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**labasta** · February 03, 2010, 08:44 AM

Re: Government-backed liar loans

Originally posted by FRED View Post

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Government-backed liar loans

At least one good thing came out of the housing fiasco. We�ll never have to clean up after another mess made by mortgage brokers selling liar loans to borrowers who can�t afford to repay.

No more exploitation of the dreams of new entrants to the middle class, built on the fantasy that they can afford a home that sports a price that has been inflated by decades of government loan subsidies.

No more Fed buying blown up asset-backed securities that backed bogus sub-prime mortgages to rescue banks that should be allowed to fail.

That�s all behind us. We learned our lesson! The government will prohibit these kinds of loans, prosecute violators, and never allow this mistake to happen, again.

Wait. What?

Under new The Making Homes Affordable Again to People Who Can�t Afford Them program the government is now not only allowing liar loans, it�s backing them with your tax dollars.

Perfectly said.

I think this is going to be a long drawn-out, very tough depression in the years ahead if this keeps up the way it is. They need to take the bull by the horns and end it. Simple as. It's like lancing a growing infection. It'll make an immediate mess, but at least healing will start to take place.

It's not just the US. Here in Ireland the government have bought loans from the banks way above true market value in a vain attempt to keep the same system in place. Zombie banks means a long drawn-out depression in the years ahead doesn't it? I'm now thinking perhaps more Japanese for Ireland than American although there seems to be traits from both.

This is a true test for the Euro. I wonder if it will fail.

**flintlock** · February 03, 2010, 09:47 AM

Re: Government-backed liar loans

I have no problem with liar loans. Just make the make the bank that loans the money eat it, not the taxpayer. Prosecute the scumbags that securitize this crap and sell it as AAA rated for fraud. Then we wouldn't see any more liar loans now would we? The laws are on the books. We just don't enforce them. Our system for controlling fraud at high levels is corrupt. Until that is fixed, nothing will change.

**CanuckinTX** · February 03, 2010, 01:30 PM

Re: Government-backed liar loans

It's funny that the Stamp in the picture is from Austin. Austin has been one of the least hit housing markets in the country.

Maybe because we spend all our money on Opium and Coca leaves? ;)

**FRED** · February 03, 2010, 02:26 PM

Re: Government-backed liar loans

Originally posted by CanuckinTX View Post

It's funny that the Stamp in the picture is from Austin. Austin has been one of the least hit housing markets in the country.

Maybe because we spend all our money on Opium and Coca leaves? ;)

That's from EJ's uncle Herbert Janszen who was a doctor in Austin. We scanned it and plan to use is in the new iTulip site we're working on in the section on debt, the other opiate.

**cindykimlisa** · February 03, 2010, 03:03 PM

Re: Government-backed liar loans

Originally posted by FRED View Post

Government-backed liar loans

At least one good thing came out of the housing fiasco. We�ll never have to clean up after another mess made by mortgage brokers selling liar loans to borrowers who can�t afford to repay.

No more exploitation of the dreams of new entrants to the middle class, built on the fantasy that they can afford a home that sports a price that has been inflated by decades of government loan subsidies.

No more Fed buying blown up asset-backed securities that backed bogus sub-prime mortgages to rescue banks that should be allowed to fail.

That�s all behind us. We learned our lesson! The government will prohibit these kinds of loans, prosecute violators, and never allow this mistake to happen, again.

Wait. What?

Under new The Making Homes Affordable Again to People Who Can�t Afford Them program the government is now not only allowing liar loans, it�s backing them with your tax dollars.

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Today, I placed a call to the number in the letter and asked a few straightforward questions with regard to the letter. First, I found out this is for their customers only - you already must have mortgage with them. The main intent seems to be for helping homeowners keep their home: if they have a high interest rate, then they could be able to get a lower interest rate using this process.

There was also a lack of complete clarity for me about the 125%. Seems like it is 105% on a first and 125% on a combiined first and second.

On the surface this seems to be "here we go again" and yet with a little investigation it seems to me to be someone's attempt to actually do something for homeowners in trouble. If I owned home with a 7.5% mortgage with a $200,000 balance that was worth $190,000 and I could use this process to take out my $200,000 mortgage with a new $200,000 loan at 5% then I think that makes sense for everyone except 5th Third in this case - Therefore I suspect this program might be part of a process to get Fifth Third (and mortgagees) on board doing what we have all complained that noboody is doing and that is helping some of the people keep their homes. BTW I know it is 42 Billion ways this could be abused theoretically.

