The Mortgage Guy Blog

I find it troubling that regulators seek to bury wholesale origination (brokers) in new regulation while retail origination is being painted as the good guy in the mortgage meltdown. The only difference between wholesale origination and retail origination is the lobbying power of the latter dwarfs that of the former.

Regulators, through their proposed legislation and regulatory changes, would have you believe that fraud only exists in the wholesale origination end of the business. Nothing could be further from the truth. Retail lenders are equally prone to fraudulent lending activities as are the wholesale originators. Apparently, the regulators haven’t recognized this.

In the current environment of massive lending changes and industry scrutiny, fraudulent origination practices have been uncovered at Citigroup. Essentially they have been misrepresenting, to their adjustable rate mortgage clients, that their rate resets will be higher than their present mortgage rates, therefore they should refinance to a fixed rate mortgage.

This would be beneficial to their clients if in fact the resets were higher than current rates. However, they are not higher and in fact are lower. Consider this post at Mish’s Global Economic Trend Analysis. Emphasis is mine.

Question 1. What happens to our loan on the anniversary? Will it go down?
Answer: It is very unlikely that it will go down. Would you like to refinance?

By the way the existing rate on the loan in the Email above is 6.00%. That rate is based on the one-year treasury rate plus an index of 2.75. On March 17, the one-year T-Bill rate was 1.53 as quoted during the conference call. Let’s do the math. 1.53 + 2.75 = 4.28 (rounded to the nearest higher 1/8 would be 4.375). Citigroup told the client the new rate would be above 6.00%

The above conversation, in conjunction with the documented hard evidence above, suggests a pattern deceit by Citigroup. I am wondering how many Citigroup customers have refinanced to a higher rate and payment based on inaccurate rate quotes from Citigroup mortgage specialists.

I am not a lawyer. I do not know if any of this violates truth in lending laws, fair lending practices laws, or any other laws. However, I do know this is a mess, and if I was a customer of Citigroup I would be questioning whether or not I could believe anything they say.

In the sake of fairness, if Citigroup has a different explanation for the above examples, I will post it.

Interestingly, nothing new from Citigroup has been posted on the site. Also here is another snippet from a lawyer who responded to the post.

I received an Email from a lawyer who writes:

I am a lawyer. And, you don’t need to be a lawyer to KNOW fraud when you see it, and I’d say that what you describe – deliberately misquoting rates, etc. is fraud (there are two types of fraud – fraud in fact and fraud in the inducement, but we don’t have to get in to that, and you may well know the difference (and I suspect you do)).

Most law is “common sense” and if something screams “fraud” it most likely is – under whatever particular law – whether statutory law or common law.

If Citi KNOWS the rate is going lower, but says “it is most likely to go higher” and doesn’t give a straight answer, and is stupid enough to have third party witnesses listen to the misrepresentations and/or put them in writing and or have them recorded (and I assume Citi records a lot of stuff by law or company policy), then they deserve to be sued by a lot people.

I encourage you to visit the post on Mish’s blog as it is well documented and easy to understand. There is no question that Citi’s activity is fraudulent in my opinion. I would fire any loan officer in my employ for doing anything that resembled this practice. Institutionalized mortgage fraud, you have got to love it.

I can identify a significant number of retail originators whose ethics are far from above questioning. The above example is not unique even though the regulators would like you to believe so.

When new regulations emerge from this lending crisis, they should be applied fairly to ALL originators and not just wholesale origination. The act of over regulating one type of originator over another stinks of cronyism and unfairness. More importantly, applying regulation on a favoritism basis does little if anything in providing more protections for the consumer.

The regulators aren’t doing the right things, they are just doing things. It makes them look like they are doing something constructive but that clearly is not the case.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
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If it makes for good press, you can bet your last dollar that politicians will jump on the band wagon. This is so even if what makes good press, is a disaster in disguise. Saving people’s homes from foreclosure is good press.

Having said this, does it come as a surprise that Hillary Clinton is joining the chorus for a socialistic mortgage bailout? If it does, it shouldn’t. The following is a 4 minute video of Clinton’s speech to Wall Street, brought to you by Marketwatch.

