperity at your fingertip builds your American Dream and let no crook take it from under Welcome! My name is Lady Liberty. As we all know, many of you are searching for freedom. Well I can say you came to the right place. In America, you will find all you wanted, and more. I wrote a song: Let freedom ring from the bottom of your heart
Everyone deserves the best freedom is the best part. In America you can find your American dream to come true, even more then it seems but watch out for the American crooks or your American dream will be unforeseen I no these cooperated crooks come so quickly and without warning to take your American Dream so we have to stand together and fight for what is rightly ours.
Seeking freedom and fulfillment of our dream. It is one of the universal symbols of political freedom and democracy in the worldDid You Know?Freedom is not standing still. A symbolic feature that people cannot see is the broken chain wrapped around the Statue's feet. Protruding from the bottom of her robe, the broken chains symbolize her free forward movement, enlightening the world with her torch free from oppression and servitude
Enjoy your stay here, you will find a better life if you do not let the crooks stand in your way. Here in America, their once was no strife now you have to strife. Your life will be better, you made an extraordinary choice, because in our country, everyone can find their own, special voice in freedom of speech so stand together and struggle and fight until we have won our fight.United we stand divided we fall.Where have Democratic gone into the hands of the crooksThe Democratic Party swept to power
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2007-01-15T10:24:00.000-08:00

How to protect your

2007-01-05T16:50:00.000-08:00

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By Amy Hoak, MarketWatch
Last Update: 12:03 PM ET Dec 31, 2006
CHICAGO (MarketWatch) -- Brian Diez, a former military man, entered the mortgage business after a career as a stockbroker, figuring the field would offer him an altruistic benefit -- helping families buy their first homes. He learned quickly, however, that not every one of his fellow brokers had their clients' best interests at heart.
"What became clear to me is every company was really interested in selling as many loans as they can, and not really helping clients," said Diez, sales manager for First Class Equities in Oceanside, N.Y. His quest to inform consumers recently prompted him to create a blog on the topic, http://briandiez.blogspot.com/. See blog.

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The "dirty tricks" he has seen and heard of range from brokers steering clients into products clearly unsuited for them to shady switcheroos at the closing table.
Consumers can protect themselves by doing some research online before talking to a broker or banker, in order to have an idea of their mortgage options before they're ever presented, Diez said. They should also request copies of and review their credit reports to know what their credit looks like before the discussion begins.
You may never find that altruistic mortgage lender: It's rare when commission-earning individuals -- whether the product is a mortgage, stocks or an automobile -- can completely divorce their self interests from a sale, said Joseph Badal, senior executive vice president at Santa Fe, N.M.-based Thornburg Mortgage.
But there are ways you can shop more wisely for a mortgage so as not to get fooled by sales people who are more concerned about commissions than clients:
Beware of products that seem too good to be true
Watch out for low-payment advertisements, said Kate Crawford, chairwoman for the consumer protection committee of the National Association of Mortgage Brokers.
"What it is, it's a teaser ad ... that could lead to negative amortization," she said.
In a negative amortizing loan, borrowers aren't paying the full amount of interest accrued each month and the unpaid amount gets added to the principal, thus increasing the balance. Homeowners with this type of loan can find themselves owing more than they bought the house for -- a scenario especially important to remember in a softening housing market.
Although certain exotic loans make sense for some borrowers, they're not for everyone, Badal said. To find the best rates and terms, compare estimates from a few lenders, he added.
Ask about prepayment penalties
Mortgages with prepayment penalties are those which charge a borrower fees for paying off the entire mortgage or a large portion of the principal during a certain period of time. Penalties can also apply should the borrower choose to refinance.
Terms of the penalties can be found in the Truth in Lending statement given to borrowers. But if the loan has a penalty for prepayment, it may be best to keep shopping, Diez said.
"There are so many out there that don't have them," Diez said. "There's no need to put a client into a mortgage that has a prepayment penalty."
Don't cave to pressure, and protect your identity
If terms change at the closing table, don't sign the contract, Crawford said.
"A borrower can walk away at any time. That's their right," she said. And never sign a contract stating an origination fee must be paid if the loan isn't closed, she added.
She also recommends following common-sense measures: Don't ever sign a blank form, and get a copy of every paper that is signed. Don't give out a Social Security number before it's time to actually apply. For paperwork that is required by the lender, make a copy and always keep the original.
And while at your lender's office, take a glance around to see how paperwork is handled -- it may be one indication of how careful a company is with sensitive information, Crawford said.

