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Well,
we finally did it to ourselves. Our profession
refused to police itself, much less exercise
prudent lending practices; now the government
(state and soon federal) will do it for us …
plus …
FBI Suspicious Activities Reports have tripled
in the last couple of years, from 10,000 to
35,000. That is an indication that fraud is
blooming in the business. One statistic from the
FBI is that 80% of all known fraud cases involve
somebody internal in the industry. Frequently
people see the other guy, cutting corners and
the like, all in the name of commissions
commissions commission! I don't think it's
strictly "I want to maintain these good
times for my own income." There is a little
element of "I'm making the American dream
come true for somebody. I've got this person who
has a perfect house and if I can just inch their
income up by just $10K …" These aren't
industry experts, they're loan officers
(industry entry-level personnel), so they don't
necessarily understand that the raging good
times always have resulted in a significant
downturn, as the cycle swings in reverse for a
similar length of time.
It's also a large problem from the origination
base to when they go into loan pools and are
bought and sold on Wall St. as bonds, these
bonds are underperforming as well, it's becoming
a major problem in the past couple months. These
loan pools are getting downgraded every day.
Usually this was due to prepayments ('churning'
by originators also hurt a great deal here). Now
you have to look into the escalating Early
Payment Defaults (EPDs) as well, because it was
normally factored in as a fixed, half-percent,
but now we're seeing a lot of times it's rising
into a whopping 6% and 7% factor! When these
bonds are bought and sold to investors that try
to sell them for fixed-income and aren't getting
results, their reputations are getting hammered
in a big way.
The reason it took several years to finally
explode, is that underwriting used to be what we
call the three C's: Character (credit history),
Capacity, and Collateral - somehow credit and
capacity fell by the wayside for the most part
and everybody seemed to start focusing on the
Collateral part. If a lender had a decent AVM
along with the added plus of warp-speed
appreciation of 15%-25% per market, you could
not do a bad loan.
As rates have finally stopped falling like a
stone, and property values nationally are
sinking back onto a more realistic plateau (from
values soaring up and up year after year),
everybody needs to re-assess their new role as
career industry professionals (those who don't
see this as a career or as professionals need to
exit the industry immediately for everybody's
good) since they are not a positive force for
those of you who love the biz – and I know
there are many of you out there that feel that
same way as I still do.
I myself learned this ‘brother's keeper'
lesson early in my career; it has done me well
ever since I was a 'twenty-something' newbie.
Everyone needs to look-out for the other guy.
When you see things being done that are
inappropriate, it is your duty as a good
industry citizen to speak up and help all of us
out. Lately you have all seen where when one
sector is injured, it goes around full circle
and bites YOU and me on the butt … every time
… so I guess you could say in addition to
being Ethical, you are protecting yourself by
doing your best to influence others to stand up
and do the right thing. With the right set of
values, the career minded ones of you have a
responsibility to ‘help them' … and when
they don't, there's another answer right HERE
for you to consider. Click
Here and tell us what you think on our
Discussion Board
Bernanke Sees Street Filling Subprime
Void
While the supply of subprime credit has fallen,
it has not "evaporated," says Federal
Reserve Board Chairman Ben Bernanke, thanks to
increased purchases by investment banks and
hedge funds. Wall Street firms and other private
pools of capital are "beginning to fill the
void" left by the failure of many subprime
lenders, the Fed chairman said in a major
address about problems in the subprime market.
He said there are some signs of a
"self-correction" in the subprime
market due to delinquency and foreclosure rates,
which are expected to remain at high levels into
2008. But curbs on subprime lending will
"restrain" home purchases and
residential investment in coming quarters.
"All that said, given the fundamental
factors in place that should support the demand
for housing, we believe the effect of the
troubles in the subprime market will likely be
limited," Mr. Bernanke said. CLICK
HERE to give us your opinion on our Discussion
Board
Credit Score Evolves
Fair Isaac is making modifications to its widely
used credit scoring model. The credit giant is
increasing the number of consumer behavior
types, each with a different score card,
according to a Fair Isaac spokesman. The changes
will help the score to "be more precise in
predicting risk," he said.
CLICK
HERE to give us your thoughts on our Discussion
Board
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