How Did We Get Here Subprime Loans

How Did We Get Here Subprime Loans

How Did We Get Here - Subprime Loans?
We as​ a​ community need to​ understand that subprime has noting to​ do with the​ borrower,​ except they make payments .​
It is​ all about the​ investor .​
He,​ who has the​ GOLD,​ writes the​ RULES .​
Investors know if​ you​ have the​ propensity to​ always pay your mortgage on​ time,​ you​ will continue do to​ do such! you​ might be late or​ behind on​ something else,​ but you'll handle the​ house note or​ you​ have no roof to​ live under .​
Consider owner occupied rates are lower than non-owner occupied rates,​ down payment requirements and underwriting guidelines are more favorable toward owner occupied properties than on​ investment properties .​
Finance 101!
There was a​ lot of​ loose money in​ investor’s wallets as​ we moved into the​ 21st century and investors are always looking for rates of​ return that exceeds current market rates .​
These investors invest in​ loan pools as​ historically they tend to​ be safe investments,​ and all of​ the​ professional real estate guru's were predicting continually increasing appreciation in​ real estate prices .​
On the​ other hand you​ have Congress had changed the​ deductibility of​ interest charges,​ except mortgage interest .​
This was a​ keg of​ dynamite with Americans trying to​ live the​ American by using their home’s equity as​ a​ credit card.
Quiet as​ it​ is​ kept,​ you​ also had the​ credit repositories manipulating and adjusting their credit models in​ creditor friendly ways .​
I​ can’t give you​ an​ estimate on​ the​ number of​ loans originated where the​ credit scores were based on​ an​ antiquated FICO model .​
Back in​ 1999 I​ was fighting tooth and nail with wholesale lenders as​ to​ their credit scores differed significantly from reports I​ pulled from my credit vendor .​
I​ quickly learned lenders preferred using older credit models and they resulted in​ lower credit scores,​ therefore they justified higher interest rates and consequently they were able to​ generate higher loan fees and higher premiums yields when the​ loan pools were sold in​ the​ secondary market.
I shortly (2 months) worked for a​ company when I​ first started in​ the​ mortgage business (a large national firm),​ which had developed a​ software application that would essentially take any loan and compute the​ loan fees applicable to​ a​ Section 32 loan .​
Then it​ would adjust the​ fees downward to​ display on​ the​ estimated HUD1 such that they were slightly below the​ Section 32 triggers .​
Clearly,​ predatory lending at​ its finest! We were selling high rate loans with exorbitant fees to​ desperate borrowers who had experienced life issues that required an​ influx of​ cash with severely damaged credit.
There is​ a​ lot of​ history that MUST be understood before one can just spew words or​ wisdom as​ to​ how we reached the​ current state of​ affairs .​
It started with the​ deregulation of​ financial institutions under the​ Regan Administration and the​ weak oversight provided to​ the​ activities of​ these lending institutions .​
Can we say Savings & Loan crisis? Then to​ light the​ match,​ you​ had a​ bunch of​ individuals to​ come into the​ mortgage finance business with neither training nor experience,​ with their only goal being to​ make a​ quick buck! Pair that combination with homeowners who were gullible for what sounded good and what provided a​ momentary relief from their financial pains .​
You get sick and tired of​ collectors calling you​ daily to​ make delinquent payments when your money is​ funny and your change is​ strange.
No COST,​ No FEES! Complete joke,​ the​ costs and fees are bundled into the​ loan and rate such that the​ lender take care of​ the​ charge on​ behalf of​ the​ borrower in​ exchange for accepting a​ much higher interest rate .​
Look at​ your HUD1 and look for entries that indicate Paid outside of​ closing or​ (POC) .​
Consumers must understand and realize there are no FREE lunches and if​ it​ sounds too good,​ it​ probable is​ .​
Raise your hands! How many loan officers have originated loans that the​ exclusive benefits were for the​ lender and not the​ borrower? Yeah,​ the​ borrower got $25K cash-out of​ the​ loan but it​ cost him/her $17k in​ equity to​ do the​ deal .​
Sounds quite expensive to​ me!
Borrower’s beware,​ read and understand the​ fine print! Don’t take the​ word of​ a​ commission grabbing loan officer,​ but seek to​ identify responsible trusted professionals who have your best interest as​ they advise you​ .​
Also remember,​ your home is​ not your personal credit card to​ be used to​ buy toys or​ go on​ extravagant vacations! That’s marketing that make those claims and not Money 101 .​
Marketing will keep you​ broke,​ with bad credit and a​ borrower instead of​ a​ lender; Money 101 will make you​ the​ lender one day and not a​ borrower for life.

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