About Mortgage

2007-01-05T16:47:00.000-08:00

Tuesday, January 30, 2007

Mortgage "Suitablility" for All?
Rep. Barney Frank is the new chairman of the House Financial Services Committee - the primary originator of banking and mortgage-related federal legislation. He is proposing a new nationwide law that would require a loan officer to check to make sure a borrower is capable of making his/her payments before getting them a loan (Duh!). It is a law designed to protect consumers from deceptive, unfair and predatory mortgage practices.According to a white paper issued by the nonprofit Northeast-Midwest Institute, a new national standard might require loan officers to determine an applicant's suitability for a particular loan program based on:• Employment status, income level, assets and likelihood that income or employment could change.• Other recurring expenses and the impact they could have on the borrower's capacity to repay.• The potential for higher future monthly payments based on the structure of the loan program itself. Representatives of the Mortgage Bankers Assoc and NAMB (National Association of Mortgage Brokers) oppose the new law, believing it may open the door to discrimination law suits or may be too vague and subjective to do any good.Stay tuned folks!
Posted by Brian Diez at 11:48 AM 3 comments
Labels: Is there hope?
Tuesday, January 23, 2007

Has Anyone Ever Heard of Ethics?
Q: I read about you in the Wall Street Journal. Great piece! I would have to say, though, that, in a small way, you are contributing to the problem with your use of the word "client," which implies a fiduciary duty. In fact, mortgage originators do not have a duty to get the borrower the "best deal." Responsible originators should use the term "customer" or "borrower."Keep up the good work on the blog!Christopher CruiseSenior National Mortgage TrainerCharter Member, Board Member: www.NARLO.comA: First, let me apologize for not posting in over a week. Google's web robot flagged my site for possible "spam" blogging. They prevented me from posting until today. Hopefully, it won't happen again. Now to address Chris:Chris,Thanks so much for your kind words of encouragement.I would argue that while a mortgage professional may not have a legal fiduciary duty to get the borrower the best deal, he does have a moral and ethical one. I myself consider my role as a consultant. I advise my clients about their debt in the same way a financial consultant advises them of the best way to protect and grow their assets. In reality, isn't someone's home just another investment? For most, it's their largest and should be treated as such. Why doesn't that client benefit from the same protection as he/she would if we were discussing his 401K? A customer simply buys goods or services. A client is one that depends on the protection of another. Technically, you are correct, but I think that's part of the problem.*****************************************Have you ever wondered how hard it is to get a job as a mortgage broker or banker? Take a look in your local paper. You'll find "Will Train" and "No Experience Necessary" everywhere. Young men and women looking to make alot of money very quickly jump on the phones reading a simple script like, "Hello Mr. Smith, this is James from "Sleazy" Mortgage. We're working with homeowners in your area saving them as much as $1000 a month with rates starting as low as 1%. Would you be interested in a free quote?". They have a book of rebuttals right next to them so that they can counter every objection you can concieve. Make enough phone calls and they're bound to find a victim who isn't educated about their 1% program. This is standard operating procedure for a significant percentage of mortgage shops.In NY, for instance, only one person needs to have a mortgage broker or banker license. Everyone else works under that license. In fairness, let me tell you that I myself am not licensed. I work for a gentleman who is licensed. He personally oversees all the loans to make sure they're compliant. He allows me to "lead the troops". We are of like minds about our business model.My boss is the "exception to the rule" for the most part. He'd rather close less loans, but close them right. He is a man of integrity, which is why I work here. It's my job to prove that the right way is the more profitable way. A happy, informed, trusting borrower is a lifetime CLIENT who referrs us everyone he or she knows. There's no reason everyone shouldn't win.In my office there are 4 managers. 3 of us have a financial services background. The fourth was personally trained by me. Everyone lives by my code of ethics or they're out on their @ss.I'd like to drive Chris' point home. To all of you I'd say to keep in mind that a mortgage banker or broker is NOT obligated to find you the best program or rate. Their job is to SELL you. They'll sell you whatever makes THEM the most money. This information should be very useful to you when shopping for a mortgage professional. You need to know who you're talking too on the other end of the phone.
Posted by Brian Diez at 2:27 PM 3 comments
Sunday, January 7, 2007