Furthermore, I suggest someone from itulip call them and get an update on the parameters of this type of transaction and publish it here.

Cindy

**CanuckinTX** · February 03, 2010, 03:51 PM

Re: Government-backed liar loans

I think you're missing the point Cindy. How is this responsible banking? NO appraisal, NO income or asset verification, NO credit score required!

So rather than determining if this person should even OWN their home, or try to keep it, they're more than happy to let the owners leverage up at a lower interest rate in the hopes that maybe they can salvage the home. Fifth Third doesn't give a hoot, the government is going to take this mortgage off of their hands anyway, which means you and I are going to be on the hook.

Let me put it this way, if you were the sole taxpayer responsible to backstop one of these newly refinanced mortgages, would you be ok with them not doing a credit check, income or employment verification? And if as you suggest this letter doesn't really mean what it says, then why do they send it out to people in such enticing terms? The only fish they're going to get to bite are probably the people who are the least qualified to keep their homes.

**Chief Tomahawk** · February 03, 2010, 04:20 PM

Re: Government-backed liar loans

Originally posted by FRED View Post

That's from EJ's uncle Herbert Janszen who was a doctor in Austin. We scanned it and plan to use is in the new iTulip site we're working on in the section on debt, the other opiate.

New site?! Will the "Top Investors" idea of mock portfolio investing return? Seems like just yesterday that was on the list to get fixed. Been waiting just a little while for that.

That said, will a new round of liar loan activity even catch on? One has to figure those who've defaulted have credit scores too poor to participate in debt overdose try #2. Plus, there are the educated who walk among us who know we're on the downside of a bubble bust. That basically leaves new college grads looking to scoop up real-world frat houses. If they do the MCI-WorldCom accounting fraud (move their tuition debt over to the asset side of the ledger), presumably they'd qualify, right?

:eek::mad:

**Thailandnotes** · February 03, 2010, 05:45 PM

Re: Government-backed liar loans

By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040…

Since the beginning of December, I’ve advised 60 people to walk away,” said Steve Walsh, a mortgage broker in Scottsdale, Ariz. “Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.”

Mr. Walsh is taking his own advice, recently defaulting on a rental property he owns. “The sun will come up tomorrow,” he said…

a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call “house arrest.”

http://www.nytimes.com/2010/02/03/business/03walk.html

**Kimmons** · February 03, 2010, 10:04 PM

Re: Government-backed liar loans

It's all part of the HAMP program...only 1 in 10 temporary modifications has been made permanent. The letter you received is only for Freddie Mac serviced loans, they require very little documentation, but here's the clincher, they only allow about $2500 rolled into the loan, the rest of the closing costs have to come out of pocket

, which could be challenging if one was having trouble making your payments in the first place.

The Fannie serviced loans require full income and asset documentation, but you can roll the closing costs into the loan. They both go to 125% LTV. The lenders who currently service the loans, are often the only ones who can do the modifications.

IMHO, this is just another way for the banksters to collect $$$ from people who would otherwise not be paying at all, on there upside down houses. They really don't want the houses back, do they.

**cindykimlisa** · February 03, 2010, 11:04 PM

Re: Government-backed liar loans

Originally posted by CanuckinTX View Post

I think you're missing the point Cindy. How is this responsible banking? NO appraisal, NO income or asset verification, NO credit score required!

So rather than determining if this person should even OWN their home, or try to keep it, they're more than happy to let the owners leverage up at a lower interest rate in the hopes that maybe they can salvage the home. Fifth Third doesn't give a hoot, the government is going to take this mortgage off of their hands anyway, which means you and I are going to be on the hook.

Let me put it this way, if you were the sole taxpayer responsible to backstop one of these newly refinanced mortgages, would you be ok with them not doing a credit check, income or employment verification? And if as you suggest this letter doesn't really mean what it says, then why do they send it out to people in such enticing terms? The only fish they're going to get to bite are probably the people who are the least qualified to keep their homes.

