Mortgage Industry Trends

In one post, I'm going to take on the mainstream media, truth, the MBA and the NAMB.

First, Rick Grant forwarded me a news item from Reuters which took four people to write, and they still got it wrong. He gores Reuters & Yahoo in his blog.

• "Many consumers felt misled by the industry, lured into
  borrowing at subprime, the loan category for higher credit risk
  borrowers who pay higher rates."

First off- there might have been consumers who were taken advantage of, who could have qualified for a better rate, and perhaps their credit has been damaged such that they can not refinance out of the loan they were 'duped' into. But, I haven't heard any stories about brokers holding 'shotgun closings'. I mean, most Americans would like to think they're bright and educated. Most Americans seem to go to college. They have internet access. I presume that they can use Google.

Ergo, do we want to say that consumers en masse have been duped? I'll grant some were- and will always be, no matter how many regulations you pass, no matter how many forms you require borrowers to sign. Rather than multiple forms, how about one that says it ALL in simple english?

The mainstream media continue this relentless assualt, crying that the victims are these borrowers who never deserved credit, that these same people who never should have had a home in the first place, are going to loose the home, all because unscrupulous lenders with lax underwriting guidelines lent them money they couldn't afford to pay back.

I have yet to see a hard number on the folks facing foreclosure and how much actual equity they stand to loose. Not paper equity from appreciation. And on the flip side, I have yet to see anyone with hard numbers on the upside that subprime borrowers have seen. Namely, the subprime borrower who got into a home for the first time on an 80/20 or stated 100% loan, and rather than pissing their money away each month on rent, were disciplined, built up equity both through their principal payments and real estate appreciation and now have an element of wealth they never had.

But, where these four Reuters journalist did get things right was to criticize Mozillo's defense of the mortgage banking side of the equation. Yes, some brokers out there committed fraud and took advantage of consumers. But, brokers don't lend their own money, and many wholesalers don't hold their loans, but sell them to conduits and Wall Street. And it is Wall Street where 'Greed is Good' that the buck stops. They could have performed a more thorough QC, but didn't. They bought loans as fast as they could, securitized and sold them. One or two bad ones were part of the process, a cost of doing business.

Harry Dinham would be correct to blame Wall Street. But, he ought to look at his own house and ask- 'Should a broker be working for the borrower or himself', and then he ought to take a look at the financial advisor space for some ideas about fiduciary responsibility.

So, there we have it. The mainstream media is irresponsibile for not knowing all the facts, and perpetuating myths and laying blame where it doesn't all belong. And, we have two trade groups who don't want to own up to their responsibilitys. Pretty good for one post.