They Know Not What They Do.
It occurred to me last night after reading some of the threads under "Dirty Tricks" as I read some mortgage people defend their beloved Option Arm (another pretty name for the Negative Amortization loan). I had a revelation. I realized they were spewing the same rhetoric at me they were taught to spew in order to sell the program in the first place. They've repeated the pitch so often that they believe their own B.S.. Let me explain to you all why I feel it's such a bad program. Maybe if you see it from my perspective you'll have a change of heart.Our forefathers came to this country for the chance to live free. They risked their lives to carve out their place in the world. It's the American dream to own a home, prosper in business through free trade, raise a family, and have it all to pass on to your children. In our culture, for example, to purchase a home and eventually pay off the mortgage so that your children, grand children, and great grand children have a roof over their heads is one of life's major priorities. A home is part of the legacy you leave behind.So now imagine a man and woman trying to start a family. They work 2 jobs each, first to pay their way through school, then for a downpayment to buy their first home. They struggle and sacrifice for several years until finally they have enough to put down maybe 5 or 10% on their dream home. Their game plan is to take a 30 year fixed mortgage so that by the time they want to retire their home will be paid off so they can live out the rest of their years in peace knowing that they've provided for their kids and grand kids. After all, a home is usually the largest single investment most of us will ever make.Instead, some mortgage person whispers in their ear and convinces them that an Option Arm is a much better program for them. It gives them 4 different payment options every month. A minimum payment, interst only payment, 15 year, and 30 year payment. He tells them that if they make the minimum payment they'll lose a tiny bit of equity but with houses appreciating so fast, they'll never notice. Besides, their money could be better invested else where as long as the return is greater than the interest their losing on the house. "You know best.", they say, "You're the professional and we trust you.". So they put 10% down on their $400,000.00 house and take an Option Arm with a Line of Credit 2nd.They move into the house and are hit with all sorts of expenses they weren't expecting. They have to buy furniture, the house needs repairs, they have electric, oil or gas, water, landscaping, telephone, cable, internet, and on and on. They have to use credit cards to keep up. Before you know it a year has gone by when they notice their balances on their mortgage statements. Their first mortgage, the option arm which started at $320,000.00, now shows a balance of $340,000.00. The second (line of credit) still show s the original balance of $40,000.00. They expected this since they understood the line of credit was an interest only payment. They had planned to make extra payments to buy it down, but they never could get caught up.Now the real estate market is adjusting and prices are coming down. They owe more than they paid for the house and the house is now valued at $390,000.00. Their credit card payments are more than they can handle now with the first mortgage payment increasing after the first year. They call up their mortgage consultant in a panic. "I'm sorry.", he says, "I told you you had to make extra payments throughout the year to offset the negative amortization". He hangs up and continues pitching his next unsuspecting victim about the benefits of the Option Arm.Some mortgage brokers argue that a borrower must have the discipline to make extra payments and reinvest their money to benefit from the mighty Option Arm program. If that's the case, why not just be disciplined enough to take a 30 year fixed? How can anyone argue that a floating interest rate is better than a fixed one? There is no absolute certainty that your investments will earn you enough to make the program feasible. What is certain is you will lose equity every month regardless of how your investments are doing.Again, I'm attacking the mortgage "professionals" who stick their clients into these programs regardless of what their clients best interest might be, just to make more money. In your heart you know that you wouldn't put your own mother in an Option Arm, but you'll come on my blog and defend your position. How do you sleep at night?
Posted by Brian Diez at 10:40 AM 17 comments
Labels: America 101
Wednesday, January 3, 2007

