Lessons from the Sub prime fallout

Lesson from the sub prime fallout
Monday, September 24, 2007
by Jacque Applegate
In cruising the INTERNET I found this article on the sub-prime fallout and it really hit home with my team. A couple of years ago we had a Colonel come to us to sell a house in a fairly new subdivision, he was a victim of a sub-prime loan. The Realtor who sold him the house did an interest only loan even though this gentleman could afford the payment had money to put down and had a great credit history. His agent at the time sold him this home with an interest only loan. After living in the house for 3 years he owed more on the house then it was worth. He had to bring 10,000. to the table to cover his cost. It was sad. We did all we could to help but we still had to tell him the unfortunate information that he would need to bring a large chunk of change to the closing table. If we had sold this Colonel the house we would never have put him in an ARM with a balloon payment, nor would we have done an interest only loan. There was no reason for this customer to be in this situation. It was a case of a Lender who only knew a few loan programs and a REALTOR who is only interested in the commission. The deal worked out OK but it was not a best case scenario for our customer. We are seeing more and more of this fallout in today's market. We are seeing customers who are in ARMs trying to sell before their loans balloon. It is a sad state and most of these clients could have been put in a regular loan program.That is why I feel it is extremely important to work with a Lender with a good history of loans one backed by a company who offers loan programs to fit all needs, be it a fireman or school teacher you should be working with a lender who has knowledge of all the loans that are out there.

Below is a great article by Craig King where he talks about the relationship between Lenders and customers, he also tells you how important he feels your relationship with a good Realtor is. Spend a few min and read the article.

I’m going to advance a notion that some people may find controversial, but I believe it to the bottom of my soul: Business is about relationships. Let’s say you’re a local banker getting ready to lend money to Frank. You know you’re going to see him at church, at the Kiwanis Club and at the Chamber of Commerce meeting. If you sell him something that doesn't’t work for him, those encounters will become very uncomfortable.When the job of selling mortgages got separated from the jobs of underwriting and servicing those loans, it was just a matter of time until we faced a crisis. The originator – often somebody in a one- or two-person office – shuffled the paper and collected a fee. The underwriter sold the debt to an agency like Freddie Mac, which bundled it with thousands of others into securities that could be traded like bonds. The job of sending bills and collecting the money got jobbed out to a mortgage servicing company that in many cases had no roots – or even offices – in the home buyer’s community.Now, we’re “shocked – shocked!” to learn that there are people who got stuck in unsuitable mortgages, buying homes they couldn't’t afford.OK, maybe the mortgage originator still has to look the customer in the eye. But increasingly, even that role is being pre-empted by faceless giants taking applications over the web. I’m not suggesting for a moment that there’s any dishonesty in any of this. But even assuming everybody is playing by the rules, the incentive to give the customer your best advice and guide him or her to suitable products is severely compromised.Let’s go back to Frank. You’d like for him to keep coming back for checking, car loans and business loans. You’d like to be able to speak to him at the grocery store without ducking behind the bottled water display when you see him coming. So when you originate his mortgage, you’re probably going to make sure it’s one he can live with. You probably won’t steer him to a “liar loan” or an ARM with a teaser rate, knowing he could lose the home when the inevitable rate adjustment comes. You’ll know that Frank’s best interest – and yours – coincide in the long run.This is why I think local real estate brokers and agents are more important than ever. With the local banker disappearing, the agent is about the only “real person” the customer sees. That means local professionals need to exercise more care, integrity and judgment than ever – guiding buyers to homes they can afford and giving them sound advice on everything from inspections to resale value. After all, we’d all like to earn a commission when that buyer sells in a few years.