3:25:05 PM

 

I bought Fleeced and first read Chapter 14 - The Subprime Mortgage Crisis.  (The rest of the book is great!)

While what he says is accurate about mortgage abuse, what is in the book is only a tiny part of the story.  No one that isn't an industry insider could know the whole story as to the depth of the abuses.   Mr. Morris therefore sadly only scratches the surface.

Abuses of home buyers and those people refinancing a mortgage are still ongoing and were never limited to subprime borrowers.  People with great credit and a down payment are still being ripped off on 85% of all mortgage loans, according to Howell Jackson a Harvard professor in a study he did in 2002, well before subprime loan products became the headlines.

Each loan, prime OR subprime borrower, has the distinct opportunity for abuse by loan officers in three ways and Fleeced only touched on one of them.

Also, it isn't just mortgage brokers as Fleeced suggests.  Loan officers at mortgage brokerages, mortgage banks and the banks all perpetrate these abuses on 85% of all loans, according to professor Jackson.  Furthermore, the abuses are so bad that professor Jackson's study shows that borrowers know about only 40% of the costs of their mortgage as the remaining 60% are either well hidden or not disclosed at all!  And all of this is legal!  And NOTHING is being done to stop it!

One last thing.... the industry is about to be "realigned" and will dramatically change the industry after elections.  House and Senate bills toward this new zeitgeist are already out of their respective committees regarding the mortgage industry.  The radical changes proposed will redefine the landscape of the industry, not as brokers and bankers at it exists today, but as loan officers that work for banks and those who don't.  This will be done by revamping, not RESPA, but Reg Z... the truth-in-lending act.  THEN, more laws will be passed making it quite punitive for all the non-bank loan officers to stay afloat.  The banks are soon to have close to 100% of the market share again as they did 30 years ago and they can hardly wait.  Less competition is never good and costs for loans will rise.

People in Congress that are the largest recipients of contributions from the MBA, the ABA, FNMA, FHLMC and the banks themselves are leading this change.  It is therefore easy to see who is orchestrating the total re-tooling of the industry.

As a 20+ year veteran of mortgage banking, it's time somebody blows the whistle for full disclosure, uncovers ALL the surreptitious costs and empowers homebuyers so the grift of the entire lending industry is stopped.

Ted Krager

America's Homeowner Advocate

 

author of:

Scams, Shams and Flim-Flams of the Mortgage Industry

Option ARMs, the unspoken bane of the industry...

Countrywide was both a bank and a mortgage bank.  Their loan officers (LOs) were free to "abuse" all loans but had special temptations on the Option ARMs.  Explanation?  LOs usually disclosed a 1% origination fee, pretty standard in the industry on most all loan programs. Option ARMs provided a larger (non-disclosed) rebate commission to LOs for:  giving the borrowers a higher rate than their best rate, increasing the margin on the ARM (That means the rate could increase at adjustment more than normal.) and adding on a pre-payment penalty of from 2-5 years.  Each of these tactics increased what is known in the industry as Yield Spread Premiums (YSPs) or Service Release Premiums, back end commissions to the LO that do NOT have to be disclosed to the borrowers!

 

Countrywide, World Savings, Wachovia and Chevy Chase Bank were the primary creators and massive marketers of Option ARMs and all of them made fortunes off this questionable loan product.  LOs for those institutions as well as independent mortgage bankers and brokers all sold these.  In CA, NV, AZ, TX, FL and NY where most of these were done, seven figure mortgages were common.  It was also common for LOs to make a 1% disclosed origination fee PLUS a 2%-3% non-disclosed YSP on these loans.  On a $1,000,000 loan that means the borrowers paid a disclosed commission of $10,000 and from $20,000-$30,000 in hidden commissions to the LO.  A Harvard professor, Howell Jackson, did a survey that showed that 85% of all mortgage loans have hidden fees and that the hidden fees represent 60% of the total commisions.  Stated another way, borrowers only know aout 40% of the commissions they pay to their LO!

 

How many people are in foreclosure because they started out with a higher rate than the best rate, saw larger than necessary increases at time of adjustment or couldn't refinance into a better loan program because of substantial pre-payment penalties?  How pervasive was the exploitation of homebuyers by LOs via the Option ARMs?  Let's just say these programs were very popular for several years and I could name dozens of LOs in most of those six states that mailed in excess of 100,000 solicitation letters every month for years and made a fortune in commissions. 

 

The tactics mentioned above were used by LOs on both prime and subprime loans and are still used on prime loans today.  Most pre-payment penalties went away with subprime loans but the higher start rate and larger margin tactics are still used on 85% of all prime loans, preying on people's naivete.  People just don't know about this and wouldn't know how to discover if the LO built in YSPs even if they did know about them!        

 

This is very bad for homebuyers indeed to say the least but it gets worse.  Certain Cogressmen that are heads of certain committees are aware of all of this and refuse to address the issue, even after hearings in D.C. held to discuss doing away with these practices.  Why look the other way?  Because the banks make a fortune off higher rates and only pay a fraction of those to the LOs via the hidden YSPs.  These Congressmen are paid massive lobby dollars by the MBA and its members, the largest banks and mortgage banks in the land, to make sure the grift stays in the lending industry.  The best consumers can do is become educated, know the right questions to ask and use a contract that requires disclosure of all fees / costs of the loan. 

 

Ted Krager

America's Homeowner Advocate

www.homeownerIQ.org 

Author of Dirty Little Secrets of the Mortgage Industry and Scams, Shams & Flim-Flams of the Mortgage Industry