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Southern Indiana Real Estate.......After the Meltdown
There is so Much More to This Than the General Public is Told
The nightmare of the meltdown in the mortgage industry is not over yet ...........and contrary to popular belief it is NOT all caused by adjustable mortgage rates.....That is just one of the many sins committed upon consumers that I will address in this article.
I am a mortgage insider who just happened to like writing as well....If you are a consumer planning to purchase a home,or already a home owner then
this is your luck day......read it well,my friend !
My source for this article is soley my own life experience from being inside the business and watching it fall down around me.Some of the charactors that were indited and / or prosecuted for these crimes locally were some of the richest and most respected people in the business here in Southern Indiana and the Metro Louisville,Ky. area.
This kind of thing didn't just happen here....it happened all over the U.S.
In the beginning there was a bank....then came other banks.....then savings and loans,sometimes called thrifts.....and then...............some clever person gets an idea and BOOM,you have Mortgage Brokers.Over a period of about twenty (20) years the mortgage broker business has evolved into what it is to-day.
The original idea for the mortgage broker business I think was probably a good one.It would be a forum where people could get a second chance at living the American dream.People who had been victims of bad luck which caused them to lose their home or people who otherwise just had bad credit could now buy a home.People with good credit also used the brokers if they didn't have a down payment.So you see......the broker served a purpose by offering the American dream to people who for whatever need a home ownership program that did not conform to the normal rules of home ownership.
You have just learned your first mortgage term in the last line of the paragraph above..........loans that do not conform are called:
Non-Conforming Loans
Non-Conforming Loans are loans that do not conform to the Industry standards which are,good credit and 20% down payment....so if the loan does not conform because the people have bad credit or if the loan does not conform because the people do not have 20% down it does not matter...both are still considered non-conforming loans.
Conforming Loans
These are the traditional industry standard loan....good credit and 20% down payment.
To make this article more understandable for the general public you will also need to understand the following additional mortgage terms:
ARM - Adjustable Rate Mortgage
APR - Annual Percentage Rate
LTV -Loan to Value
DTI - Debt to Income
Like I said everyone is trying to blame the meltdown on the the ARM because the broker can get someone into a loan using an ARM where they wouldn't qualify for the loan with a fixed rate in some cases.An example of that would be someone who was buying more house than they could qualify for on their income.The ARM starts off much lower than a fixed rate thus eliminating the DTI problem.....because the lower your rate....the lower your payment is......but in the case of the ARM that is only true for a certain period....then all hell breaks loose when the rate starts to move and your payments get bigger and bigger.
So,Yes......That is not a good situation unless you are just looking for a temporary loan....and the ARM programs have been mis-used and abused and caused a lot of hardships,bankruptcies and foreclosures.........However....that is just one piece of the meltdown pie.
Things you will need to know for this next section are as follows:
Appraiser - A licensed individual who is trained to give an honest estimate of the homes value based upon the condition of the home,its amenities,location,
and the value of comparable homes in the general area.The appraisal when finished is about 20 pages and includes pictures of the subject property as well as an in-depth report on the property.
Comp - A comparable property
Title Company - A company normally owned by or associated with an attorney's office......this company researches past ownership on properties for banks and brokers...they go to the court house in whatever county the subject property is located,make sure there are no other loans,liens,encumbrances,anything against the subject and any and all owners past and present other than any loan that we know about.This company also does the actual closing of the loan,and is responsible for all the money transactions of the new loan.They accept money from the new lender,pay off the old lender,give the broker their check and blah blah blah,and yada yada yada.
OK....In addition to the foreclosures and bankruptcies caused by the ARM s.......................Here is the real story: About 7 - 8 years ago the FBI started getting complaints that were so crazy sounding it was hard for even them to believe....and this is what tore up the mortgage industry and caused many large banks throughout the US , and some foreign countries to go under.
Some rogue brokers,appraisers,and title companies found each other.To start of with the brokers were just manufacturing false documents with the help of their scanners.They would scan in a w-2 form and make it say anything they wanted it .They could make a client appear to make more money than they actually made......or if a client didn't even have a job.......they could fix that.Well a bunch of them were getting by with that....and telling their buddies,so that kind of fraud became industry wide in all states.
As if that wasn't bad enough the rogue brokers brought the appraisers into the mix...fraudulently hiking up the values of homes ...so that loans would be bigger and they would make more money.....and....as if that wasn't enough....they started using ringers / sometimes called straw buyers.They would find people/drug addicts,homeless, whomever.....fraud up some paperwork...sell them a house....throw them a few hundred bucks for participating and tada they closed the deal...........now........as if that wasn't enough they brought their title company into the mix and really started making money.Now they had a new wrinkle to their fraudulent activity.They would find an old derelict property for sale for 5,000 or so....the appraiser would appraise a different way more expensive home and turn it in as the appraisal for the 5,000 home,the title company would do the title and the whole deal using the better home information and the address of the 5,000 home...and BOOM.......The out of town bank un-wittingly loans 350,000 on a 5,000 home........and of course it takes them a year to figure it out..........until they got smart and called in the FBI.
Well,The straw buyers and drug addicts,homeless,and others who got paid to do a fraudulent loans would live in the home for free...never making one payment and when things got hot they would leave......there is one foreclosure senario.....and then there are the thousands of 5-10 thousand dollar homes that no one ever could use......the straw buyers would just sign ,get their cut and that's it.
Now here comes the final straw that broke the back of the industry.........title companies,title agents,title attorneys got tired of just sharing in the gobs of money the brokers were making off their fraudulent loans......so they started their own little greed plan....when they took in money to pay off an old loan on a re-finance loan from the bank supplying the money for the new loan....they simply did not pay off the old loan...........it took the old bank months to really come down on the title company and by then they had stiffed different banks for hundreds of thousands of dollars.....and they would skip out.
There it is........that is what happened to the Mortgage Industry.
Now because of all these greedy and obviously insane individuals the market has been and continues to be flooded by all these foreclosures.......so not only do we have banks failing.....we have home values falling like stones.
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