home mortgage refinancing

So you think the subprime borrowers are to blame for the real estate and banking industries collapse? Think again!

Our banks and lending institutions would like us to believe that the so called “subprime” mortgage borrowers, a catch phrase that everyone keeps hearing about, are the reason for this real estate markets downfall. In my humble opinion, these subprime borrowers are not the reason for these historic home foreclosure numbers, but rather the banking industries’ GREED is as much to blame as anything or anyone for the banking industries demise. Blame should be placed squarely on the banks and lending institutions who are guilty of trying to generate as much business as they could, by allowing their quality control departments to take a back seat to their profits.

As a Florida Home Loan Mortgage Broker and owner of Guaranteed Mortgage Funding Corporation, I have very strong convictions that the collapse of Florida’s home loans and property values were caused by the very same institutions that are now placing the blame on the subprime borrower. Home mortgage finance companies all have quality control systems in place, such as property appraisal review departments, review underwriters and other systems all implemented to monitor standards such as whether a property should be viewed as a legitimate sale, or the properties value was inflated or if the property should have been categorized as a “flip”.

As property prices began to skyrocket, these subprime borrowers, who are simply people with less than perfect credit, were faced with the reality of either finding a way to purchase the American Dream or being shut out of the housing market completely due to home prices rising out of reach. Home mortgage loans were being made available to people with blemished credit, so subprime borrowers decided to take advantage of the availability of credit being offered to them by most all home mortgage lenders and banks. Less than perfect credit home mortgage loans were also available to people without having to verify their income. So people did what they thought at the time they needed to do and the banks figured they could bring in bigger profits by charging higher home mortgage rates in the form of subprime loans.

The banks and home mortgage finance companies would typical offer a subprime loan at a 9% interest rate with a fixed term for two years, which would change to an adjustable rate of interest after the two years fixed period. Another option that was offered to subprime borrowers was a 10.5% interest rate fixed for five years, or a 10.99% interest rate fixed for 30 years. The mentality of the subprime borrower was that during their two year fixed rate period, they would try to improve their credit rating and would then be able to refinance into a more affordable conforming Fannie Mae low interest loan after two years. So they usually selected the lowest interest rate available to them, which was the two year fixed rate loan at 9% interest rate.

What happened next was amazing. Once the mortgage lenders realized that the inflated property values that they had lent money on during the boom were now starting to decline, their knee jerk reaction was to alleviate the same loan programs that they had offered to subprime borrowers two years earlier. Unfortunately for those people that had taken out those subprime loans, their interest rates were now starting to adjust to 4%, 5% and 6% above their original note rates and the subprime borrowers now desperately needed to refinance into a more affordable payment. Many of these same subprime borrowers had indeed improved their credit score ratings during the past two years, however the lending institutions had now also raised their qualifying guidelines on home mortgage refinancing. The loan programs and qualifying criteria that two years earlier would have allowed a person to state their income on a loan application, without disclosing tax returns, had now been increased from a minimum 620 credit score to a 680 minimum score. In addition to the mortgage lenders increasing their qualifying requirements, these same banking geniuses had now decided to discontinue the very same loan programs that they had extended to people two years earlier.

The result was that people who indeed wanted to stay in their homes and refinance their existing mortgages couldn’t find a loan program that would allow them to refinance. The banks had tightened their lending requirements to such an extreme and closed down their subprime lending departments, that there weren’t any loan programs available for anyone with blemished credit. Home owners had no choice but to look for foreclosure help, but the banks turned a deaf ear to that as well. So the homeowner was left with having to pay the adjusted interest rate, which had adjusted to 14% or 15% by now, in addition to being upside down on their homes equity. Being “upside down” simply meant that they owed more on their home mortgage loan than their homes were now worth. The mortgage companies servicing departments, which are the departments that the banks put in charge to collect monthly mortgage payments, and who most experts suggested that homeowners contact for foreclosure help, were not returning phone calls either.

So the explanation that the banks would have you believe, which is that the subprime borrowers are the cause of this mortgage meltdown is far from truthful. Closer to the truth is that the banks that offered these subprime borrowers home mortgage loan programs in the first place, with interest rates that were fixed for only two years, had removed any options that would have enabled borrowers to refinance their mortgages when their 2 year fixed rate mortgage period ended. This is the main reason, in my opinion, that this great country of ours has fallen into a recession. If hard working home owners have no means available to them to lower their interest rates, and the mortgage lenders continue to foreclose, the home mortgage finance people themselves are the cause of our property values decline. It’s a fact that our property values have declined primarily as a result of a huge surplus of foreclosed homes and few people that are now able to purchase or qualify for a mortgage loan, given the new stringent qualifying guidelines. FHA loans are becoming quite popular, however, subprime borrowers still have a difficult time qualifying for an FHA loan, due to FHA credit score requirements and requirements for full disclosure and documentation of income, assets and employment.

The subprime mortgage mess that the public has been hearing about has now spilled over to include the prime or “A” paper borrowers impacted by much the same thing. These A paper home mortgage borrowers, also owe more on their home mortgage loans than their homes are worth and none of our so called banking geniuses have offered up any kind of viable solution which would allow even these A paper prime borrowers to refinance their adjustable rate mortgages.

The only assistance that our government has offered up is to try to make more money available to help the home loan companies stay in business. I have yet to see any type of workout plan offered by our government, or for that matter the home mortgage lenders themselves, which would address the individual hard working American that have in some cases lost their life’s savings in this mortgage disaster.