How Much Should You Expect to Pay For Closing Costs?
Q: How many points between service release fees and points do you charge and what is fair? Can I get a loan for 1/3 of a point or less. Its not like they are doing anything. I have to supply the documents you just run it through a computer. I think they all charge too much anyway. - JimA: Now we're talking. Here's the meat and potatos. This is going to be a long post. First, let me say not everyone will agree with my answer. However, I never claimed to be perfect, just honest and fair. I don't care if everyone likes me or my answers. Just don't question my integrity. I won't tell you what you want to hear. I tell it like it is.In my opinion, there are 4 professionals who you should expect to pay top dollar. Your attorney, accountant, financial advisor, and mortgage consultant. Let me explain why.You don't pay your financial advisor so much for his outstanding recommendations, but for his courage to call you when the proverbial sh!t hits the fan. You pay him to get you out of that dream stock you have a million shares of that's plummeting to 89 cents. That's a tough call to make my friends. I've been there.You pay your attorney good money to watch your @ssets and keep you out of trouble. You pay him top dollar now, so when your neighbor's kid breaks his leg on your sidewalk, your assets are safe from lawsuits. You pay him so that when you pass on your family is taken care of instead of the government taking everything. Sure you could hire someone cheap to do that stuff for you, but if it's done wrong because you were too cheap to fork over the cash, you'll have only yourself to blame. That's an expensive mistake make. It woud be cheaper to do it right the first time.You pay your accountant through the nose to keep from being audited, or worse yet, jail! I personally don't make a business decision without discussing it with each of my advisors. I pay them top dollar, but I make them work for it!You pay your trusted mortgage broker to advise you of the best course of action for your given situation. You pay him not to take advantage of you and stick you in a program that suits his interests instead of yours. You pay him (or her) to recommend a program or course of action that can save you HUNDREDS OF THOUSANDS OF DOLLARS! Your comments scare me my friend. Nothing personal, but you are a future mortgage scam victim. It's that mentality of something for nothing that scammers prey on. Right now, there's a hundred mortgage brokers/bankers out there looking for someone just like you. They'll wisper 3.2% "fixed" for 10 years in your ear. You don't want to pay closing costs? No problem!, they'll purr. I don't care if you have 800 credit and 10 million in liquid assets. Anybody can be scammed.Here is an email from Conrad I got yesterday. I've edited out the names of the mortgage companies involved because my attorney said I could get sued. He's worth every penny.Hi Brian,I got your name off of the internet. I live in Los Angeles, California, and I believe I am the victim of a "bait and switch" tactic by a mortgage broker. I am a professional guy with assets, perfect credit and a high (815) fico score--basically, not to boast but a lender's dream applicant.I was buying a NON-OWNER occupied 4-plex apartment in California and I was referred to a mortgage broker by a loan officer (George) at ***** Bank who had done many loans for me in the past--all of which went fairly smoothly. Because they were not doing small apartment loans, George referred me to ***Mortgage (a broker) where his sister worked, claiming they could help me with my financing. I filled out an application and started the process them. Although George doesn't work for ***Mortgage, throughout the process he was the point man and handled most of the details. Particulars about the financing:Purchase price: 315,00Down Payment: 10% or 31,5001st TD: 80% or 252,000 (Type of loan--flex option ARM with one year pre-pay)2nd TD or HELOC: 10% or 31,500.The property I was buying was part of a package sale of multiple buildings, and besides my purchase, my friend was also buying two buildings from the same seller, and as a condition of sale, the seller insisted that all the transactions close at the same time. He was doing a 1031 exchange so it was important that everybody would be able to close on the specified date.The escrow period was to be 4 weeks, which is a fairly short amount of time, but from the get-go ***** Mortgage had all of the important documents in hand, namely the appraisal, the title report, all my financials, the escrow instructions, etc. Verbally and by email George gave me some introductory rates which seemed ok:Start rate on the 1st TD: 1.25% (ARM TIED TO THE 12 MONTH MTA) ; NO POINTS; MARGIN: 3.25; ONE YEAR PRE-PAYMENT PENALTY.Second TD (Heloc): Prime + 2%I NEVER GOT ANYTHING IN WRITING FROM EITHER THE BROKER, **** MORTGAGE OR FROM GEORGE. I NEVER GOT A "GOOD FAITH ESTIMATE" FROM **** MORTG OR GEORGE. Everything was basically verbal communication, and because of my past dealings with George I trusted him and I had no reason to believe I would be "mis-treated." Three weeks passed into the process and after being assured through various phone conversations that everything was going fine, and that they (**** Mortg and George) had been shopping for rates and terms) I was told that the LENDER (THE UNDERWRITER) was demanding 20% down payment instead of 10% as originally promised (verbally).I was extremely angry, but I didn't have much choice as it was getting close to my closing date. So, reluctantly I agreed. IT GOT WORSE....Three days before closing I got a call from George with the agent from **** Mortgage on the phone telling me that the terms had changed and I was not going to like what they were about to tell me. THE LENDER (not****Mortgage) was now going to charge me 2.25 points instead of 0 points) and that the margin was going to be 4.00 instead of 3.25. Needless to say, I hit the roof and before I told them all to go F--- themselves I realized that I was stuck. I had nowhere to go as my closing date was a couple of days away, and other people (my co-buyer and the seller) were depending on me to close. When I asked George and the agent at ***** Mtge about the 11th hour changes in terms ('bait and switch") they claimed it was the lender's (the bank) requirement and not theirs (**** Mtge). So, I had to bite the bullet and pay the many thousands in extra closing costs and be stuck with an inferior loan.After my escrow closed I found out who the actual lender was and I made several calls to find out about rates and terms for the scenario above. Surely enough several of the lenders loan officers told me that the rates and terms I was quoted originally were and are available. I called another lender, and they also confirmed what my lender told me.***** Mortgage never gave me a "Good Faith Estimate."***** Mortgage never gave me anything saying my loan was approved.The bait and switch--the change in terms I believe were NOT the doing of the lender but were at the discretion of the broker, ***** Mortgage to obtain a larger yield spread premium. When I questioned both George and ***** about this they of course said that the lender was the one responsible for the change in terms. If you are wondering why I didn't apply to multiple lenders...the answer is that I trusted George, and my past dealings with him had always been pleasant, and I had no reason to believe this transaction would be any different.*******************************************Considering what Conrad just went through, how much would you have paid me to get it done right the first time?
Posted by Brian Diez at 8:14 AM 9 comments
Labels: Closing Costs
Monday, January 1, 2007

