Thursday, October 16, 2008
The reality of Realty
In light of the economic clusterfuck going on within the real estate market and the economy in general, I thought I would share some of the horror stories of working in the sub-prime lending industry that no doubt contributed to the sorry state of affairs in what recent radio commercials to as a "fundamentally sound" real estate market.
As some of you may know, a couple of years ago I used to work at a leading sub prime lender in Orange County that went belly up shortly after I left. This was during the tail end of the California real estate boom, when every family thought there home was worth a million dollars and repainting the exterior of their home would increase the value by ten grand. It was also a time when you could find a loan program for just about every circumstance, and the obscene lender fees to go along with it. Mortgage lenders slung loan programs like it was the Old West. No income? No problem. No proof of residency. No problem. No job? Not a problem, sir, just sign on this Borrower's Authorization Form on the dotted line.
During my tenure at said lender, there are a few stories that stuck in my head for not only their sheer audacity, but for their long term implications. On one specific occasion, I recall a young hot shot "Credit Manager" (loan officer for the lay man) working a deal with a potential borrower who was shall we say, "employment challenged". Fortunately for the resourceful credit manager and the borrower, the borrower's sister owned a local hardware store. After some coordinating between the credit manager and the borrower, an employment verification form magically appeared in the credit manager's hand verifying that the borrower worked at the store and had worked there since time immemorial. Problem solved, right? Maybe. Basically what this loan officer did was provide the borrower with a cash out refinance that she could not afford to pay back, simply because she wanted it and he had the tools to make it happen.
Well, moving on. Our next little horror story involves a borrower, a credit manager, a roof in need of repair, and some nifty software. A relatively average borrower came to a credit manager with a request for a refi to take some cash out and take a vacation with his family. Unfortunately, the appraisal on the home came back with some disturbing (shock!) information. The borrower's roof was in need of repair, and the appraiser was required to include this information in his report. Now, this wouldn't necessarily kill the loan. Not as long as a roof inspector could sign off that the roof was not on it's "last legs", so to speak. Well, if the report came back fine, I wouldn't be telling you about this now would I? But have no fear, friends! Luckily, the computer fax software that was installed on the desktops of all credit managers had some oh so nifty tools included with it. One of those tools was a cut/copy paste option that let you lift copy and transfer any portion of an image and transfer it or completely remove any pesky little negative information and, shall we say get "creative" with the document. So, according the the scuttlebutt, this credit manager was able to generate an entirely made up roof certification using the stationary the original fax came in on, leaving only the original signature of the roof inspector and a brand spanking new certification of the roof. Ta-dah!
Now, these are just a couple of the whoppers I heard about. This doesn't include the stories about credit managers making up credit reports out of whole cloth, generating false income documents, and appraisers creating reports using false images and pushing value so hard you'd think they were getting paid based on the value of the home.
Now, this is not to say that all sub-prime lenders are underhanded douchebags that would sell their grandmother's teeth for a commission. I'm sure that there are plenty out there that would take a flat fee.
But don't worry, because according to some of the radio commercials I hear, the real estate market is still "fundamentally sound".