cromag

Fannie and Freddie Did Not Cause This Crisis

Some of the info you state is plain ignorant and shows a lack of understanding in loan origination.

You say "they [Mortgage Brokers] have every incentive to push the guidelines as hard as they can and to find a way around them whenever possible.

If mortgage brokers had done their job and only made loans to people who could pay them back..."

Fannie and Freddie created an automated underwriting system where a computer algorithm checks the data and issues an approval. The algorithm would approve loans in excess of 65% total debt ratio and sometimes not require income verification. This had nothing to do with the Broker/Originator and everything to do with Fannie and Freddie.

The GSE's approved these parameters and the rest of the lenders followed suit, even within their own porfolio products. The Algorithms did the underwriting, the brokers did the originating, not the other way around.

Fast and Easy Fannie

CWBC Fast & Easy guidelines were abused by the loan officers. They would just put whatever income they needed to qualify the borrower. Borrowers didn't understand and/or were ignorant to the full scope and ramifications of the fraud. Borrowers signed the applications written by the loan officers without even reading them.

Fast & Easy were real A-paper loans and very high jumbo loan amounts in California.

The worst part is that this fraud is still going on in the industry. I don't think that the people who work for lenders care because there are no consequences for their actions so they recommend them to their wholesale clients and the wholesale clients are just dumb enough to do what they are told is OK. The borrowers just go with the flow. The sad thing is the good Brokers lose a lot of business because they don't play along. It's terrible. But it happens at the in-house bank level too. More even! I personally caught one and had the regional VP of this huge bank pay for it by redoing the loan properly at a huge cost to the bank and very low rate to me.

I'll take this one further in the Prime Alt-A direction, where guidelines allowed a No Ratio loan. Borrowers with 80% equity (LTV), good credit scores like 700+ FICO or even 680 and with 2-months PITI reserve assets like 401k or IRA, were allowed to leave the income line BLANK. They just needed to verify that they had a job. If you gave the lender tax returns you were suppose to black out the income. Rates for these No Ratio Alt-A loans were not much higher than the Fast & Easy rates. 0.25% to 0.50% higher in rate. That's a quarter to half a percent higher rate! for NO Income.

The only thing protecting us 'investors' is the tighter liquidity and declining home values. Most people just don't qualify anymore.

SIDE NOTE: We had a plumber come by the house yesterday to quote a re-pipe and when he found out I was a mortgage broker he asked if there was anything he could do because he took all his equity out of his inflated Silicon Valley CA home and bought FOUR rental properties in Florida. All the properties have lost a lot of value since then and he is in negative cashflow in all but one. This is not an isolated thing. I think there is a lot more pain coming.