- Jun 12, 2001
Just because you can keep repeating that over and over again won't make it true.Originally posted by: rchiu
It's not just the bank lowering the standards. Those brokers and lenders were eager to make the loans and they don't lose anything if the borrowers default so many unethical ones will do anything to get the loan out the door. Some of those loans can be pretty complex financial products and I don't blame many of those people for not able to understand what they were signing. Also like I said in the previous post, those brokers/lenders can help borrowers to come up with a good looking loan applications because they know the "system" well.
Unfortunately we will always have people who don't can't even read, let along understand what a jumble loan is and how interest rate work. If we don't have good enough regulations, or make sure lenders/brokers's interests tie to client's interest, we will always have unethical lenders/brokers take advantage of those people and try to make as much money as possible.
Brokers and lenders were confined to the saleability guidelines of the investor purchasing the loan. The investor purchasing the loan most certainly did have a vested interest in making sure the borrower didn't default.
If it was a broker that originated the loan, then a correspondent wholesale lender or the investor directly, or the investor's delegated 3rd-party mortgage insurer, would be doing the actual underwriting.
If a lender originated the loan with the intention of selling it to the secondary market, then the lender had to underwrite it to conform to the guidelines of the secondary investor who they intended to have purchase it.
In either case, if the loan defaulted or otherwise non-performed, the originating lender or broker could be held contractually liable. Most lending covenants require the originator to "buy-back" any loan that non-performs in its first 12 months regardless of the reason. Failure to make the 1st payment in a timely manner is an automatic buy-back. Fannie, Freddie, and FHA/HUD/VA will enforce their buy-back policies for the life of the loan if it can be established that the originating lender/broker made any mistake (much less any outright fraud).
That's not to say that fraud didn't take place, but fault for that goes way beyond just mortgage companies, and in case you didn't notice, most of them went out of business last year. So yeah, nothing to lose, right?...