WatchAnyone who has recently completed a mortgage application will tell you that the process has become ridiculous complex and picky. One alleged reason is to prevent mortgage fraud but mortgage fraud is actually rare. About 1,100 people were convicted of mortgage fraud in fiscal 2011. In calendar year 2011 some 6.9 million mortgages were originated.
While no one goes to jail for robo-signing, selling toxic loans or rigging interest rates, qualified borrowers cannot get financing because the application process has been gummed up with artificial mortgage fraud worries.
http://www.ourbroker.com/news/the-myth-of-mortgage-fraud-070912/
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Holy fuck! You really think prosecutions are an indicator of actual fraud?
Wow, just fucking wow.
No one gets arrested for sodomy in Texas, therefore no one has ever gotten a blow job in Texas?
Mortgage fraud is pandemic in the states by any measure, though the big mortgage bankers have been posing as if underwriting quality suddenly mattered again.
AND!
It takes a very low level of mortgage fraud to distort prices in a market space being heavily manipulated by financial professionals bent on market manipulation. Which is just great if you're flogging used overpriced houses or mortgages on used overpriced houses.
During the S and L blow outs of the 1980s, FBIs forensic analysts found abandonment of underwriting quality blew out prices of houses in microwaved marketspaces upwards of 30 %. Great for the commish-sucking crowd but crazy making pre-crash set-ups for families and other living things.
The apocalyptic blow-out of the naughts? Who the fuck knows, given that every single component of the pipe line was populated by bug-eyed psychopaths shoveling doomed fraudulent paper as fast as they could. I will tell you this, however: A goodly number of guys made a lot of money randomly sampling data from sub-prime mortgages between 2004-2006 and figured out without even looking at the original applications they were skunky and shorting them directly and indirectly. Guess what? They were right. All that paper was shit. Alt-A was shit. They bet against all of it and walked away rich because all that paper was complete fucking garbage.
The fact is qualified - QUALIFIED, not has a pulse and his wife offered the mortgage broker a hand job - buyers who aren't being sucked into neobubble scenarios can get notes.
Lemme guess. You think every paper boy should be flipping condos ten a week like they were in 2006 and that's normal and that, by now, paper boys should be flipping, like, twenty condos a week.
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It's not that mortgage fraud does not exist or is not a problem, it's that the concentration of resources and attention given to loan applications takes attention away from the very much larger issue of lender abuse.
Do you really think that all the mortgage fraud in the world impacts as many people as rigging the LIBOR? Do you think that robo-signing is not a crime?
If unqualified people got loans then the only way they got them was to pass through lender underwriting systems. Do you think that lender systems which approved such borrowers were fooled? Or complicit?
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Underwriting quality matters.
The quality of the instrumentation does, too.
Yes, we're 110% in agreement there.
LIBOR and robo-signing after the fact by the MER mafia, hmmm, not so much as these are sidebar issues.
But here we may differ: I say a mortgage is one big thing thing - 25%-50% down - and the underwriter holds the note to maturity, fuck all.
COMPLICIT. In nearly 30% of cases of retail mortgage fraud, FBI found in investigations, wow, five or six years ago now that professionals advised the borrower on how to misinform an application or just filled the bogus data in the application on their behalf and told them to sign it - hey, McGee, it's how it's done, welcome to homeownership.
I'd punch the borrower in the face in these kinds of cases, tell them to wake the fuck up, sin no more and send the criminal professionals away for 20-to-forever sentences.
Yes, I think abandonment of underwriting quality has profound effects in local pricing in which professionals are attempting to game up a market space to their own benefit, sort of corollary to Gersham's Law. Our era was marked by the development of instrumentation that was designed to be poorly underwritten - both the retail notes and the downstream CDOs into which they were bundled as securities. Wheeeeeeeeee!
REPEAT AFTER ME:
Quality underwriting is my friend!
Quality underwriting provides for stable markets!
Stable markets are good for families and other living things!
Prices may decline over time and the bank-financed flippers and con men will go back to cooking meth, robbing tourists or human trafficking but that stability will serve most all of us well long-term, even professionals.
You are right about all this stuff. You want to go to City of London and Wall Street with a piece of pipe and straighten out Big Finance and the ratings agencies, great, I am right behind you - holding my flag for underwriting quality.
It may be we're just looking at a return to normal. Ask your parents what they had to do to qualify for a note if they didn't pay cash for their houses. And look at what your clients have to do now.
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Thanks.
My father got financing under the GI bill for service in the Pacific.
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OurBroker says
Aaaaaaaaaaaand? Did they ask him to put skin in the game? Like a healthy down payment?
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My father is deceased but I would imagine that it was a no-money down deal.
Interestingly, VA loans have the lowest rate of foreclosure when compared with FHA, subprime and prime loans. See:
http://www.mortgagebankers.org/NewsandMedia/PressCenter/80807.htm
I think, though, that this makes the quality point. VA loans have been very-well underwritten and that's a better protection for lenders then big down payments.
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And therefore:
Underwriting quality is your friend.
Solid underwriting and solid down payments should be the minimum when dealing with life-changing decisions like home ownership.
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The Wall stree piggies had no interest in the quality of loans. They bought as many loans as they could get. Then repackaged loans they knew were bad as AAA bonds through the crooked rating agencies. Then they bought credit default swaps against the bad bonds and shorted the bonds. Someone needs to do something about this. Its obvious the federal gov is not going to indite the piggies. I'm in anything that goes down!
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mouse says
The fact that they could try and succeed in repackaging crap that was getting BBB- ratings into other instruments that got AAA should have set off alarms. A lot of people on Wall Street knew what was happening as this rating pas de deaux was a big deal for the sellers.