NLIC.org

Chris Said:

Why did mortgage lenders give loans to people who they knew couldnt pay them back?

We Answered:

Years ago lenders were tightly regulated once it was lifted it allowed the lender to loose loan out funds. They now sell the bundled mortgages to the stock market. That's part of the reason the lenders are not able to reduce or make changes to the loans. They no longer own the money. They make money by closing costs and then sell to get the liquidity back to make more. If your loaning out someone Else's money and the more you loan out the more money you make. Well you'll be loaning to everyone and anyone who's willing to sign on the dotted line..........

Jean Said:

What banks/mortgage lenders still offer 'no income verification loans' (NIV) or 'stated income loans'?

We Answered:

Yikes, as a self-employed borrower you are naturally higher risk. If you've been self-employed less than 3 years, odds are you're not making a profit and reporting losses to the IRS. Another strike.

Any lender who would give you a loan is probably about to go out of business or is very shady. Your best bet is to pay cash and then take out a HELOC once you have enough history to show that you're making a profit.

Willie Said:

Why did mortgage lenders give loans to people who could not afford them?

We Answered:

Here is what happened with the "mortgage crisis" (in a nutshell)...

Those who study mortgage trends have said that there has been a pretty consistent pattern of a "bust" in mortgages about every 18 years since World War II. We've seen problems like this before and we will survive this "crisis." If you're looking for a mortgage right now, rates are still very good. The world is not ending (as the politicians who are itching to "help" would have us believe).

In summary, EVERYONE (not just the Mortgage Lenders) was involved played a part in the "bust" to some extent or another.

BORROWERS -- Rather than living within their means, many borrowers decided that they wanted to have a bigger, more expensive house than they could afford. In order to afford these houses, they often turned to loan products such as "Interest Only" loans. With IO loans, you basically pay the minimum amount possible every month and the principal is never reduced. To complicate matters, some loans featured "zero down" where the borrower had absolutely NO equity in the property. Here is an illustration of a typical problem: A property is worth $800,000 at the time of purchase. The borrower takes out an Interest Only loan for $800,000 (putting nothing down). Then the property value drops to $700,000. Now the borrower has a loan for $800,000 for a property that is only worth $700,000. The borrower has ZERO equity in the property so guess what... they walk away from the property and the lender ends up taking the loss.

MORTGAGE COMPANIES (BAD OR POOR UNDERWRITING GUIDELINES) -- In an effort to make as many loans as possible (and to sell these loans to foolishly eager investors), many mortgage companies relaxed their guidelines beyond reason. Some loans had a Loan-to-Value (LTV) ratio of 100 (or higher on rare occasion!). If the property was worth $100,000, then an LTV meant that $100,000 was loaned to the borrower (as stated before, no equity). The lower the LTV, the less risky (and more desirable) the loan is. Another arguably stupid mortgage product was the "80-20" loan. A loan with an LTV of 80 or lower is not considered risky in the mortgage business. Therefore, Mortgage Insurance (MI) is not required for loans with an LTV of 80% or less. (If a borrower has an LTV of 85 and pays it down to 80, then they can drop the MI from the loan.) MI is basically insurance against borrower default. For example, if a borrower defaults on his loan and the lender forecloses and sells the property and loses $2000 in the process, then the MI company will cut a check to the lender for $2000 to make the lender "whole." Rather than requiring borrowers to carry MI on their loans (which would have mitigated risk), the mortgage companies allowed the borrowers to take out a second loan on the same property (a "second lien" or Home Equity Line of Credit or HELOC). This HELOC money was then used as the "money down" on the first loan so that MI could be avoided. For example, if the property is worth $100,000, the borrower might get a HELOC for $20,000 and put that money down on the first loan, thereby lowering the LTV to 80 (thereby exempting them from MI). Another popular loan was an Adjustable Rate Mortgage (ARM) or "Fixed-Adjustable" (where the Interest Rate is fixed for a few years and then starts to adjust (up or down) based on a financial instrument). Borrowers were allegedly given a low "teaser rate" and then (because they bought too much house) couldn't make the payments with the higher interest rate when the rate adjusted. (It seems hard for me to believe that an interest rate adjustment would be so severe that it would prevent someone from making their payments, but that's what the borrowers allegedly claim.) Maybe this is too many detailed examples, but suffice it to say that a lot of stupid mortgage products were offered by mortgage companies (and accepted by borrowers).

INVESTORS -- In their quest to make a "fast buck", investors bought up tons of these mortgages since these riskier "sub-prime" loans brought higher returns (higher interest rates). These investors should have performed a "due diligence" on the loans they bought; but they didn't. When investors purchase loans, there is usually (if not always) a "buyback" provision. This means that if a loan goes bad and the investor finds that there was some irregularity in the underwriting (the loan decisioning process) that the mortgage company who sold them the loan is required to "buy back" the loan. The problem is that most mortgage companies are "cash poor" (meaning that they borrow the cash that they lend from a "warehouse lender" temporarily until they can sell the loan to an investor and pay back their warehouse lender). So when these loans started going bad (hundreds of millions of dollars worth!), the investors demanded the mortgage companies buy back the loans (according to their agreement). So mortgage companies were now looking at buying millions and millions of dollars worth of loans back when they had little or no money of their own! So what happened? Countless mortgage companies declared bankruptcy. With all of the hullaballoo around bad mortgages, investors decided to stop buying sub-prime mortgages. Since there was nobody buying these mortgages and since mortgage companies don't have their own cash, mortgage companies found that they could no longer make these sub-prime loans. The sub-prime market dried up almost instantly.

