The real estate blog.

Pardon me, but I think I have to channel Dennis Miller for this post.

::Start rant::

So I got an email from one of my favorite lenders today about new rates and terms for 100% and 97% loans –

We’ve been given a heads-up from our Secondary Marketing Department. We continue to see deterioration in the 100% products and Stated Income product offerings.

We do not have all the details but we wanted to alert you to the following:

If you have floating loans in the pipeline that fall under these products please lock them immediately.

What hurts is these new changes appear to come from Fannie Mae, meaning, my favorite lender isn’t the only one that will be affected. This will be a systemic change. FICO scores have been raised from 680 to 700. On top of that, the rates are increasing; 100% by .25% and 97% by .5%.

So why am I upset about this? Because like the way Homeland Security treats airline passengers, Fannie Mae is applying a broad brush to a problem that needs specific, targeted action taken.

Homeland Security knows that people who attack America from overseas so far have proven to be young Arab men. Their solution to the problem of young Arab men committing terrorist acts is to make every grandmother, housewife and businessman from Anchorage to Kalamazoo be searched from head to toe for cuticle scissors and toothpaste! All of this comes with a price tag of billions of taxpayer dollars. BILLIONS!

It appears that in the face of a housing downturn, America’s government sponsored enterprises which facilitate the movement and efficiency of the mortgage market, are taking a similar approach. Instead of eliminating making loans to the people who are most likely to default, they are eliminating entire programs.

I’m going to let you in on a secret here. Those “subprime” lenders that have gone out of business because of forced buybacks are going down because of fraud…not because of a few greedy borrowers here and there. They’re going down because of corporate cultures that value production over quality and a lack of regulation and oversight over corrupt mortgage brokers, real estate agents, appraisers and title personnel who are also in on the scam.

Subprime lenders are not seeing losses because the nature of the business is bad. They are seeing losses because they ignored the precautions put in place to reduce risk. Considering that about 15% of loans are even in the subprime category and that of these 15%, 90% of borrowers are paying their mortgages, the fact that a few lenders have generated so many buybacks for first payment default and fraud tells me this is not a systemic problem, it’s an isolated problem associated directly with the originators of those loans. Those lenders who have tolerated and encouraged this kind of behavior are now paying the price.

Unfortunately there are many innocent victims with mortgage fraud and everyone will pay the price. Fannie Mae is applying a knee jerk reaction to the problem. Just like Homeland Security, a broad net has been cast to scrutinize everyone, not just those who we know are most likely to be the problem.

::End rant::