It is about a year since the “shot heard around the world,” otherwise known as the subprime crisis, took hold and the misinformation is still circling the globe at the speed of sound. “They” are blaming the wrong parties for everything. Who are “they?” Just about everybody, including the public, the press, the lenders, Wall Street brokers, The GSEs (Fannie Mae and Freddie Mac), the government, the Federal Reserve and probably your hair care specialist. Let me list the culprits in order of blame, according to the above-mentioned, ubiquitous “they.”
1. The lying public which really means the borrowers who were stated-income wage earners.
2. The mortgage brokers
3. The appraisers
4. The underwriters
5. The credit agencies
6. The speculators
7. The lenders
In my humble but well-informed opinion, the list is wrong and really shouldn’t be discussed. What is more important is the fact that everything is being done to almost assure us that this can happen again! If you are chasing the wrong “bad guys,” you certainly haven’t the time to restructure the industry and be sure to get it right this time.
EVERYTHING THAT HAPPENED COULD HAVE BEEN PREVENTED, almost without exception!
Let us start with the stated loans. Every lender who offered a stated loan (no tax returns) had the right to have the borrower sign a Form 4506. Actually most lenders required the borrower to sign this form. It allowed the lender to send the form to the IRS and get the borrowers tax return. Therefore, stated income really didn’t have to be stated income at all. The lenders for the most part ignored this and only sent in 4506 forms in if the borrower missed the first payment. How is that for a simple solution! Check on the horse after he left the barn.
Next we have the appraisal problem. Apparently everyone thinks the appraisers raised the values at the behest of the mortgage brokers. It might have happened 5% of the time, at most, but appraisers aren’t really interested in not being able to appraise. They can only appraise for lenders who have approved their work and have place them on a list of approved appraisers. If they review their work and find them pushing values, then they simply remove the appraiser and he can no longer work for that lender and maybe others as well.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.