Hillary Clinton’s Financial Ineptitude Documented

Some of her statements are correct. For example, Wall Street’s role in the mortgage meltdown and that it will impact the broader economy. However, she goes downhill fast after that.

Here is where she is dead wrong with her most dangerous statements listed first.

• Her threat to introduce legislation to disallow mortgage backed securities investors from suing. This will undoubtedly destroy mortgage securitization which is the backbone of the industry. Who will buy mortgage securities knowing that the government can change financial contracts on a whim and without the investors having any legal recourse? Is this even Constitutional?
• The ninety day moratorium on foreclosures is nearly as dangerous. Perverting the foreclosure process will also prevent investors from buying mortgage paper. Further, by the their own admission, the bailout will only affect a very limited number homeowners. Yet she suggests a moratorium on ALL foreclosures.
• What is to stop other homeowners from suing for better rates on their mortgages? It is discriminatory to freeze or lower some payments and not the payments of all homeowners. Who decides who gets what and under what circumstances?
• She claims rate resets are responsible for the meltdown, yet it’s been pointed out that at least half of those in default today, are doing so on their initial low teaser rates. It’s also been pointed out that falling values play a significant role in the increase in defaults. When homeowners realize that they are massively upside down in value, they often choose to default on their loans.
• Her assertion that mortgage brokers have a significant role in the mortgage meltdown is also a flawed position as I point out in this previous post.

The video is proof that Hillary Clinton, like George Bush, Henry Paulson, Barney Frank and Chuck Schumer, et al, are severely ill equipped to correct the mortgage and real estate meltdown. This becomes more evident each and every time these people open their mouths.

They are simply politicizing the issue without providing real solutions. Remember, their number one goal in life isn’t to help American homeowners, but to get elected and maintain or increase their power.

The freeze will only make the problem worse. Don’t drink the kool aid and prepare for some very rough times ahead. Times made even rougher with do nothing, feel good and very damaging initiatives.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
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The mortgage payment/interest rate freeze plan is contrary to the well being of competent homeowners, the rules of nature and our gene pool.

In nature, the strong and intelligent survive and the weak and stupid get pruned from the gene pool. Thus perpetuating a stronger species over time.

In modern America, the strong and intelligent get pushed aside (often times on their very own dime) and the weak are given artificial life support. The strong wither and the weak thrive, perpetuating a much weaker and problem prone species. Evidently, it’s compassionate to destroy the future of the species.

The Common Sense Forecaster did some homework on the proposed freeze plan. Who it helps, who it doesn’t and what are the likely affects of the plan. It’s plain to see that the mortgage payment freeze plan is nothing more than a public relations stunt that will cost billions, delay the inevitable and destroy the mortgage industry.

From CNNMoney:

. . . .U.S. Treasury Secretary Henry Paulson began to address efforts to stave off a foreclosure epidemic by lenders, those who service loans, and investors who hold mortgage debt.

Despite much speculation that Paulson is close to helping coordinate a rescue plan that would broadly freeze levels on adjustable mortgages before they reset to higher rates, Paulson gave few details on how such a plan would work.

He did however say who the plan would help, and it would probably leave out a large number of homeowners stretched by their mortgage payments.

Paulson divided subprime borrowers into four groups. The plan would be most geared toward those who can afford the mortgage now but won’t be able to after the adjustment.

The other three groups are largely left out: Borrowers who can afford an adjustment; those who are already behind on their payments; and those who can refinance into a fixed-rate loan.

According to the Mortgage Bankers Association, 5.12% of outstanding loans were in default in the second quarter, a rate about 17% higher than a year ago.

The plan would also seemingly exclude borrowers who hold option-ARMs that aren’t subprime. These are loans that start with extremely low “teaser” rates before rising dramatically a few years into the loan.

It has also been reported that homes that were bought as investments - as opposed to for the purpose of living in - would be excluded.