Are 2 Mortgages Better Than One?
Q: My son wants to buy a home in UT. He will sell his present home. The loan broker has him " pre approved " but to qualify for the amount he needs the broker wants him to have both a first and second mortgage on the new home. My understanding is that he doesn't absolutely need two mortgages , but it would be in his best interests.It doesn't seem right to start off with two mortgages. Could you please give us your comments ? Thank you, JohnA: Try and put yourself in an investors position to understand the situation. If you were loaning someone 100% of the money they needed to buy a house, your risk as the investor would be very high that your borrower will default. As a result, you'd want a higher rate of return as compenstation for your risk. Ironically enough, that would increase the likelyhood of your borrower defaulting. So much so that you would require your borrower to obtain insurance, which, by the way, is even more money your borrower has to come up with every month.Instead, by breaking up the loan into 2 loans you break up the risk. The lender in first position has much less risk, normally around 80% of the value of the property, and can now offer a lower rate and payment. The lender in second position has more risk, but on a much smaller loan amount. His rate will be significantly higher, but since the loan size is smaller the combined payments are much lower. In this way, investors who like risk get their higher rates of return, investors who don't like risk get better positioning and terms, and the borrower (usually) gets lower payments.
Posted by Brian Diez at 12:26 PM 7 comments
Labels: Avoiding PMI
Thursday, December 7, 2006

