Mortgage Refinancing or Foreclosure and Bankruptcy?

Posted by admin on October 18th, 2007 at 11:19pm

Here is a great article that really helps people understand what went wrong with the real estate and mortgage industry. It also highlights various situations that occurred as a result of predatory lending which has ultimately led to scores of homeowners flocking to a bankruptcy attorney for relief.

Lenders can’t shovel all the blame on borrowers
UNION-TRIBUNE
Dean Calbreath

In recent weeks, the mortgage industry has put out the word that it is shocked, simply shocked at the amount of fraud involved in home loans.

“People are deceiving lenders at an alarming rate,” said Jonathan Kempner, who heads the Mortgage Bankers Association.

…But how innocent is the mortgage industry? Were lenders, as Kempner said, “the principal victims of mortgage fraud”? Or did the industry, with its lax standards, create an atmosphere in which fraud became pervasive? And did some mortgage firms aid and abet the fraud?

“(The mortgage lenders) knew the bad credit quality of the loans being originated, they took their profits, and now the ship sinks,” said Bob Simpson, president of Investors Mortgage Asset Recovery Co. in Irvine. “They will all walk away rich. And we are left with neighborhoods full of foreclosures.”

Simpson, whose company investigates mortgage insurance claims, said he has found that many mortgage brokers encouraged borrowers to overstate their income to qualify for high-priced mortgages. He tells of how a mortgage broker told one of his employees he could qualify for a modest home loan based on his salary.

“But if that loan’s not enough for you, we’ll use stated income,” the broker said. “Stated income” is the industry buzzword for estimating a borrower’s salary. That, in many cases, means lying about what you make.

…Simpson can’t believe the mortgage firms were unaware of what was going on. “How can you look at a loan application saying that some part-time manicurist working out of her home is making $7,500 a month without being a little suspicious?” he asked.

Mark Miller, a bankruptcy attorney in San Diego, said some brokers wrote “backward loans.” If a house was priced at $500,000, for instance, the broker would calculate what kind of income would be necessary for a $500,000 loan and then pencil that into the application.

…Miller said that in one bankruptcy case he’s handling, the borrowers never saw any of the actual loan documents for their home and were not present when the documents were stamped by a notary public. “The mortgage guy told them, ‘Don’t worry. I’ve got a notary I deal with,’ who happened to be a relative,” Miller said.

The borrowers thought they were signing up for a fixed-rate loan at 7 percent interest. Instead they got an adjustable-rate loan that has since ballooned to 14 percent, driving them into bankruptcy.

…In at least one case, the broker took it upon himself to adjust the income. The broker sent a loan application saying the borrower was making $2,500 a month, but it was rejected by the lender. So the broker allegedly changed the income to $8,000 a month. The loan went through, but the borrower could not make the payments because he wasn’t making $8,000 a month.

Such cases are rare, of course. There are plenty of honest mortgage brokers out there – including my own.

Even so, the mortgage industry bears some responsibility for the proliferation of fraud. During the boom years of the real estate market, the industry put much of its emphasis on generating loans that required no documentation for income and no down payments. That was an invitation to fraud.

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Under bankruptcy attorney+ mortgage refinancing