RATING AGENCIES -- The job of rating agencies is to investigate the creditworthiness of investments (many of which included mortgage debt). These agencies did not do their due diligence and ended up giving these investments an artificially high rating. So investors thought the investments were less risky than they were. Investors will always buy investments that have a high return and low risk (but obviously they weren't low risk).

THE GOVERNMENT -- The government has always put pressure on mortgage companies to make loans to poor and/or minority borrowers. Because these borrowers typically have worse credit and/or less income and/or greater debt, they had to go to the "sub-prime" market to get a mortgage loan. Is it so hard to imagine that a borrower with less income, more debt and bad payment habits will default on a loan (especially when they've put little or no money down)? Of course not. But the government continues to "wish away" laws of basic economics and common sense. In order to "do right" by poor people and minorities, the government expected mortgage companies suspend their normal sound underwriting guidelines and business sense. (Obviously, the sub-prime problem goes beyond just poor borrowers, but my point is that the government contributed to the crisis to some extent.) The government is now poised and ready to exacerbate the crisis beyond what it is now by "freezing" interest rate adjustments. Here is an illustration of the problem: Let's say you have $5000 in cash. I'm a bank and I tell you that if you deposit your $5000 with me that I will pay you 1% during the first 2 years but then I will pay you 7% after those 2 years. So you deposit your money at the low rate of interest. After two years (when you're about to get your higher interest rate), the government comes in and says, "Sorry. You're not getting your 7% as promised. In fact, you can't take your money out of that bank; you must leave it there and only collect 1% for another 10 years." What will happen when you have another $5000 to deposit? Will you put it in my bank? Absolutely not. Why? Because you don't know if you'll really get the return you agreed upon. In the same way, if the government steps in and says to the investor/lender, "Sorry... you're not getting the return on your money that you negotiated... and you can't take back your money; you've got to leave it at the low rate," then guess what the investor is going to do. He will never invest in mortgages again! He will take his money to China or municipal bonds or any other vehicle in which he can get a RELIABLE return on his money. If he DOES decide to put money into mortgage debt again, he will demand a higher return to compensate for the greater risk that the government will step in and "help" again. (In other words, Interest Rates on mortgages will go up for EVERYONE!) Thank you Big Government Democrats and George Bush!

REGIONAL PROBLEMS -- Some regions in the USA had events that made the mortgage problems particularly bad. For example, inflated property values in California started deflating. Condos in Florida didn't sell as thought and many sit vacant. Companies providing jobs in the "rust belt" (such as Michigan) have moved or gone under; thereby leaving the local homeowners with no income with which to make their mortgage payments.

Sorry for such a long answer. Hope it all makes sense.

Thanks!

Ross Said:

How can lenders offer $200,000 mortgage loans without a ssn number?

We Answered:

Not likely, they have to verify all your information and with the way the market is going right now its even less likely. Sometimes you may get preapproval letters in the mail however, they request your info before giving you anything.

Mike Said:

Can I apply for 2 mortgage loans from 2 different lenders in parallel for the same property?

We Answered:

Yes. But it may require disclosure by any of the lenders.
Best idea is to find a Mortgage Broker who can access multiple lenders. Ask for referrals from a Realtor®.
There would be minimal, if any consequence, because applying, does not mean acceptance. However, it will add inquiries to your credit report, & possibly some fees, which you may wish to keep to a minimum.

Don't judge by rates alone. Look at your options on the lenders reputation, the types of loans available (conventional vs. 5/1) and how long you expect to hold the property.
Hope this is enough to help. I could go on, but.......<smile>

Denise Said:

Why did Mortgage lenders offer loans to people that didn't qualify for those loans?

We Answered:

Barack Obama and other left wing activists accused the lenders of racism because not enough poor people were getting mortgages.

The lenders never should have caved into the left wing activists.

One thing that we should learn from this we do not want one of the left wing activists who pressured the lenders into making irresponsible loans to people who did not have the ability to repay those loans in the position of the President of The United States of America.

Although Hillary Clinton would have been the best candidate, given the decision of the Democratic Party hierarchy to give Barack Obama the Democratic nomination then John McCain is the best choice in this election.

Ellen Said:

When did the government mandate that lenders make mortgage loans to unqualified buyers?

We Answered:

The Community Reinvestment Act of 1977 put forward by Rep. Barney Frank, Chairman of the Congressional Banking Committee, and signed into law by President Carter opened the door to todays mortgage meltdown by requiring banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services. In 1995, during the Clinton administration, the Democrats added new provisions that forced banks to issue $1 trillion in “sub-prime” loans targeting to help the poor by lowering credit standards, not having to prove real income, and lowering or even doing away with down payments.

These lower standards increased mortgages by 40% given to people that were not qualified to own property under normal underwriting guidelines.

The rest is history.