I am not missing the point at all. Read the letter carefully - it says they have already done an "initial review" - This is to an existing customer - what did they review before they sent this to their customer? As I said this is a "refinance" for an existing customer not a new loan for new customers. Think about it: this letter was sent to a Doctor. Hmmmmm. Do you really believe everybody passed the "initial review." Like Fred you have assumed a lot or are reading a lot into this which may or may not be correct.

To use your example about being the backstop. I would likely do the deal because I likely already am looking down the barrel of a mortgage potentially going into default at say 7.5%. It is likely I have pulled a credit report - it does not say they have not already done this in the letter and I suspect this was part of the 5th Third analysis before they sent the letter - they may have looked at the real estate tax assessment on the house also as a prelimanary. During the preliminary assessment on the people they could have easily ascertained if they were still employed still employed and they know what is going on the mortgagte and with other payments. I think therefore I would have a better shot at the new deal than the existing deal.

In my opinion Fred missed the point by not doing a more careful investigation into the terms of this letter. The way I read it and understand it it only relates to current mortgagors of Fifth Third.

If it were for new loans to new customers then I believe Fred's comments would be on target.

Cindy

**Milton Kuo** · February 04, 2010, 01:07 AM

Re: Government-backed liar loans

Originally posted by cindykimlisa View Post

I am not missing the point at all. Read the letter carefully - it says they have already done an "initial review" - This is to an existing customer - what did they review before they sent this to their customer? As I said this is a "refinance" for an existing customer not a new loan for new customers.

The use of the phrase "initial review" looks to be boilerplate text, in my eye. Being as reckless as they were, it seems highly doubtful these banks are suddenly doing the meticulous due diligence required to evaluate all of the crummy loans they've made over the past years. This is just my opinion, of course, but I am highly doubtful that the banks have all of a sudden become diligent, much less competent -- especially since the federal government is going to eat the losses on this.

Think about it: this letter was sent to a Doctor. Hmmmmm. Do you really believe everybody passed the "initial review." Like Fred you have assumed a lot or are reading a lot into this which may or may not be correct.

The only mention of a doctor I have seen in this thread is when it was stated that the green postcard was originally addressed, during the Great Depression, to EJ's uncle. I have not seen anything to suggest that the letter from Fifth Third was originally addressed to a doctor. Depending upon the fees charged by Fifth Third for doing a refi, I can easily see the majority of their junk mortgages getting this letter.

To use your example about being the backstop. I would likely do the deal because I likely already am looking down the barrel of a mortgage potentially going into default at say 7.5%.

The person who is paying 7.5% on an underwater mortgage is, in all likelihood, a bad credit risk. A buyer who was a good credit risk during the housing bubble could have easily gotten a 30-year, fixed-rate mortgage at 6% or less. A buyer who bought before the bubble may have a higher-rate mortgage but should not be upside-down on his mortgage unless a HELOC was opened in which case the buyer is a fool and a bad credit risk.

It is likely I have pulled a credit report - it does not say they have not already done this in the letter and I suspect this was part of the 5th Third analysis before they sent the letter - they may have looked at the real estate tax assessment on the house also as a prelimanary. During the preliminary assessment on the people they could have easily ascertained if they were still employed still employed and they know what is going on the mortgagte and with other payments. I think therefore I would have a better shot at the new deal than the existing deal.

Does a real estate tax assessment provide insight into a person's employment status? If the original loan was a NINJA loan (likely being that Fifth Third is offering a NINJA refi), there is absolutely no record of the borrower's income or assets. A 125% LTV NINJA refi of a NINJA loan sounds like a sure-fire way of losing money....

In my opinion Fred missed the point by not doing a more careful investigation into the terms of this letter. The way I read it and understand it it only relates to current mortgagors of Fifth Third.

I also get the impression that the refis are for borrowers who currently have mortgages with Fifth Third. However, it still doesn't change the fact that the terms of the refi are very loosey-goosey and, in my opinion (and FRED's, too, if I understand his posts correctly), are very likely to cause the government to lose money.

**ThePythonicCow** · February 04, 2010, 01:58 AM

Re: Government-backed liar loans

Originally posted by Milton Kuo View Post

The use of the phrase "initial review" looks to be boilerplate text, in my eye. Being as reckless as they were, it seems highly doubtful these banks are suddenly doing the meticulous due diligence required to evaluate all of the crummy loans they've made over the past years.

