My New Blog

State of Denial

December 9th, 2009 11:47 AM by Daniel Poulos

    Now that the banks have sucked the money out of our economy and then our government they are hell bent on holding on to it. It's no secret in the mortgage business that lenders are doing everything they can NOT to lend.

    I'm not talking about making risky loans. I'm talking about preventing qualified, responsible people from buying a home. Even when loan applications meet every federal lending guideline the wholesale lenders apply restrictive "credit overlays" to deny mortgage loan applications. Furthermore, it appears that experienced underwriting specialists have been replaced with less costly processors who have no concept of analyzing risk. The cost cutting has also left lenders understaffed and inefficient.

    Another tool conspicuously disguised as consumer protection is the new Home Value Code of Conduct. By prohibiting loan originators from ordering appraisals from qualified and licensed local appraisers the banks have found a way to undervalue properties using Appraisal Management Companies (AMC) in which they share ownership. Not only do consumers get overcharged for each appraisal, they also get charged for multiple appraisals whenever the application has to be transferred to another lender even when the same AMC does the additional appraisals. This is the biggest scam ever perpetuated on consumer borrowing!

    As if that wasn't enough here's another assault on local mortgage companies and consumers, once again, in the name of consumer protection. Wholesale lenders have capped fees to originators (makes sense) BUT the maximum fees include all the lenders junk fees and the rules do not apply to lenders who are permitted by law not to disclose what they are earning on a loan. In other words, if you can conceal your fees from the borrower the maximum fee limits do not apply!

    The bottom line is that no one seems to care that at the other end of all these injustices is an American family trying to own a new home. In the big picture it means jobs for the real estate, construction, insurance. home improvement, and all other related businesses. None of this happens if the banks don't do what they are responsible for doing: lending.

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Posted by Daniel Poulos on December 9th, 2009 11:47 AM

You're absolutely correct. The pendulum has swung from one extreme to the other. Just a couple of years ago pretty much ANYONE with a pulse could get a loan. Now credit worthy buyers with a decent down payment even struggle to get approved which is choking any type economic recovery. Its time for some consistancy and fair risk assessments to get primary resident home buyers into homes again (and investors and seasonal buyers of course)!!!
Posted by Shannon Brink on December 9th, 2009 1:11 PM

Thanks for your article and making us more aware. Have you read Joseph Plummer's book call "Dishonest Money"? What your report says seems like more trickery on the part of banks and government for the sake of greed. One would think that they could settle for a decent honest profit rather than sneaky methods for raking in a fortune (at the very expense of the people they propose to help). There is no question that the corporate institutions rule the world--but we allowed it to get this far. We have to get mad enough and support all the candidates and grass root efforts that want to take back this country which was supposed to be a Republic and run it as if it is a "country for the people and by the people". Together we can make a difference--but it just takes one person saying "no more!" there a people's bank we can use --or start one ourselves?
Posted by Tracy Mannikko on December 9th, 2009 2:04 PM

Danny, I couldn't agree more. The previous administration should all be tried for treason for conspiring the biggest scam ever pulled on the American people. Having people like Henry Paulson setting monetary policy and decisions about who and how much bailout money these financial institutions received, was like having the fox guarding the hen house. Guess what was going to happen? Oh, by the way let's not forget Mr. Paulson is the ex-CEO of Goldman Sachs who by some magical formula became a bank last year - why? To receive Billions in federal money. So, Wall Street was certainly saved and we avoided systemic risk at the expense of the American public. Now, companies like mine are helping to pump life back into the millions of struggling homeowners left with nothing and unable to refinance and on the brink of foreclosure. But we haven't see the last of the foreclosure tsunami. THe next three years will make the sub-prime mess look like a drop in the ocean.
Posted by Erick Cerda on December 9th, 2009 2:13 PM

This needs to be sent to our Florida and U.S Senators and Representatives.
Posted by Judy McAdams on December 9th, 2009 2:44 PM

I could not agree more with you. In our business (mortgage) the banks want higher fees but want us, the brokers, to limit our fees. They are making the helpless but more than qualified borrows jump through more hoops and over more hurdles then ever. Had one company send an AMC appraiser 60 miles to do an appraisal and he used all the lowest comps, not knowing the neighborhoods. Lost the refi. I am sure there were many, if not hundreds of qualified appraisers (LA area) who could have done a fair appraisal for my client. Yes, let's contact our senators and house reps to get our industry back into business.
Posted by Jim toth on December 9th, 2009 6:01 PM

