Well Rick, let me tell you how it went down. Joe Blow, your ave homeowner, went shopping for a re-fi. He visited Countrycide where a "trained professional" (a pimply faced kid just outta HS) promptly talked him into a ARM.
Loan Originators (if not a bank) and loan officers (if a bank) are often young. So what? Though I was a Loan Originator in my forties. Sure they could try to persuade people to get one loan versus another - most borrowers are very suspicious and will run if they feel coerced. I personally never knew any LO who did not sell what he thought was best for the customer. An ARM would be a good loan for many people.
Don't worry, he said, you can refi again before the rate adjusts since your home value will go up.
All of us LO's knew that it would be wrong to make promises about what the market would do and could get us into legal trouble if we did. Which is why I knew no one who did it. But if you have links to support the statement show us.
But wait, Joe doesn't make enough for the 300K loan, so he is asked, do you have any other income? Well, I made $30 sat mowing a lawn. Perfect! We will just write that down as $300 per mo (the underwriters are too swamped to check) and your good to go.
Underwriters approve the loan but do not do the fact checking. That job is done by loan processors who are very meticulous people and who do their jobs very well. They check every single detail and have to document every detail with proof or the underwrites will not accept the loan because they know they won't be able to resell it if it is not accurately checked. The most likely scenario is that the person asking for the loan lies about their income and the LO has to go back to them and start over because the processor catches the lie. Banks do not like to make loans to people who lie about their income - it is just good business sense to reject them. What actually happens is that people who do not have the income to justify a loan get what is called a "stated income" loan. In that case, (perhaps if they are self employed) they state what their income is and since they are the only ones who can verify it the processor writes the details down and the underwriters know that the income is unverified by a third source. Because it is a riskier loan it is hard to resell and the person pays a higher interest rate to make up for the higher default rate. The point is it cannot happen the way you described.
So the kid writes the loan and calls his upline (on the course)-good news, I just wrote a 300K loan! The kid made $3000 that day,
A ten percent commission? Get real. Selling loans is very competitive and a ten percent commission is unheard of. 3-5% is standard based on how hard it is to move the loan through the process. At the height of the refi book an LO may have sold a loan for an eighth of point commission. And it is hardly a one day procedure. But you are right that brokers are often on the course - usually trying to convince bankers to let them sell their loans for them.
the upline decides to do another "9" as he just made $1500 plus whatever his other downlines sold that day. The office got $300 and good news! hey just made the quota on the ARM product that was being pushed by the lender so they all get a trip to Cancun! The district manager made his quota for bundled ARM and got a heafty bonus plus stock options which he promply sells as he knows this is just a house of cards. Countrycide takes the bundled loans has them rated AAA and sells them ASAP to several prearranged buyers who create mort backed loan securities called derivatives, so complex and vast there is no way to follow them.
The numbers may be wrong but that may be how banks handled the situation.
And it is true that lenders did push ARM's but on a different day they would have pushed a different loan - it really varied a lot.
This is when they all got caught "penis in hand". Joe Blow used his equity to buy the biggest SUV on the block, and now cannot afford to fill it.
If he had equity then he obviously had the loan and the home for more than a few years and it did increase in value as he was allegedly told. He therefore got exactly what he was promised which included a lower rate on the loan saving him thousands. Later, at the end of the housing boom when people actually got screwed they did not have equity.
The loan writer got laid off when Countrycide went down having spent all his $$ on surf boards and Honda Civic mufflers he now flips burgers at BK.
Yep, everyone knew it was a cyclical business and that it would dry up.
The upline lost everything including his wifes boob job, which went to his best friend.
Yes he knew the risks better than anyone which is why he took 50% of what the sales people sold. That and overhead. If he failed to save any of it then too bad.
Everybody on up knew the loans were bad, knew what was going to happen, and put their money in Aruba, quietly leaving via a golden parachute while blaming Joe Blow.
Which loans? The ARM's? ARM's were not responsible for the mortgage crisis. In fact, neither were any other kind of loan because the rate of default only went up from about a half a percent to about one percent. But standard rhetoric blames subprime loans and not ARM's. A subprime loan is more likely subprime because of the persons credit score and NOT because it is an ARM. But the default rate on all loans is just not high enough to have caused the mortgage crisis.
Now you can listen to the GOP and blame fannie mae and Clinton, but the loans were made after 2002, so I'm kinda thinkin your just making excuses because you voted for Bush (twice) and cannot tell yourself the truth.
Both dems and pubs are demonizing the mortgage industry and using them as a scapegoat. Bad lenders were the smallest piece of the puzzle when it comes to the larger crisis (cause the housing crisis is only one small part). Mac and Mae are more to blame. But congress is even more to blame than all of those.
