George called me.  Carol, a real estate agent with whom I had worked for several years, had referred him to me. George wanted to buy a condo in Santa Ana. He had no money for a down payment or closing costs, no retirement or other savings. His income was very low, so low the payment for the unit he was looking at would be approximately 70% of his gross income. Add to the equation federal and state taxes, and property insurance, and George’s take-home pay would not cover the condo payment, much less electricity, food, clothing or other essentials. George had a very low credit score from making late payments, but he wanted to purchase the condo and Carol wanted to sell it to him.

We had a program through a lender that shut down this year that would have allowed me to lie and bump up George’s income to put him in a 100% program for those with poor credit. Instead, I told George I could not help him, he simply did not make enough money to purchase the property and I felt he would likely lose the unit through foreclosure. He did not care, he said before it got to foreclosure he could sell the unit and make money since values in the area were climbing almost 20% per year. I called Carol and said I was sorry to tell her but I could not help George.

“Can’t or won’t?” she asked.

“Won’t,” was my reply. I would not help someone buy a home he could not afford.

George bought the condo. He went to another mortgage broker who funded the loan, and I bet that broker made a lot of money. Funny, I never received another referral from Carol.

The bulletin boards and blogs on mortgage industry websites are filled with stories such as George’s. Reading through them I recall similar situations with many prospective clients. There are numerous incidents of people wanting to buy units with no money down, million dollar homes with no income, no money, and no credit. Condos, houses, duplexes, you name it, unqualified people called to buy. I, and others like me, said, “No,” but they all got loans elsewhere.

In addition to purchasers, mortgage brokers service those who already own homes and want to refinance. I was able to help many past clients and other families refinance and significantly lower their monthly mortgage payments, in many instances helping them establish a savings program for retirement or kids’ college funds. As well, I had the habitual “equity-eater” clients call every year or so to refinance and pull more cash out of their homes to pay-off the consumer debt they had run-up the year before. Their homes were climbing in value and they were spending that equity every month. I had one client I had to “fire,” telling them I could no longer abet them in their consumption habits and leveraging of their family home to buy ever more “stuff.” Billions of dollars of equity was converted to consumer spending in the past several years, much of it by the same families refinancing repeatedly.

In the media there has been article after article addressing the government response—if any to the situation.  One article “Congress Struggling to Address Mortgages”, in the Press-Telegram was correctly titled. Congress is struggling to address mortgages, the problem is they should not even try to intervene in the housing and mortgage markets. So far each of the proposals put forth by state and federal governments to “help” “affected” homeowners have the long-term effect of hurting housing markets, bailing out those who put themselves in bad financial situations, and signaling to unscrupulous mortgage originators and lenders that their greed-motivated business practices were successful.

Those in Congress “struggling to address” the mortgage and housing markets are reacting to a problem receiving huge media attention but encountered by a small percentage of their constituencies: foreclosure due to subprime mortgage products with increasing adjustable rates. Albeit a great emotional issue appealing to the media and voters during campaign season, “I worked to save your home.”

Unfortunately what Congresswoman Sanchez and other politicians are doing is the same thing the mortgage broker who helped George get his condo did: playing to emotion and ignoring the facts.

• Fact: every loan in foreclosure had a note that spells out the terms of the loan.

• Fact: a significant number of the loans in foreclosure were used to pull cash out of the property for consumption purposes.

• Fact: the current “solutions” being enacted or proposed will hurt those homeowners who took care of their homes and their equity and also those remaining mortgage brokers and lenders who scrupulously followed a code of ethics in determining whether to assist clients in pursuing homeownership or refinance.

I, and thousands of brokers now expressing frustration and disgust on the bulletin boards and blogs across the country, passed on many potential clients who did not honestly qualify for a loan. Those clients eventually found brokers willing to secure them a loan. Because of that, we also missed a lot of money.

Many of the unscrupulous mortgage brokers and lenders who preyed on the greed and consumption of the American consumer are no longer in business. Thank goodness! Many are still in business, however, and eagerly await government intervention with new mortgage programs that they can use on their past clients they assisted into foreclosure. And, they will make more money once again.

Take a closer look at the numbers being used to tell the story. By comparing current foreclosure and default numbers to those of 2006 is disingenuous as the housing boom created a market with almost no foreclosures in 2006. This gives the appearance of a compounded problem. Congress also needs to consider how many of the foreclosures are on cash-out refinances compared to home purchases.

Before struggling to find solutions, Congresswoman Sanchez and her colleagues need to understand the problem and why most of the homeowners calling their offices are in foreclosure. Not atypically, however, they will act on bills that in the end will reward unscrupulous acts and unfortunately, those acting ethically in America will pay the dearer price.

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