I tend to agree that this is a relatively unfiltered solicitation to existing home mortgage customers of Fifth Third. There are more details on this program at the Fifth Third web site https://www.53.com/wps/portal/conten...ding/Mortgage/ Anyone who could find that web page could start the application process just as someone receiving that mailer. Qualification requirements include:

1. Is your first mortgage currently with Fifth Third?
2. Is this mortgage on your primary residence?
3. Are you current on your mortgage payments?
4. Do you believe that the amount you owe on your first mortgage is at or below 125% loan-to-value ratio?

On the other hand however, there seems to be many more instances of mortgages being reviewed for the Federal program than there are of mortgages actually being refinanced for any significant gain to the borrower.

**cindykimlisa** · February 04, 2010, 04:27 PM

Re: Government-backed liar loans

Originally posted by Milton Kuo View Post

The use of the phrase "initial review" looks to be boilerplate text, in my eye. Being as reckless as they were, it seems highly doubtful these banks are suddenly doing the meticulous due diligence required to evaluate all of the crummy loans they've made over the past years. This is just my opinion, of course, but I am highly doubtful that the banks have all of a sudden become diligent, much less competent -- especially since the federal government is going to eat the losses on this.

The only mention of a doctor I have seen in this thread is when it was stated that the green postcard was originally addressed, during the Great Depression, to EJ's uncle. I have not seen anything to suggest that the letter from Fifth Third was originally addressed to a doctor. Depending upon the fees charged by Fifth Third for doing a refi, I can easily see the majority of their junk mortgages getting this letter.

The person who is paying 7.5% on an underwater mortgage is, in all likelihood, a bad credit risk. A buyer who was a good credit risk during the housing bubble could have easily gotten a 30-year, fixed-rate mortgage at 6% or less. A buyer who bought before the bubble may have a higher-rate mortgage but should not be upside-down on his mortgage unless a HELOC was opened in which case the buyer is a fool and a bad credit risk.

Does a real estate tax assessment provide insight into a person's employment status? If the original loan was a NINJA loan (likely being that Fifth Third is offering a NINJA refi), there is absolutely no record of the borrower's income or assets. A 125% LTV NINJA refi of a NINJA loan sounds like a sure-fire way of losing money....

I also get the impression that the refis are for borrowers who currently have mortgages with Fifth Third. However, it still doesn't change the fact that the terms of the refi are very loosey-goosey and, in my opinion (and FRED's, too, if I understand his posts correctly), are very likely to cause the government to lose money.

Sorry Milton, You're doing the same things as Fred in your opening paragraph when you say " looks to be boilerplate." You are making some big assumptions that may not be true. What is boilerplate? Also, Have you heard on itullip and elsewhere that Banks are not making loans because they have severly tightened up their underwriting so that is just the opposite of what you are assuming - Believe me and many others - banks are a lot more diligent now, You missed the point.

Your third paragraph is full of your own presuppositions which are in fact incorrect as they do not relate to everyone. Not everyone as you have spelled out is a credit risk.

A real estate tax assessment doe not provide employment data. But a credit report may or a call to the employmment office will.

I think your post is the best example of why someone from itulip needs to call these folks and find out the real deal and report it here. If you take a step back and read your post you will see how many negative assumptions you have made - assuming (ideally - your ideal) that this is about something negative the bankers are doing. You are buying in to Fred's herd mentality. I am not. I made a call for myself and found a few things different than what I may have assumed to be true by reading only this post and making assumptions. I suggest you do the same.

This plan might actually do some good for some borrowers.

Cindy

**CanuckinTX** · February 04, 2010, 05:34 PM

Re: Government-backed liar loans

On the other hand Cindy, you're making positive assumptions on behalf of 5th 3rd that they've PROBABLY done a credit and employment verification already. It doesn't say that anywhere here or on their website.

So I agree everyone is making assumptions but based on the history of banks I'm still pretty confident this is a profit making deal for the bank in some way shape or form, regardless of the potential risk they're taking on.

And I don't need to call them because I'm really not that interested in getting more details. Fred's point still rings true to me though:

"No more Fed buying blown up asset-backed securities that backed bogus sub-prime mortgages to rescue banks that should be allowed to fail.

Wait. What?"

I would have felt much better about this marketing ploy had they said you can refi subject to your credit and employment history being acceptable. Only those without acceptable credit or employment verification would quibble with that and that would demonstrate to me a bank showing more diligence.

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