“So long, farewell, auf wiedersehen, good night”

by

[a version for the sub-prime mortgage market] 

pic_solongfarewell.jpg

borrower: “So long, my house, auf Wiedersehen, good bye,

I hate to go, this rate is just too high.  (doo-do-doo, etc.)

So long, farewell, auf Wiedersehen, adieu

A margin? What’s that . . . my rate’s now 12.2%.  (doo-do-doo, etc.)

sub-prime lender:  “So long, farewell, au revoir, auf wiedersehen

We’re sorry (not really) your pain has been our gain $$.  (doo-do-doo, etc.)

wall-street investors:  So long, farewell, auf Wiedersehen, goodbye

No more, strange loans, a sigh and say goodbye — Goodbye! [for a definition of “strange loans” see previous posts on the sub-prime mortgage market and the comments below]

still wall-street:  I’m glad they’re done, I cannot tell a lie

First late, default, foreclose and who’s to buy?? (doo-do-doo, etc.)

sub-prime lender:  The sub-prime-mortgage-money has gone away and so must I

So long, great profits, auf Wiedersehen, goodbye

Goodbye, goodbye, goodbye

me:  Goodbye!*

* To be clear . . . I have done sub-prime mortgages for customers in the past.   For a customer who had found him or herself at the beginning phases of getting OUT of a financial crisis or bump in the road, this type of mortgage financing was and is a good solution for a tough problem.  Most sub-prime products have a fixed-rate period for the first 24 to 36 months (2/28 ARM or a 3/27 ARM), giving that type of getting-out-of-trouble-borrower a great chance for success (with the intention to refinance into a lower rate prior to any adjustment).

I can probably count the number of sub-prime mortgages that I have done over my ten year career on a hand or two — and in the past, I have been told that I am “missing-out”, or I’m “not taking my business to it’s full potential”, and that I “could be making $X thousands of dollars in commissions by taping in to this market.”  If you can believe this, investors and lenders practically boasted about the number of bankruptcies increasing each year in the U.S. and how this statistic alone was proof that the sub-prime mortgage market was here to stay.  (Some investors advertising they could do a mortgage with a customer 1-day out of bankruptcy.)  And now everyone knows (what any sensible person has known all along), that loans given to people who are in the midst of a financial struggle  – late payments on their current mortgage or rent, thousands of dollars in collection accounts, debt obligations taking up an unusual amount of their monthly income, late payments on credit cards, unstable employment history, mysteriously documented income, or income not documented at all (did you know lenders used to do “stated-income” loans for W2’d borrowers, where the borrower simply states how much money they make even though they are paid as W2 employees???).  It’s the liar-loan as I described it.  Simple question:  If they get paid a W2, why not just provide the W2 as proof of income?  not-so-fictitious response: “Because they don’t qualify based on their W2 income.”  What!!??!

And we’re surprised?  That now after the first 24 to 36 months of the fixed rate period, as the payment adjusts UP (all sub-prime mortgages were and are designed to adjust UP by a hefty amount by use of very high margins and large caps of adjustment; for more info see my past posts), so, the borrower that was already IN financial trouble finds himself in even bigger trouble . . . a payment increase of hundreds of dollars, little to no equity in the house . . . and honestly, very few options. 

So, who’s fault is it?  The financially-struggling borrower who bit off more than they can chew?  The loan officer who sold the borrower on the benefits of homeownership now instead of later?  The lender who created the loan in the first place and sold the idea (and off-the-wall credit guidelines) to the investor?  Or the investor, who thought that in one scenario, they would make an 8.5% return and collect a hefty pre-payment penalty (if the borrower somehow managed to refinance the mortgage within the first 24 to 36 months), and in the second scenario, they would make a 12.5% return once the loan hit the adjustable rate feature?  Apparently there is a third scenario. 

I can’t tell you who’s fault it is . . . but don’t look at me. 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC.  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs, today’s interest rates, or the mortgage process in general, please visit www.hillsidelending.com.  

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