More than 50% of the increase in delinquent mortgages are actually investor-related, said Wachovia senior economist Mark Vitner. “It’s hard to conceive how many people are actually going to meet this criteria. There’s nothing at all in there that addresses investors,” said Vitner, who added he doesn’t support an investor bailout.

So by Paulsen’s own admission, the plan will only help a small portion of the homeowners afflicted by the mortgage and real estate meltdown.

Clearly it won’t solve the problem and it’s obvious to me that it will only make it worse by leaving the mortgage backed securities investors holding the bag, so to speak. By putting the screws to the mortgage investor, they are killing the life blood of the mortgage industry.

Paul Krugman of the New York Times writes…

Credit — lending between market players — is to the financial markets what motor oil is to car engines. The ability to raise cash on short notice, which is what people mean when they talk about “liquidity,” is an essential lubricant for the markets, and for the economy as a whole.

But liquidity has been drying up. Some credit markets have effectively closed up shop. Interest rates in other markets — like the London market, in which banks lend to each other — have risen even as interest rates on U.S. government debt, which is still considered safe, have plunged.

“What we are witnessing,” says Bill Gross of the bond manager Pimco, “is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.”

So why is Paulsen and company pushing forth remedies that clearly miss the mark and cause further damage to our already broken mortgage securities market? Especially when the real problem is so severe that if left untreated, we are facing very dire financial times.

More from Krugman… As before, the emphasis is mine.

The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction — and that will mean a recession, possibly a nasty one.

Behind the disappearance of liquidity lies a collapse of trust: market players don’t want to lend to each other, because they’re not sure they’ll be repaid.

Paulsen, the politicians like Barney Frank and Chuck Schumer, the mainstream media and even some mortgage industry executives are pushing socialistic initiatives that won’t help the majority affected by the mortgage crisis.

If they are not helping the majority of homeowners or the mortgage industry, which is a vital component to the health of the American economy, why are they doing it?

The only thing politicians and government regulators are committed to is keeping their jobs. Plain and simple. Look at the current state of American politics for verification. To some extent, the same holds true for industry CEO’s.

So instead of studying the problem and putting forth potential solutions that will really fix the issues, they take the easy way out. Easy because it is good press.

It’s great public relations fodder to be able to say “awww, the government is going help people who should have never been able to buy a house in the first place, keep their house”. This at the expense of the American public and the American economic system. Good public relations helps one to keep their jobs, incompetent or not.

Shame on them. They are worse than the mortgage brokers that they so fondly vilify.

Tags: Current Events, Finance & Economy, Mortgages by The Mortgage Guy
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The political, business and media elite will have you believe that the current historic mortgage default rate is due to adjustable rate mortgage payment/interest rate resets.

Consequently all three entities are pushing for socialistic remedies. These so called remedies will only worsen the problem by obliterating what is left of the mortgage industry.

Iamfacingforeclosure dot com posts a very interesting article that points out current mortgage defaults are not solely due to ARM resets. Not yet anyway… The emphasis is mine.

The national foreclosure rate has climbed steadily throughout 2007. While most reports attribute the bulk of the foreclosures to ARM resets, the reality is that more than half of the borrowers who are defaulting are still in their first year of the loan.

The abysmal failure of Credit Ratings Agencies and risk management departments of financial institutions to properly assess the risk aspects of subprime loans, have allowed for loan underwriting so lax that borrowers are defaulting on the low teaser rate payments. You can just imagine what will happen next year when mortgage payments rise by an average thirty three percent.

Bank of America Securities estimates that rates will reset on $362 billion worth of adjustable rate subprime mortgages in 2008. At the same time, resets will also occur on $152 billion worth of other loans with adjustable rates, such as Alt-A loans and jumbo loans (loans over $417,000).

The article is a good read and I encourage you to check it out.

As with many, if not all important issues facing the country and it’s middle class today, the mainstream media and our politicians cannot be looked to as reliant information sources. Every tid bit of information disseminated by these self serving entitities is slanted with some type of agenda.

Their tactics include lies, half truths and outright omission. Perhaps that is why the general public is totally oblivious to the economic crisis unfolding before our very eyes.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
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