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Old 07-20-2008, 09:43 AM
Location: West Michigan
654 posts, read 3,158,774 times
Reputation: 568


I think buying a house with cash is a great idea. With that, you can bypass the mortgage companies altogether and dont have to worry about submitting a book of financial and personal documents to a lender, or having to deal with a lender period. Only thing you would have to show is proof that you have the funds in the account. Makes closing dates much faster and alot easier.

With that said, with the cost of many homes now, it can take a very long time to save up say $100K for a decent home. My current home is a fixer upper and its not in that bad of shape at all, along with 2 acres so I came across a decent deal on it. I am believing that for my next property that it will be paid cash. With that in mind I don't even need a credit score or even worry about it.
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Old 07-20-2008, 09:55 AM
Location: Sitting on a bar stool. Guinness in hand.
4,429 posts, read 5,802,480 times
Reputation: 1708
Default Confessions of a Subprime Lender: 3 Bad Loans

Confessions-of-a-Subprime-Lender-3-Bad-Loans: Personal Finance News from Yahoo! Finance (http://finance.yahoo.com/loans/article/105406/Confessions-of-a-Subprime-Lender-3-Bad-Loans - broken link)

one of bitner's last clients, which he says was turning point for him, was johnny cutter and his wife patti, from south carolina. The deal illustrated what had become the fundamental problem with subprime lending: Nobody was bothering to determine whether borrowers could actually afford to make their payments. And so the cutters, like millions of others, became a foreclosure waiting to happen.

"what really got to me," said bitner, "is that we [usually] put people in positions to not fail. This loan didn't fit that."

the cutters wanted a loan to buy a newly built, 1,800 square-foot house, but had been turned down for a mortgage twice because of bad credit. After that, they scrimped for three years and saved enough for a 5% down payment.

But, they still had only $2,200 in combined net monthly income, poor credit and employment histories, almost zero savings and no history of even paying rent. Their mortgage payment, property taxes and insurance came to $1,500, leaving them just $700 a month for all other expenses.

Patti fell ill right after the closing and the couple never made a single payment. Since the cutters defaulted immediately, kellner mortgage was contractually obligated to buy the loan back from the investor it was sold to. That was a huge expense for the small lender.

When bitner reviewed the loan to find out where his company went wrong he was shocked to see that, technically, no mistakes were made.

Neither the borrower nor the mortgage broker did anything dishonest or fraudulent to obtain the loan. The home's appraised value was correct, and the income stated on the application was accurate.

But the fact was that the cutters simply didn't have enough income to handle this mortgage - the loan never would have been approved a few years earlier.

Their debt-to-income ratio was 54%, way higher than the 36% that most mortgage lenders recommend. But kellner mortgage made the loan because the firm knew that loose investor guidelines meant that the mortgage could be resold, at a profit of course.

"we were ultimately driven by the investor guidelines," said bitner. "if it fit we closed the loan. It was an indication of how far the industry was willing to go."

in the end, the cutter deal cost kellner mortgage $90,000.

a criminal crew found a house, bought it for $140,000, and then resold it to a straw buyer for way more than it was worth - $220,000. To get a mortgage, the buyer used an appraisal for an entirely different, and much more valuable, property.

"the broker, buyer, appraiser, and realtor all conspired to perpetrate this fraud," said bitner. Indeed, just about all the documentation was falsified.

The group collected the $220,000, and, minus their $140,000 outlay, disappeared with $80,000.

Kellner mortgage wasn't aware of any problem until the investor that bought the loan set about investigating when it went unpaid. The investor sent kellner a letter detailing the ruse and demanding that bitner's firm make good on the loan.

Said bitner, "you read through this letter and you see that the income statement was phony and the appraisal was on another house and you say to yourself, 'am i a moron?'"

that cost the company about $100,000.

of course, brokers dying to make deals also played a big role in pushing bad loans. Often they withheld or misrepresented information lenders needed to accurately assess a loan's risk.

"with so much money involved, people were willing to fudge to make deals work," bitner said.

The robinson's broker was a perfect example. The couple, who were divorcing, wanted to refinance their home, which had increased in value, and to take out $25,000 of that added home equity as cash. The plan was that mrs. Robinson would keep the house and mr. Robinson would get the cash.

Although the robinson's told their broker about their split, the broker chose to not inform kellner mortgage of that detail, which would have been a deal breaker. Mrs. Robinson could never qualify for the mortgage based on her income alone, and indeed she defaulted soon after the loan went through, costing bitner's company $75,000.
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Old 07-20-2008, 12:34 PM
Location: Jonquil City (aka Smyrna) Georgia- by Atlanta
16,248 posts, read 21,876,353 times
Reputation: 3587
Originally Posted by 70Ford View Post
Fed prohibits subprime 'liar's loans'

Horse, meet Mr. Barn Door.
I agee. Should have been done years ago.
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