The Funding Source Syracuse

The Funding Source Syracuse

Saturday, December 13, 2014

Bank fund pay outs

Tuesday, December 2, 2014

Looser lending misrepresented by press

It's all over google, yahoo and other search engines.  Banks are loosening up lending and that will make getting a mortgage easier.  Pundits are stating the doors are now opening up for individuals who otherwise would be denied a loan.

But, after the housing crash and the accusations of mortgage misdeeds - demanding that lenders know who they are lending money to - how could this occur?

In actuality, it really is about the documentation.  Not the standards of underwriting such as credit scores, how long you're employed or how much you're trying to borrow.

Lenders have gotten into lawsuits with each other and with national agencies such as HUD, Fannie Mae and Freddie Mac demanding what is called a "put back".  A "put back", in mortgage parlance, is when a national agency like HUD or a lender who bought a loan from another lender "puts the loan back" to the original lender.

Say you went to a bank and got a mortgage.  Your loan probably was sold once or more times since you received the initial loan.  That's normal in the industry - it keeps the cash flowing for more borrowers to get more loans.

But, lets' say you miss one or two payments.  You had severe medical bills, you were out of the country, whatever the reason - it is not important.  What happens?  As far as you're concerned, you get late payments (which you do not want) on your credit reported on your mortgage payment history.

However, behind the scenes, the action unfolds.  Someone somewhere is tasked with going through your loan and looking at every single document that you provided and that you signed.   The intention is to determine one of four things:  1. You signed something incorrectly (a mistake by your original lender) with the wrong date or the wrong information on the disclosure.  2. You lied and are a fraud.  3.  The Underwriter made a mistake and improperly underwrote your loan to the proper guidelines.  Or 4.  There is some paper that has some error or something missing.

The employee who finds this gets a big slap on the back and the company then sends a demand letter to the bank that originally gave you the loan saying "We're sending the loan back to you ("put back") and you need to wire us the money for the loan ASAP or we are going to sue you"

For cases like egregious underwriting errors or fraud, this is common practice

But, this practice was abused by many major banks who kicked loans back and forth to one another and abused by agencies who did not want to insure loans to banks.  They looked for simple, tiny, errors that they could use as an excuse to trigger the "put back" or "buy back" clause

After much discussion in Washington, there was an agreement that limits this practice.  Because, typically, if an Agency like HUD, Fannie, Freddie or the VA refuse to insure a loan -you can bet that every bank between San Fran and Miami start kicking the loan back and putting it back - because none of them want an uninsured loan.

So, the agencies have come to an agreement to limit the demands to egregious issues and not to smaller items that do not materially change the fundamental quality of the original loans.

This does not translate to easing of credit.

This translates to less lawsuits from "put backs"

After all, if the government is going to legislate to a lender that they can only lend you what you can afford - (google "ability to repay") - do not thing for one second that they just loosened lending up like it was 2002 all over again