Avoiding Predators. Even those with good intentions.

What do I mean by ” Predators ”  No doubt you have heard the mainstream media sources, ignorant and/or demagogic politicians speak regarding predatory lending practices.  Full disclosure:  I abhore such practices from anyone and in any industry.  Come this November, I will cross 31 years in my industry and in all honesty, I have only met  two persons I would classify in this category.  Call me naive, but the vast majority of the countless 100’s of people I have worked with, trained or affiliated with were by far good and decent people.   Before you scream, I too am most familiar with the term ” SubPrime Mortgage”.  This was in reality a seven year phenomena at most.  The industry has always had an outlet for the lesser qualified applicant and hard to place loan.  They are known as hard money loans.  These sources by there nature would charge premium rates for the added risk they assumed and to both the vulnerable as well as non-vulnerable, howver these clients had no other avenues and knew what they would receive.  In most cases, you would be hard pressed to finance more than 70% of value.  Not so risky from the lender’s perspective as we see today.  As an eyewitness to these events I can state that at the behest of Congress, Fed chairs, Lobbyists etc, in the late 90’s  it was determined as a business/social policy that every American had a right to a home and an attendant mortgage.  Thus was Subprime born.  By design they gave a decent rate for a two year period, presumably to allow for the cleaning of credit, job promotion, raise etc.  At this point the geniuses felt that a refinance could be attained.  As indeed it should as the client faced the potential adjustment into the 10-12% range rendering the property unaffordable.  I suppose a more compassionate writer might cry boo hoo, but as for yours truly, I recall my first note carried a 12.5% rate and I knew the details.  Time for us to grow up.  In fact I almost had to seek a new career as I watched rates trend upto the 20% range for a period.    The problem occured when the product developers failed to take history into account. Even your humble writer knows all to well that since home values have been monitored ( approx 100 years )  the average annual increase has floated between 3-5%.  You need not be a mathematician to know that the equity buildup to allow for the refinance two years hence would be impossible especially when you begin with 100% financing as in most of these cases. ”  Who cares said Dr. Greenspan.  I will keep the easy money flowing until I retire or until I am forced to raise rates.  Hopefully the debacle will occur on someone else’s watch.  Oops forgot I may have to hike rates.  I shall now lobby the Banks to offer 1% easy payment loans, thus insuring negative am and my successor will really be in the stew. Boy am I smart. So smart some lunatic publisher gave me $10 mil to write a book. ”  My friends we should be so lucky for being so inept.  Back to Dr. Greenspan.  ”  We will keep printing and dispensing money and more people will buy and values will rise forever.  The Banks and builders and of course realtors loved this.  We can always find someone on a street corner and get them into a home or put our family members in bigger homes.  No need to qualify them.  And best yet, we all get commissions.  As long as the easy money flowed, they were willing to put anyone into a home regardless of the capability of the person.   They, to their dismay, thought it would never end.  I guess they forgot  the ” Tulip Mania ” in Holland in the 17th century with bulbs selling for thousands in a bubble of bubbles.   I can only surmise, it was a form of ” Mob Psychology ” We all know the results.  The predators I name today are these same shameless sharks only now they promise to modify that stinker loan or help repair you credit.  My bottom line to you all, now more than ever, run fom these types,  seek hard for reputable professionals in any endeavor you may need and best to you all.

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3 responses to “Avoiding Predators. Even those with good intentions.

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