When I entered the mortgage business as the natural adjunct to my real estate brokerage, I didn't realize that the opportunity dwarfed the real estate industries upside, and my beloved Pompadour was on the road to extinction.
It didn't show any signs of the latter point for several years or more, but early in 1994, after a spectacular year, a steady drop of the mortgage rates from double digits in 1991 to about 6% in 1993, Alan Greenspan started raising interest rates immediately after the Martin Luther King day earthquake in January 1994. I began to notice a hair or two scattered on my desk. My Company and my business started to slow down, followed by a real slow down which got everything retracting from March 1st 1994 and didn't really improve again until June of 1995.
Hair and business began to grow again and only minor problems caused some slow downs and hair loss. I was all smiles as I waited for the changing of the century, not realizing that the 3/4 full head of hair was just visiting, and not for the long term.
Fast forward to the early 2000's , after 9/11, Andrew Cuomo, now the Governor of New York and formally the head of H.U.D. decided that the mortgage brokers bribed all of the appraisers in the country and got them to inflate their appraisals. He therefore, came up with a plan to create AMC's , appraisal management companies, to be the middle men between the lenders and the mortgage brokers. Lender's would call the AMC and order an appraisal. The AMC would then order it from an appraiser. Seems simple but there was some serious changes such as the fact that the appraiser isn't given any information to the size of the house or property, if it is a purchase the appraiser gets the purchase contract so there is info on the house and the loan, and the fee paid to the appraiser is generally substantially lower because the AMC gets a part of the appraisal fee.
The net result of this simple change was the mass exodus of experienced appraisers from the industry and the billions of dollars spent by homeowners for appraisals that did not bring in a value high enough to validate the loan. Hair came out in clumps as given files were torpedoed. But I still was able to part my hair.
Writer's note: The lenders could have ordered a desk review of every appraisal that came in prior to the AMC plan, or a field review of the appraisal or even a second appraisal. For the most part they didn't do it and thus Cuomo found the opening and charged forward. I actually believe he was a co-conspiriter with the Fed to force real estate prices lower.
Then came Barney Frank and Chris Dodd, two politicians who never spent a day in the operations of a mortgage company, but nevertheless felt they had a better way to make sure that all loans would be financially strong or they simply wouldn't be. They created thousands of pages about the day to day operation as they felt it should exist, and most of all they set in motion the loss of the rest of the hair (almost).
They created a rule that requires everyone to "account for" every deposit in their accounts over $1000. Account for means a paper trail of where the money originated from. One would think that if a person earned $10,000 a month that they wouldn't have to document the $10,000 a month that is shown on the bank statement. Not necessarily! That is small potatoes compared to the following examples:
1. A borrower with a $1,300,000 loan looking for a refinance on his house. 7 years earlier he did some remodeling of a bedroom and the lender wanted to see a certificate of occupancy after the remodel. He never moved out of the house so there wasn't a certificate of occupancy. We called the building department of his area, and also the county and both agreed there wasn't a certificate. Loan to value under 75% The appraisal validated the worth of the property but the lender, one of the majors, said no occupancy certificate, no loan.
2. A borrower with a loan just under $1,000,000 with a 65% loan to value with earnings and a retirement account of $1,000,000 plus was declined because he didn't have sufficient non-retirement reserves. His credit score was over 740.
3. A borrower with a house worth (appraised value) $4,500,00 and a loan of $900,000 with a credit score over 740 and $800,000 in reserves was questioned about a deposit of $54,000, as well as another bank statement because it was taking too long. It took to long because they kept asking for one ridiculous condition after another.
Prior to Dodd-Frank all three loans would have been approved in a week. Combined, the three have been worked on over a year and one has still not been approved. What have we gained by the never ending useless requirements brought to us by two former politiicans who have bad records when it comes to Fannie Mae and other major lenders.
The stated reason for the bad loans in the past were lack of documentation, lack of sufficient cash down on the purchase and fraud or lying. We still have FHA loans with 3.5% down, about to go to 5% down, V.A. loans with zero down and a number of ways to buy a house with conventional loans with 5 or 10% down. As for lying and fraud....can can you spell Government.