Written By: Glenn Michaels, Op-Ed Writer
As an observer and participant in the mortgage industry since 1972 it Is amazing what took place to get us into the mortgage mess.
Who is to blame for the mess, no one in particular, just a combination of things all coming together to cause the mortgage meltdown. The culprits are quite interesting and not limited to one entity.
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The contributors to the mortgage meltdown was the government, quasi – public agencies such as the Federal National Mortgage Agency (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Agency (GNMA), Wall Street, the rating companies, such as Standard and Poor’s, Moody’s, banks, lending institutions, sub – prime lenders, mortgage brokers, mortgage bankers and borrowers.
The government must be named as a prime reason for the mortgage meltdown. Presidents Clinton and Bush were proponents of homeownership. These presidents encouraged homeownership and under their leadership eased many lending rules and guidelines. I was a owner of a mortgage company during the “Clinton” era as well as an underwriter during both Presidential administrations.
During the Clinton administration the United States Department of Housing and Urban Development (HUD) started to rewrite the Federal Housing Administration (FHA) underwriting handbook. The handbook took some time to be rewritten so HUD would often issue Mortgagee Letters (ML) easing many of the rules in order to obtain a FHA mortgage loan. In 2002 while President Bush was in office the new FHA underwriting handbook was issued (HUD – 4155.1) which changed much of the underwriting rules and regulations. In addition the agencies such as FNMA and FHLMC also eased their requirements to obtain a home loan.
The Wall Street Community would often securitize the mortgage loans, some Wall Street houses owned sub – prime lenders and those loans were also securitized. The rating agencies rated the security backed by mortgage loans.
As an owner of a mortgage company I often contacted by various sub – prime lenders and Wall Street traders with all kinds of exotic mortgage programs/products. Many of these programs were so unusual which caused borrower to eventually default. In addition Wall Street hedged that the borrowers would default and made income from making the mortgage backed security.
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Banks, lending companies, mortgage bankers and mortgage brokers sold these mortgage products to borrowers. Unfortunately some of the borrowers should not have taken these mortgage products as they were destined to default on the loan.
When sub – prime lenders offered no income check loans, stated income check loans to wage earners you knew that these loans were going to fail as these were “liar” loans. Very often borrowers were asked after being told what their monthly payment would be and their usual answer “we can pay back the loan”. Unfortunately many borrowers were not being truthful to themselves and to the lender.
The mortgage meltdown was caused by many different entities. All had a role, none was solely responsible for the mortgage meltdown, but collectively they all contributed.
About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
