Posted on 08/08/2007 8:02:48 AM PDT by Hydroshock
Well, a big clue is the fact that he couldn't afford a conventional down payment. "a planned package of two mortgage loans". He's was going with an 80-10 or an 80-20. See also the fact he was having to do an Alt-A even though his combined loans were under the cap for a conforming. P&I is going to be over 2500 a month; add on taxes and insurance and PMI, and his monthly payment will be in the $4-5,000 range. Now, if he devotes around 25% of his gross income for housing, he'd have to be making well over $100 an hour as a mechanic.
That may well be true. But it never does anyone any good to make assumptions without all the facts.
Maybe he was just under conforming because of past credit issues that are cleaned up, but not quite old enough to pass Fannie muster? Maybe he had $40,000 down (that’s 10% and more than sufficient down payment.)
Also doesn’t mention what his wife’s job is.
It’s quite possible he can’t afford the place. It’s also quite possible he can.
Not here. My loan was closed in the name of the broker, who immediately assigned it to the lender, who then likely packaged and sold it, retaining servicing.
That's probably something we'll disagree on. I'm guessing we'd probably disagree on ratios, as well.
Then the broker had what we call a warehouse line, and was technically a “banker” in a sense. Still affected by rate increases that aren’t applied to direct lenders.
I recommend sticking to about 28/37 or so. Depending on income and other factors.
BTW...there has been talk lately about brokers this, brokers that, they screw people by steering into subprime, etc...
Got news for you. Direct lenders like Countrywide’s and Wells Fargo’s retail branches are MORE likely to steer a customer into a subprime loan to get paid more. I interviewed with several, and the compensation structures at the big, nationwide direct lenders are such that there’s MUCH more incentive to steer a prime borrower to a subprime loan than there is at a broker, or a company with a warehouse line as I described above.
With a broker, points are points, what you charge in points is how your compensation is determined, period. There’s also the “backend” points you get from a lender, but this is a function of rate and that’s true whether base rate is 6 or 10. Whether you are putting someone in a $200,000 prime, conforming loan at 6.75% or a subprime loan at 9%, if you charge a point, you get paid the same on either loan. Why WOULD you steer them into the higher loan that is harder to sell?
With a direct lender, they pay in “bps” of the loan amount. A prime loan might be 0.35 bps, or 0.35% of the loan. A subprime loan for the same client might pay 1.35%. So on a $200,000 loan, prime might pay $700 and subprime $2700.
Anyone who says the direct lenders are less likely to “screw” the customer by steering into bad loans hasn’t worked a single damn day in my industry.
We aren't as far apart on the ratios as I would have thought. I'm a traditionalist - 25/33. When I was buying, the local standard seemed to be 33/40. They wanted to lend me a lot more than I was willing to borrow.
Anyone who thinks otherwise, ever, is a fool. Not just regarding lenders or brokers, but for the pundits and reporters, politicians, and other varied axe-grinders involved.
The model for mortgage delivery is broken, and I don't know if it will be fixed soon. It will undoubtedly involve more regulation, probably mandatory licensing and professional standards such as exist for financial advisors.
It will also involve different thinking on the part of borrowers. Mortgages were once a commodity and were shopped for and obtained like commodities. Mortgages are no longer commodities, because of the size of mortgages today they are financial instruments.
What advice do prospective borrowers receive from so-called "consumer advocates?"
Shop for the lowest fees...that's right. As a mortgage broker/banker I had one fee I controlled, that was origination. Everything else was a second party fee passed through.
Many of those borrowers now being foreclosed undoubtedly had very low fees on their transaction...perhaps they should have been paying attention to something else.
I can APPROVE someone at a higher level from an underwriting point of view, but that doesn’t mean it’s a smart way for them to go.
When my wife and I refi’ed our home in 2004 we shopped around with over 12 institutions. Also we had an attoney read over the paperwork before we signed it.
I also know what I’m comfortable with personally. Esp. considering how variable my income is, I wouldn’t exceed 28/37 and would probably go a bit less when I buy a home.
What I find funny are lenders that will go to a back-end of 50% of gross income. Considering take-home pay after withholdings is often only about 62% of income...that just leaves a few hundred dollars for utilities, food, gas, savings, emergencies...
What you are saying is in large measure correct, but incomplete. Lenders made loans for which a market existed. If a broker closed a transaction, followed the rules and delivered the client, they are in the clear financially for past loans. They undoubtedly feel a pinch now, which will have the effect of what the industry calls "cleaning out the garbage."
Everyone else along the path, I think, will suffer. Borrowers who took out mortgages they should not have will suffer financially. The lenders who underwrote those loans will get tagged with loans they can't sell or have to buy back because of contract conditions. The ultimate buyer of those notes will take a hit on returns, perhaps even a loss. Everyone earning a fee to move the process will take a hit to their personal reputation.
All that said, I see no reason for any kind of bailout. Foolish behavior should have unpleasant consequences. That includes the borrowers.
Thank you!
As a borrower (which I assume you were) you as a layman wouldn't know whether your broker was in fact a broker, a banker, or a broker/banker. If I looked at your paperwork I could probably tell you.
Interestingly, a banker has different procedural and disclosure requirements than a broker, although a client wouldn't ordinarily know unless told which role his "broker" played. If your "broker" was in fact lending with his own dollars, then he is in fact acting as a banker, and not a broker. Because each term has implications, precision is important.
Without looking at your paperwork, I couldn't tell you. Even acting as a banker, he would have differing requirements depending upon whether he resold the note to another institution (or kept it) or was acting as a correspondent lender. In any of these situations he was in fact a banker, not a broker.
When I was in the business this was a source of great frustration for me. In many ways lending is the Wild Wild West of finance. There were issues clients needed to understand in order to make good decisions. I would go through a presentation where I would try to explain the issues involved so the clients could make an informed decision. I would ask if they understood, and they would say, "I think so...what will closing costs be?"
Clients would at times go with another lender who was ripping them off, but came in with fees $50 less. Borrowers are part of the problem, IMO.
I tried to approach the business much as a financial advisor would. Even now, I have prior clients call who are working with another lender, but need advice and call me. I had past "clients" who used me for advice only, while unknown to me they were doing business with someone else.
In hindsight, I was a fool...and that's why I have little patience or compassion for clients who claim to be victims. There's too little market for what we used to call "lenders for life"...and the customer, as we know, is always right. They're getting what they asked for, and finding out it's not what they wanted.
They claim to have been conned, but I say you can't con an honest man. These so-called "victims" are merely victims of their own poor judgment.
Well, that depends on how much you make. Could be a few thousand dollars left over. That leftover is also a lot different for someone with 4 kids and the expenses that go with that, vs a single person who only has to support him/her self.
The more you make, the more you’re taxed.
I always get frustrated when potential borrowers ask about closing costs before they’ve walked all the way in the door. That’s like asking the price of the car before you even pick out a model in many cases.
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