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Wednesday, September 2, 2009

The Truth About Fannie Mae and Freddie Mac from my perspective

More on what caused our financial crisis:

To those who do not know my background....I worked in the Title business for 12 yrs. I can assure you that this economic tsunami of housing foreclosures was not a surprise to anyone in the mortgage, title, or real estate industry. I can personally attest to the fact that a large number of loans that closed in our office should have never made it to the closing table. The relaxed and/or non-existent credit guidelines truly allowed for almost anyone to get a loan. Thus the name "liar loans."

Most buyers had no skin in the game (no down payment). Instead, the seller would raise the price of the home and participate in a "down payment assistance program" that provided the necessary 3% down pmt for the buyer or they would have an 80/20 loan that would also not require any down payment. Most loans were sub-prime and/or had adjustable rates as well as pre-payment penalties. If the customer tried to pay off the loan either through a sale or refinance within 2-5 yrs they would have to pay a substantial penalty. The majority of 80/20 loans had inflated interest rates 2-5 pts. above the going interest rate.

Many times I would ask the loan officers "how in the world could you get this customer approved?" They would respond: "This will at least get them into a house and I tell them to refinance in a couple of yrs to get a better rate." Well those couple of years have now passed for those customers and it is now impossible to refinance.  Their homes aren't worth what they owe and now the requirements are stricter to qualify.  So these homeowners that shouldn't have been approved for the loan in the first place, are stuck with these loans...or worse yet, have been or will soon be foreclosed on.

About 5 years ago, the company I worked for lost it's biggest builder's business.  At that time, I discussed marketing options with the President of our company. Our company primarily worked with Realtors and had very little business with lenders (refinance business mainly). I told him that it was my opinion that we needed to aggressively market the mortgage lender business as it was my prediction that the market would soon experience a mortgage implosion greater than the late 70's and 80's. I could foresee that the main sellers in the near future were going to be the mortgage companies. It was obvious they were going to be holding the majority of homes for sale as foreclosures would explode.

I was given the title of "Title Police" by my fellow co-workers. Whenever I saw obvious signs of loan fraud, I would sound the bells and blow the whistle. My co-workers would joke that they were going to give me a whistle to sound when I suspected a "fishy" loan. I do have to say that the company I worked for was very conservative and always stood behind their employees if they felt the loan didn't pass the "smell test".  They would encourage us to pass any information to our underwriter to review in order to determine if we should decline closing the transaction.  Every time we had clear concerns,  they supported our decision to not close the loan. Unfortunately, other title companies weren't as conservative and the loan would be moved down the road to close. Even worse, they would close these loans even after we would suggest that they take a close look at the file as there were concerns about the loan.

Attached,are some videos John McCain introduced in 2005 that show that the Bush Administration, Alan Greenspan and John McCain had also seen this coming and tried to reign in Fannie Mae and Freddie Mac. The most compelling video shows Barney Frank and other Democrats defending this mortgage fraud frenzy and touted how stable the mortgage industry was and how it had moved to put more people into homes than ever before (exactly..these were people that should have never been allowed to get these loans)...all the while Fannie Mae and Freddie Mac are "cookin their books" and lining the pockets of their top leaders that also were major contributors to the Democratic party and Barrack Obama specifically.

I also hold Acorn and others responsible as well.  They were the thugs threatening banks with lawsuits if they didn't relax their loan requirements. Freddie and Fannie helped perpetrate this loan fraud with complete support from Barney Franks, Franklin Raines and any number of willing participants that turned a blind eye for the sake of the almighty dollar or power.

The sad thing is that I am no economist, I have no special skills at predicting the future. While Obama and his Gangster Government want to continue to make Bush the demon behind this economic tsunami, I have to believe that if the mortgage lending had been reigned in as far back as 2001, we would not find ourselves digging out of the mess we are currently in.

"I realize that on the sea of life, I can't control the weather, but I can adjust my sails." unknown

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