An article in today's Financial Times indicating that the gov is still missing the point of easing credit. Small businesses still face credit woes By Krishna Guha in Washington Published: December 8 2009 18:22 | Last updated: December 9 2009 00:23 The jobs plan unveiled by President Barack Obama on Tuesday puts aid for small businesses along with about $50bn infrastructure investment and tax rebates for environmentally friendly home remodelling at the heart of the jobs agenda. Mr Obama proposed giving small businesses tax credits for hiring and for investments of up to $250,000 (€170,000, £153,000) per company. He also asked Congress to extend bonus dep­reciation and reiterated his call for zero capital gains tax for small business. EDITOR’S CHOICE Obama redirects funds to help jobless - Dec-08Obama’s speech - Dec-08White House plan - Dec-08Money Supply: No Tarp for small biz lending - Dec-08Lex: Tarp-for-jobs - Dec-07House edges closer on financial reform bill - Dec-08But he did not announce any concrete plan to tackle the biggest problem facing US small businesses: lack of access to credit. A senior administration official refused to put an overall price tag on the package, as many elements were “scaleable”. He argued that the administration had “more fiscal room” since it was revising down the cost of the Tarp bail-out fund by $200bn. He said the jobs plan would be paid for by the reduced Tarp cost and, if necessary, by other offsets, while leaving some Tarp savings for deficit reduction. Steny Hoyer, the Democratic leader in the House of Representatives, said legislation being crafted to implement the package could cost between $75bn and $150bn, depending on its components. “And I don’t think anybody feels that this package will be the only package,” he said. Republicans attacked the administration’s plans to use Tarp savings to pay for the jobs package, arguing that any money left over should be used for deficit reduction. Michael Feroli, an economist at JPMorgan, said his best guess was that the package would cost $150bn. He said “our forecast ... had already incorporated much smaller Tarp costs for 2010. Therefore today’s news is simply a net addition to our deficit forecast.” The White House wants to do more to help small bus­inesses reliant on smaller banks that are reluctant to lend, partly because they are grappling with exposure to commercial real estate and partly because the collateral for small business loans is typically real estate that has fallen in value. The administration has already expanded government-backed Small Business Administration loans and proposes to extend them. Mr Obama said on Tuesday: “I am asking my Treasury secretary to continue mobilising the remaining Tarp funds to facilitate lending to small businesses.” In principle there are many ways to do that, including loss-sharing guarantees or co-investment schemes. But Treasury has wrest­led in vain with how to produce a scheme that would be attractive to banks and fair to taxpayers within the constraints of Tarp legislation that requires banks receiving government aid to hand over warrants in their stock and abide by other restrictions. Some officials think the Tarp legislation may have to be amended to allow a workable plan. The small business hiring tax credit represents a compromise between officials who wanted a credit available to all companies and others sceptical of it. Some officials favour a roughly $5,000 per new employee-equivalent addition to payroll, while Republicans have advocated a less focused payroll tax holiday. On infrastructure, the senior official said: “We are considering $50bn above and beyond current plans.” He said the “bulk of this investment would be done in a traditional manner” on ready-to-go road, bridge and port improvements in the interest of creating jobs. The White House hopes its plan for tax breaks for retro-fitting homes to imp­rove energy efficiency will help hard-hit construction workers while also advancing environmental goals. A second official said it hoped to generate a “cash-for-clunkers-type response” that would pull forward investment and hiring.
Posted by Marc on December 10th, 2009 9:04 AM

Banks were asked to help more American families afford a home. In fact Congress felt that it was a right of every American to own a home. Banks were furthermore required to submit reports to the Federal government on their distribution of home loans to assure that people in poverty areas or with lower incomes received a proportional number of home loans. Banks did what they could to stretch their credit policies to accommodate this. However, bank’s made the mistake of receiving loans from many unscrupulous brokers who made vast sums of money lying, or letting their client’s lie, on home mortgage applications. Since banks could package and resale these loans for AAA ratings, they accepted them believing what the brokers and homeowners said. Later came the housing crisis, and banks were criticized for making loans to people who couldn’t afford to pay them back. They received TARP money to cover their losses which they have all paid back or are in the process of paying back at a substantial profit to the American public. This is providing the government additional taxpayer money to spend on other projects. At the same time the banks that received TARP money are restricted from paying their top executives a competitive wage and are consequently losing their best employees. During the current economic crisis, banks are covering all customer bankruptcies at no cost to taxpayers. They’re paying off property liens and credit card vendors associated with these bankruptcies. They’re restructuring mortgages and writing down the principal value of home loans at a considerable cost to the bank. When credit cards get stolen and used for unauthorized purchases, the banks are paying the vendors and charging the careless card owner a $50.00 maximum fee. The banks are also paying millions to insure deposits up to $250,000, as mandated by the federal government. They are now tightening their credit policies to make sure that another housing crisis doesn’t occur. And what happens, they receive criticism for doing their job and helping to protect the American public from another crisis. Now Congress has passed major new legislation to control banks and add major regulation burdens that will limit their profits to shareholders and their ability to better serve the American public. We will all pay the price!
Posted by Paul St.Clair on December 12th, 2009 9:13 AM

I can only assume that that last post is a joke.
Posted by Danny on December 12th, 2009 12:00 PM

Danny, I totally agree with everything you've said....also, my personal opinion is that the banks/lenders are making so much money in other ways, (ie overdraft fees, overlimit fees, etc) that they are just not going to break a sweat to approve a home loan. Why should they? It's too much trouble for them!!!
Posted by Susie on December 15th, 2009 2:28 PM


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