All the more reason to be wary of folks who pass themselves off as "professionals" in their fields when it comes to putting your money on the line.
It's appalling how many bankers pushed their "dirty lending work" on to unscrupulous brokers; and how many Realtors and precon salespeople represented themselves as "real estate investment advisors"--just check out some of the wording on those websites :shock:.
Neither boiler-room mortgage brokers, nor Realtors, nor pre-con salespeople have a fiduciary duty to their clients (lack of ethics doesn't hold up in court). The people who put their money and trust in these "professionals" will pay dearly. When it comes to investing and your money...always, always, always be a cynic.
When this real estate fiasco finally plays itself out and the smoke clears...used car dealers will find they've moved up a couple of notches from the bottom of the heap.
(PS: Kudos to Mango and others who played a clean game.)
Not having some responsibility as a mortgage broker or Banker is not entirely true, and in some States, especially New York, monitoring by the State Banking Depts is quite strict. We are audited frequently for compliance with State laws, especially predatory Lending. The FEDS do look for Bankers and Brokers who used these types of products consistently due to their no income check feature. I have to hold my files for 5 years even after being audited by NY.
I wouldn't necessarily say that the banks pushed their dirty work on Brokers. They offered the product on a retail level as well with the same guidelines as they offered to Brokers (wholesale) Wholesale is a necessary evil for Banks as more people tend to go to mortgage brokers for more options, and service levels.
If the product was used correctly, it offered benefits.
The product is used correctly by people who know how to handle money, get large bonuses, or for example lawyers who may be expecting a large case settlement etc. Selling another property, yadda, yadda.
The people who used it correctly were financially savvy, and had the ability to pay down the mortgage when rates increased and usually had low Loan to values. Also, the index did not change drastically for years, and it was based on the lagging average of the index.
The big mistake they made with the product was that it usually had a no income verification/no asset check feature to it. They also in my opinion offered too high a loan to value especially for investment properties, and they did not differentiate second home from primary residence.
It's also a complicated product to understand for the average consumer as they touted start rates of 1 and 2%, and then 3 different options of how to pay the loan.
Hell, I had to read it several times to understand it, and learn how to calculate the minumum payment
and figure out when negative amortization occurred.
The article is eye opening, however, the examples of people who had 5% fixed rates refinancing into these OPtion ARMS is pure journalistic zealousness. I don't know many people who would have been that naive.
The people I do feel somehwat sorry for are ethnic groups who tended to go to a Broker or officer of the same ethinc background, and what I found when I worked for the banks and visitied and monitored these Brokers, was that they cheated their own people by putting them in A-minus subrpime loans getting 3 points on the back end, and then charging points on the front
Most of these people could have qualified for standard FNMA type mortgages and instead were placed in these hihger priced loans. This has been going on for years, and probably will continue and is not limted to the mortgage or real estate business.
I guess bottom line is that there are always going to be people who want to live beyond their means and will seek out ways to finance their lifestyles. Human nature, we can't change it.