5 Dirty Tricks Banks And Brokers Don't Want You To Know About!
Don’t get me wrong. Not every bank/broker is dishonest, but there are definatley enough of them out there that I know of that shouldn’t be in the business. Some might take the position that the following “Dirty Tricks” aren’t dirty at all. My response is, if they aren’t dirty, then why is it that so many of the clients I deal with tell me they didn’t get all the facts from their previous banker/broker till they heard it from the bank attorney at the closing?Here’s my top 5 list of dirty tricks banks and brokers don’t want you to know about:Dirty Trick #1:NegAm Loans or Option Arms are the hot product at the moment with every mortgage company. People are eating them up because they’re advertised with a 1-4% interest rate. Bankers and brokers get paid a ton of money to sell these things. They usually come with 3 points built into the rate and a 3 year pre-pay! They’re taught to pitch the rate and payment and to only skim over the rest of the details. Here’s what you need to know.NegAm or Option Arm is just a fancy way of not calling the loan what it really is, a Negative Amortization loan. Here’s a loan that’s payments are so low that they don’t even cover the interest owed every month. Every month you make your minimum payment the mortgage balance goes up. You keep losing equity until the loan is “recast” usually around the 3rd year. What recast means is they can raise your payment (like 200% or more!) to “help” you catch up on the equity you’ve lost.You can even end up owing more than your house is worth. If you have an interest only or adjustable loan and someone calls you to sell you this type of loan…run.Dirty Trick #2:Beware of companies that push Interest Only mortgages. These programs are harmless enough when used correctly, but what I’ve seen doesn’t qualify. I’ve seen banks and brokers use these programs for first time homebuyers who otherwise could never afford a home. They’re so excited to buy a home they let themselves be pushed into a program that will eventually hurt them financially.Look, if your monthly debt payments, including your proposed mortgage, taxes, and insurance, are more than half your monthly income, you can’t afford that house. End of story. When a bank or broker states your income is higher than it is, then uses an interest only loan with an adjustable rate mortgage just to get you in the house, you’re destined for foreclosure. The adjustable rate will adjust, the interest only part of the loan will expire, and you’ll have to scramble to keep up with the rising payments until you're broke.Dirty Trick #3:Most lenders charge a monthly fee when you borrow or owe more than 80% of your home's value on one mortgage. They call it "Private Mortgage Insurance" or PMI. This is ton of cash you give to their private mortgage insurance company to insure them, the lender, in case you default. It doesn’t cover you at all. The truthe is that it’s almost always cheaper to break the loan up into two mortgages. The combined payment is almost always lower than the one, and there’s no PMI either.Dirty Trick #4Pre-payment penalties are fees some banks charge you if you try to payoff more than 20% of the loan in the first few years either by selling or refinancing your house. The problem is if you’re stuck in a bad loan, you’ll have to pay to get out.A few states, like NY, have made these penalties illegal, but some crafty lenders use federal charters to charge them to you anyway.What I mean is that the federal government can override state laws, so some of these bankers use the government to charge you more! As much as 6% of your loan size just to get out of your loan!Unless you’re taking a fixed mortgage, stear clear of prepayment penalties. There are plenty of banks who don’t have them.Dirty Trick #5:This is the biggest dirty trick of them ALL. Bankers get something called a “Service Spread Premium” when they sell their loans. Brokers get “Yield Spread Premiums”.Whatever they want to call it, it means the bank could have gotten you a lower rate and payment, but instead decided to lower your rate just enough to make the deal worth while for you while they pocket the rest of the cash. The banks and brokers make more money and you get higher payments.There are certain situations in which all of these “tricks” are valid and useful. When they’re used in the client’s best interest, for one. But when they’re used to make the bank or broker more money at the client’s expense, then in my opinion, they’re as dirty as the day is long.
Posted by Brian Diez at 8:40 AM 33 comments
Thursday, November 30, 2006