I think that the only solution and my recommendation, is to enact a proposition to put a subprime borrower in charge of all of my State of Florida’s home loan companies. Only then will someone be in touch with the reality of what really needs to be done to right this home mortgage financing nightmare. Obviously this is a tongue in cheek statement, but it sure sounds like a much better solution than the foot in the mouth answers that our government and banking geniuses have been proposing!

For home mortgage financing solutions or help if you’re facing foreclosure, please visit Guaranteed Mortgage Funding Corp.

More on the home mortgage loan crisis to come in the coming weeks!

Recent mortgage news has focused on the indictment of 400 “bad apples” accused of unscrupulous manipulation of the home mortgage financing institutions. These bad apples, which included loan officers, mortgage brokers and property appraisers, are accused of bilking mortgage lenders and banks out of over one billion dollars in fraudulent purchases and home mortgage refinance loans.

The basic premise of how these fraudulent transactions were committed involved first finding a home seller who was willing to accept an offer to sell their home for less than the properties true market value. Let’s say the properties true market value was $400,000 and the seller was willing to accept an offer of $375,000. The first part of the scheme was to write up a purchase contract for $450,000, with the seller agreeing to refund the difference to the buyer under the table after closing. The seller would write a personal check (or cash) to the buyer after the closing for the difference, which in this case is the $450,000 (on the purchase contract) less $375,000 (money to seller) which equals a $75,000 difference which is paid to the buyer! This nod and a wink agreement to pay the buyer was never disclosed on the home mortgage loan application. Using the services of the “bad apple property appraiser” who inflated the properties value to $450,000, the buyer would walk away from purchasing the property with $75,000 (and a new home).

But wait, it gets better. From there, the new owners would do one of two things. They would hold on to the property for three months, which was the minimum time required before the mortgage lenders would allow a “cash out” mortgage refinance loan. This type of home mortgage refinance is referred to as getting “cash out” through a new refinance mortgage loan based on the homes equity. The “bad apple appraiser” would then inflate the value of the property again, giving that same home an appraised value of say $575,000 and then apply to the mortgage lender for a “Cash Out” refinance home loan. If the purchase price three months ago was for $375,000 and the new home mortgage refinance was for $575,000, the “bad apples” would walk away from the property in three months time having made the original $75,000 on the purchase and another $125,000 on the new mortgage refinance. This would net the “bad apples” a three month total of $200,000 profit. At that point they would either walk away from the property, or sell the same property again to a new “straw buyer”.

The second method and most preferred method used to defraud mortgage lenders, was to find a “straw buyer” right from the start to facilitate their fraudulent plan. A “straw buyer” is a person with good credit, who was paid say $25,000 to use their name and good credit to apply for a home mortgage loan. Keep in mind that this was back in the days of 100% home mortgage financing, when mortgage lenders did not require someone with good or even average credit to have to verify their income. The banks and mortgage lenders called these types of home mortgage loans “stated loans” which did not require any verification of income, thereby bypassing the normally accepted lending practice of disclosing tax returns to the home mortgage finance companies. This method of using straw buyers would allow the loan officer or mortgage broker to also make a commission, which is customarily paid by the banks to the mortgage person submitting the loan application.

The premise of using a “straw buyers” to facilitate this form of mortgage fraud was to enable the “bad apples” to remain anonymous, other than simply working in the capacity of their chosen professions. On paper, they were simply the loan officer who submitted the loan and the appraiser that appraised the property. The “straw buyer”, who was now the home owner, was the person that would take the fall, usually in the form of applying for foreclosure help or foreclosure assistance, or simply being foreclosed on due to defaulting on the refinance mortgage loan repayment terms.

By setting up their mortgage fraud scheme this way, the “bad apples” were never the borrowers and could perpetually defraud the banks and mortgage lenders by using a new “straw buyer” each time. The scheme was repeated time and again. Find a property owner that needed to sell, set up a “straw buyer” to purchase the property, make money on the purchase and then make more money on the home mortgage refinance, then let the property go into foreclosure.

Fraud is not all that uncommon and occurs in almost every industry and profession where there are “bad apples” that always look to take advantage of the loop holes in the system.

The bigger picture, and what the banks and lending institutions would like us to believe, is that the so called “Subprime” mortgage borrowers, a catch phrase that everyone keeps hearing about, were the cause of the real estate markets downfall. In my humble opinion, these so called “Subprime” borrowers were not the reason for these historic home foreclosure numbers, but rather the banks and mortgage lenders “GREED” is as much to blame as anything or anyone for the banking industries demise. Blame should be placed squarely on the banks and mortgage lenders who tried to generate as much business as they could, by allowing their quality control departments to take a back seat to their profits.

As the principal broker and owner of Guaranteed Mortgage Funding Corporation and someone who specializes in Florida home loans, I have very strong convictions on this issue and the cause of our nationwide mortgage meltdown. In my opinion, the collapse of Florida’s home loans and property values were not caused by fraudulent mortgage schemes or the default rate of the so-called subprime borrowers. Our nationwide mortgage meltdown has been caused by the poor decisions and greed of the very same institutions that want to place blame on everyone and everything else, which are the home mortgage finance companies themselves.

More to follow on the home mortgage loan crisis in the coming weeks…

In the meantime, if you need help with a Florida loan problem or a new loan, please feel free to contact me.