Texture of the Credit Crunch, Not So Good

As a mortgage broker I can tell you that the past several years have been bludgeoned with careless and inappropriate lending. It's no surprise to me that large well known banks are suffering huge losses as a result of bad mortgages turning sour. Whatever you do, do not feel sorry for them. Everyone from WAMU a.k.a. Long Beach Mortgage, Countrywide, Chase, and a slew of companies you've never heard of all flooded mortgage brokers with short skirt account reps pushing crazy ideas like a 580 credit score mortgage with no money down and no real income verification. Are you kidding me?

Good lord. Lets see. You're a substitute teacher with marginal credit, lets say a 599 credit score and we just approved you for a mortgage loan of $150,000 and you put no money down. Here in Texas that's a monthly payment of at least $1500 with taxes and insurance included. Per salary.com a substitute teacher averages $18,000 per year. Holy cow! That's $1500 per month. How on earth would anyone think that loan makes sense? Maybe this person isn't going to eat, drink or have modern utilities in their home. NOT!

Before we smear these giants to pieces here I would like to praise them for the products that did make sense. The ones that Fannie Mae and Freddie Mac were reluctant to lend to such as the small business owner who grosses $500,000 per year but has a bottom line of $50,000. With a decent credit score of at least 680 you could get the ever popular 80/20 loan and purchase that new home with little our no money out of pocket.

The aftermath of all of it has left a bad taste in the mouths of many who rely on real estate as a career. Folks that were top producers a few years ago are now looking for part time work. Realtors and loan officers across the country are trading in there Jaguars and Mercedes for late model Lincolns and Chevy's.

I can remember back in 1996 when Bank United unveiled the 20% down minimum credit score of 680 no income verification mortgage. Why wouldn't they? The credit score says they borrower is somewhat creditworthy and the down payment alone should be enough to make the bank feel secure.

Right here, right now at the tail end of 2008 banks are still lending money. Lots and lots of it. The media will tell you that no one can get a mortgage these days and that's just not the case. Of course the guidelines have tightened up as they should have. Appraisals are being reviewed to ensure value and regardless of who you are you must verify both your income and your assets. We hope to at some point get back a few of the lower LTV products such as the aforementioned Bank United product.

Put yourself in the banks shoes and ask this one question that the Wall Street greed fiends obviously didn't. If it were your money, would you lend it?