6 Easy Steps You Should Follow To Apply For A Mortgage So You Don't Get Ripped Off!
I can’t say there’s any 4 or 5 specific questions to ask your broker/banker that will let you know if their on the level. There’s very little regulation in this industry. It’s like the wild west. Banks and brokers can and will lie. Not all, mind you, but there’s no obvious red flags a consumer can spot just by asking them.Instead I would recommend a consumer educate themselves as best they can before they call anyone. I’d follow these steps:1. Go to Experian, Equifax, and Trans Union’s websites and order your own credit report. The goal here is to know what your credit looks like before speaking to anyone. I’ve seen brokers lie to their clients and tell them their credit is terrible, when in fact their scores were fine. It’s a psycological trick to make them expect a higher rate. What you want to do as well is look for: a. inaccuracies, b. derogatory credit over 9 years old, and c. credit cards or loans that are repeated several times, and d. any account that is near maxed out. If you spot any of the first 3 you can notify the credit agencies and have them removed. Your score should jump in 30-60 days. For “d”, if you can transfer the high balance over 2 cards, that should have a significant positive effect as well. This process takes time so do it first. I have yet to meet a banker or broker who reviews their clients credit with them, much less delay their closing to get them a better rate by raising their score (unless they must to get the deal). This alone can save you thousands.2. Go online and research all the different mortgage programs. They pretty much break down to 3 types: a. fixed, b. adjustable, and c. reverse. Once you understand the how each works, it’s tough to get sold on another you don’t need. A good banker/broker will take the time to ask you what your goals are and show you 2 or 3 different options to choose from. Beware of those deals that sound too good to be true. They probably aren’t telling you everything. We have a saying in the industry, “Clients who shop around don’t always get the best rate. They usually get the biggest liar.”3. Choose at least 3 different companies to quote for you. A referral from a happy friend is a good place to start. I’d back up the referral with one bank and one broker. Both have advantages and disadvantages. Banks are watched more closely than brokers. However, they have set investors who buy their loans, so they can only offer so many programs. A broker can go anywhere with your loan to get you the best deal. If you find an honest and knowledgeable one (shameless plug), never let him go.4. Before you call them, first call the NY State Banking Department (877-BANK-NYS). Inquire as to how many complaints they’ve had from clients over the past 2-3 years.5. Now that you feel safe with your choices, you can call and send them your credit report. They will need to repull eventually, but at least you won’t have 3 people pulling it at once and knocking your score down. Your credit is sufficient for them to give you a quote. Also, tell them your attorney will need to review the Good Faith Estimate and Truthe In Lending. If you can afford to actually hire an attorney, even better. The threat of an attorney looming in the darkness will slow a shady banker/broker down. Hey, I’ll even look it over and tell you if you’re getting a good deal or not.6. Get your offers in writing. Assuming you were honest with the information you provided as to income and what not, those quotes should be fairly accurate. Keep in mind, a Good Faith Estimate is not locked in stone. What you want is an approval. Once you’ve selected the person you’re working with, you should get an approval within a few days. The approval should be very close to the Good Faith Estimate. Don’t wait till the closing to find out otherwise.
Posted by Brian Diez at 1:23 PM 3 comments

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Brian Diez
I spent several years as a stock broker before 9/11. The tragedy of that day made me rethink my career. I didn't want to just cater to rich people who like to gamble in stocks. The money was good, but it left me feeling empty inside. Some of my friends got into the mortgage business and I decided to try it part time until I figured out my next move. Sometimes Plan B is better than Plan A. I fell in love with home financing. Not only is the field booming, but it's incredibly rewarding. To help someone buy their first home or help them avoid foreclosure is an amazing experience. I find working with people who need help fixing their credit and getting back on their feet is the most rewarding of all. I collect my thank you letters like badges of honor. Its my goal to not only help people out of their financial challenges, but to educate them so they don't fall into the same old rut again. I want to teach my clients that home financing is the greatest tool in the world. It can make all their dreams come true. There are more millionaires made in real estate than any other field. This is my area of expertise. Let me show you how its done. View my complete profile

Blog Archive
▼ 2007 (5)
▼ January (5)
Mortgage "Suitablility" for All?
Has Anyone Ever Heard of Ethics?
They Know Not What They Do.
How Much Should You Expect to Pay For Closing Cost...
Are 2 Mortgages Better Than One?
► 2006 (5)
► December (1)
5 Dirty Tricks Banks And Brokers Don't Want You To...
► November (4)
6 Easy Steps You Should Follow To Apply For A Mort...
9 Tricks You Can Use To Stop Foreclosure TODAY!
Cash Back At Closing.
Mortgage Insider Tells All...What Banks And Broker...

