Welcome Jenn the Seller!

I just wanted to take a minute to thank Jenn the Seller for agreeing to bare her soul to us with regards to the short sale process with Bank of America.

What Jenn has described in her post is so very common. I am a mortgage professional and I cannot tell you how many times I have seen a loan officer trying to pound a square peg into a round hole. Likely because they will get "three points back". (Wondering what "three points back" means?) Three points back means that the loan officer will receive a yield spread premium from the investor on your loan in addition to the up front fees that they are charging you. Rebate. Consider it a referral fee for them bringing you to the investor.

In my market I used to have loan officers ask me what the rates that day were. When I asked them which rate they wanted to know about they would say "whatever gets me three points back." I also think there is a high profile sports car roaming around our city with the license plate to that effect. 3PTSBCK . Maybe I am wrong. Maybe his car has since been repossessed. I can only hope.

What Jenn the Seller has described about a loan officer trying to place them in an option arm is a very real part of our mortgage crisis and in fact does continue to happen even right now. How is that, you wonder? How can that continue to happen when the mortgage industry has been purged of these "exotic" loan products?

The truth is- there are still a number of loan officers out there that feel that every single borrower is entitled to a home loan. That means that right now there are still loan officers that are more about the almighty dollar than doing the right thing. Sometimes instead of telling a borrower they can get a loan right this minute what they should be telling their borrowers to do is to pay down some of their debt. Then save some money for a rainy day. Write a budget. Take a homebuying class. Come back in twelve months and let's see how far you've come.

That is NOT what is happening, folks. Right now there are still people in the mortgage industry that have refused to embrace that not EVERYONE is entitled to a home loan. So they are trying hard to pound those square pegs into round holes. They are taking borrowers who have no money in the bank (as in, they live paycheck to paycheck with nothing left over), borrowers who need gift funds just to close their loan, borrowers who need to add family members just to qualify for the loan- and they are trying to tell us that these borrowers are completely ready to own homes.

Just a few questions. Will the brother from out of state really pay the payment every single month if the borrower can't do it all by themself? What if the borrower's car breaks down and they need to spend $2500 on a transmission? Where will that money come from? Great Uncle Sal that "gifted" them the money for the down payment with no expectation for repayment? Is it just me or are my relatives all misers? I don't have one single relative that I could go to right now and say, hey, I need five grand for my down payment on my house. Think you can just give it to me? I'll never be able to give it back.

The truth is- you have to know when gift funds are involved that there is some sort of unspoken agreement that the funds will eventually be repaid to the donor. (Even though all parties sign this gift letter saying the funds are not expected to be repaid). The other thing is- even on paper when a borrower seems to make enough money to make the payment (hey, Desktop Underwriter said it was approve/eligible!) do they REALLY have the ability to make that payment?

I am not a mortgage underwriter but I am a mortgage professional. If you look at every file with pessimism you will no doubt see how every borrower could potentially default. That's not what I am saying we should do. But what I am saying we should do is have a few more tough conversations with people. What good does it do to get a homeowner into their dream home if they won't be able to stay there?

You see, what happened to Jenn the Seller could have been completely prevented. If they were able to stick around that $160k mark for their dream home that they originally planned they might have been able to stay in it. Instead they believed in their mortgage professional telling them they qualified. Qualifying and actually being able to make the ends meet really are two different things.

It has been a real eye opener to us to have to go through the homebuying experience in this market. You see, almost five years ago when we bought our home we were told we had to go stated income. He told us that even though we made enough money full doc that their full doc program limited them to a 45% debt ratio. We were 46%. Instead, we could state our income and go up to a 50% debt ratio.

What? I argued and argued and argued with him. I disagreed wholeheartedly that on a full doc loan we would not be able to obtain an exception for a 1% debt ratio variance. I lost. He was persistent enough to tell me that if I did not agree with the stated income loan we would have NO loan. We wanted the home bad enough, so we did the loan stated income. For the record, we did not lie about our income. We stated exactly what we made on our full doc income- but the difference was that because a stated income loan allowed us to go to 50% we were fine with our 46% ratio.

So are you wondering what difference this makes? It meant that our interest rate was higher. Not only that, but instead of qualifying for a fixed rate 2nd mortgage we had to obtain a heloc. Within our first three payments on the house our heloc payment went from $300 a month to over $1000 a month. This was for our second mortgage only! Now get this- those payments that increased by over $700 a month did not even cover our minimum payment. If we paid only that amount we were actually adding on to our principal each month. We had to pay $1200 a month just to stay at our principal balance.

Are you sitting there in shock? Yeah. We were too. Already for us our payment had tripled from our starter home. Ever hear of something called "payment shock"? Well, we had it. Payment shock is where you take on a payment that is substantially higher than anything you have ever paid before in your life. They call it payment shock for a reason. We were pretty blessed and were able to afford our home even with the payment shock and the heloc increase. But we were also mortgage professionals and knew that we couldn't sustain that forever. We put in a swimming pool, had our home appraised, and refinanced out of those loans just twelve months after we got into them.

And we thank our lucky stars every single day for it- because just two months later the decline began. We never would have had the equity to refinance our home and would be coming up on our first arm adjustment next month. Fortunately for us we are in a fixed rate thirty year loan now. No surprises. We can budget and know exactly how much our payment will be. This year, and the year after that, and the year after that.

But can you imagine if we weren't so fortunate? Can you see how this has all happened? And how even though those exotic loans really aren't out there anymore that the problem has not gone away? Does this not disturb anyone? Or how about this, does this not disturb anyone enough to take responsibility for themselves? I was at a presentation but on by one of the mortgage insurance companies a few weeks ago and the comment was made- if we each take care of only one person this problem will resolve itself.

How true is that? I can only take care of my own integrity. I can only take care of my own honesty. I try hard to be the moral barometer of my company- and by doing so I know that I am doing the best that I can to help turn the tide of the mortgage industry. But this is also more widespread than just expecting mortgage professionals to be the only ones that are responsible for changing this. Who is going to teach the borrowers that although they may hear one thing from their mortgage lender they should still question whether that one thing is the right thing for them?

I am heartbroken for Jenn the Seller. She has been through so much in her life and having been blessed with her beautiful twins is likely bittersweet as they will have to uproot their children and move them. True, home is wherever you make it. I have no doubt that Jenn will make a beautiful home even if it is not their custom built home. But I am saddened that when they built that home it was within their reach and unfortunately they did not know enough to question their lender about how they were qualified. I am sad that they have to go through this experience at all. I know there are many more out there just like them and I wish I could do more to reach them all. I wish I could help educate more people. Answer more questions. Tell them what they are getting into. Be the realist that they need- as buying a home is such an emotional experience and quickly becomes irrational as well (I know this firsthand!).

The best I can do is blog. Tell all about my experience. Talk about what I think, what I know, what I suspect, and what I hope. Drop a line. Comment. Come back often. If I can reach but one more person through my blog then that is at least one more I can make a difference to.

And thank you East Side Jenn for helping show how this could happen to anyone.

Love, West Coast Jenn.