More Mortgage Messes.

Back in 2005 I had a couple come into my office wanting to buy a house. I generally do a quick pre-qualify session with people just to see if there is any chance that they could get a loan. This really only consists of a few questions. 1. Do you have a job? It’s amazing that some people expect to get a loan without a job or any other income. 2. If they don’t have a job I ask if they have enough cash to buy house…that usually gets their attention. Some people do have cash and some people do have income that does not consist of a job so there are a few rare people that get by the first two questions.

After those two questions I usually make inquiries about their credit history. I then make a judgement call about whether I will show them houses before they get prequalified by a lender or not. If I’m real confident I will go out with them and ask them to talk to a lender soon. Sometimes if I’m real busy I will set up an appointment for about a week out and ask them to get prequalified before that time. Sometimes I will just tell them that they need to talk to a lender before we go any further because we may both be wasting our time.

Back to that couple in 2005…I asked them to go to a lender before we did anything else. They had time right then so I asked them if I could set an appointment for them. I got them an immediate appointment with a lender that happened to be in the same building.

The lender called me about an hour later and said they were qualified to buy a house in the $200,000 range. When I expressed surprise that they were so easily qualified she told me that she can get a loan for anyone that walks in her door. That’s when I realised that we were living in a different reality. That’s also when I stopped using that lender.

That was only the beginning of the problems because as that loan went up the chain and was sold and resold many times the fraud was multiplied into trillions of dollars of fraudulent investments. Many individual people made annual salararies of tens of millions of dollars selling these types of loans to investors who thought they were buying mortgage backed securities. The loans were backed by mortgages…but the mortgages were fraudulent. And these lenders from beginning to end knew that they were fraudulent.

Because of those easy credit days, we are now living in a world that is much more difficult. Lenders are MUCH stricter than they were even before they went off the deep end. You may qualify for a loan at the beginning of a transaction and because of changes in the policy, no longer qualify at the closing. Borrowers have to jump through many more hoops than they did previously.

John Mauldin has written again on that. Here are a couple quotes from his latest newsletter.

Final rant. If you were part of a group that knowingly created or sold flawed and fraudulent mortgage-backed securities to pensions and insurance companies and took home tens of millions in bonuses, up and down the management chain, maybe you should consider moving yourself and your money to a country that does not honor US extradition, because my guess is that, as all this comes out, you may have to hire some very expensive lawyers and get measured for pinstripes.

“‘This appears to be a massive fraud perpetrated on the investing public on a scale never before seen,’ Rosner added.”

Bank of America is one of the big players in this and they have lifted in 23 states the moratorium on foreclosures. The actual line of title is only a part of the problem and was the reason that they had the moratorium. Straightening out the rest of this mess is going to take years.

In the meantime.,,,

We still need shelter.

Interest rates are crazy low…in the high 3% ranges for some people.

Buying a home is better than renting for many people.

And…I have a fantastic way for you to do your own searches on the MLS...right here. I am constantly adding specific searches to this page…if you want one that works best for you, let me know and I will upload it to the page.