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http://www.nowpublic.com/node/131746

2006-10-17T13:38:00.001-07:00

Bad Blood Over Bad LoansMortgage defaults are rising. Wall Street thinks banks should mop up the messOCTOBER 2, 2006Everyone involved in the mortgage business got rich during the housing boom, including Wall Street. The biggest firms bought all the loans they could get their hands on, repackaged them, and sold them for a fee to hedge funds and other investors. Mortgage-backed securities issuance soared from $184.5 billion in 2000 to nearly $1 trillion in 2005, generating more than $1 billion in fees last year.But now that the real estate tide is ebbing, trash is starting to wash up on shore. Mortgage delinquencies are zooming -- bad news for the banks, Wall Street firms, and investors holding loans.In some cases, the original lenders are taking the biggest hits. In typical deals, banks agree to buy mortgages back from Wall Street in the case of a payment default within the first 90 days. Now some are writing big checks. H&R Block Inc. (HRB ), owner of Option One Mortgage Corp. (HRB ), reported a fiscal 2007 first-quarter loss of $219 million as it set aside cash for buybacks. Defaults forced NetBank Inc. (NTBR ) and Fremont General Corp. (FMT ) to buy back more loans as well. Fremont paid $238.4 million in the second quarter, up from $67.7 million a year earlier.But Wall Street is feeling the sting, too. A few lenders have refused to buy back loans, prompting arbitrations and lawsuits. Bear, Stearns & Co.'s (BSC ) mortgage affiliate, EMC Mortgage Corp. of Irving, Tex., is suing New York lender MortgageIT over $70.5 million in disputed buybacks. (Deutsche Bank (DB ) said in July it would buy MortgageIT Holdings Inc. (MHL ) for $429 million; it declined to comment.) And Lehman Brothers Inc. (LEH ) is trying to recoup $20 million on toxic loans bought years ago from Beverly Hills Estates Funding Inc., whose principal, Charles Elliott Fitzgerald, is believed to have fled the country to a South Pacific island. "While the speculation is that he's offshore, we don't have any leads to his whereabouts," says Michael Wachtell, an attorney for the receiver overseeing Beverly Hills Estates Funding's liquidation.SMALL-SHOP WIPEOUT The losses could get much worse. Precise estimates are hard to come by, but D. Keith Johnson, chief operating officer of Clayton Holdings Inc. (CLAY ), a loan-risk analysis outfit, says his firm alone has evaluated some $3 billion in potential buyback transactions this year. There's no telling how much of that will go sour. Smaller shops that feasted on shaky loans during the boom could be wiped out. "They popped up like mushrooms after a rainstorm," says Michael Robert Cavendish, an attorney at Boyd & Jenerette in Jacksonville, Fla., a firm that has won some arbitrations recently. "But many are undercapitalized." Analysts say buybacks were a major factor in the collapses of Acoustic Home Loans, an affiliate of California lender Metrocities Mortgage, and Texas-based QuoteMeARate.com. Metrocities declined to comment. QuoteMeARate.com's Web site and phone number are no longer in service.Wall Street's latest strategy: Improve quality control by acquiring lenders. On Sept. 5, Merrill Lynch (MER ) said it would pay National City (NCC ) $1.3 billion for its First Franklin Financial Corp. unit. On Aug. 9, Morgan Stanley (MS ) said it had agreed to buy Saxon Capital Inc. (SAX ) in Glen Allen, Va., for $706 million. Analyst David A. Hendler of New York bond research shop CreditSights says New Century Financial, KKR Financial (KFN ), American Home Mortgage (AHM ), and a handful of other lenders could soon come on the block. Deals made now will leave buyers with plenty of time to clean house before the next real estate boom.__________________http://goldismoney.info/forums/t66835-wall-street-thinks-banks-should-mop-up-the-mess.html

Smedley Butler
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