Wa Mu and the "Power of Yes"..what the heck?

I have had the opportunity to talk to several people about the changes in lending in the last 3 years and 2004 to 2007 seem like a bizarro fantasy land. Consider for a moment the following actual loans that were done:

Purchasing a duplex as a non owner occupied investment with a 80/20 ( 100% finanacing ) combo. Buyer put $1000 in earnest money and seller covered the buyers' closing costs. All for the seller paid closing costs. It's the buyer's money coming to the table loan or not. May as well spend it where it garners the biggest benefit.

No doc loan, AKA the infamous NINJA loan ( No income No Job, No Assets ) to 95% financing. No mortgage insurance on a primary residence. Borrower provided their name, SS #, address and phone number and allowed a credit report to be pulled. These were really No No's. I still don't think these are such a bad idea for the right borrower, just not everybody.

Cash Out Refinance of a single family investment property to 85% of the appraised value...6 months after purchase. The property "appreciated" 22%.. Things that make you go "hmmmm".

Sounds weird that these could get done. Sounds even stranger that when these loans were available there was always another lender out there that was going to go one better than the competition. Countrywide's reps would say, " send it and we will get it done ", and they did. WaMu and their subprime side Long Beach Mortgage took the cake though. I don't WaMu ever saw a loan they couldn't sell. All of us in Real Estate were drinking from the fire hose. Now we get to share a garden hose.

Bye Bye Tax credit Down Payment..Sanity Rules at FHA?

Under the heading of something that was too good to be true:


Tax credit ineligible for down payment

Feds reverse rule to assist first-time home buyers
by J. Craig Anderson - May. 19, 2009 12:00 AM The Arizona Republic


Federal officials on Monday reversed an earlier decision to allow first-time home buyers to use an $8,000 tax credit to borrow the down payment on a home.
A week earlier, U.S. Department of Housing and Urban Development Secretary Shaun Donovan had told the National Association of Home Builders that HUD would let banks and local governments offer short-term "bridge loans" to cover the down payment for first-time buyers eligible for the tax credit. The loans would have been available to applicants for federally insured mortgages such as Federal Housing Administration loans.
Lenders, home builders and real- estate agents had reacted favorably to the bridge-loan proposal, saying it would open up the housing market to more first-time buyers.
However, not everyone was in favor of using the tax credit as collateral on a down-payment loan.
"That tax credit should be savings, not debt," said Patricia Garcia-Duarte, executive director of Neighborhood Housing Services in Phoenix.
Garcia-Duarte said the proposal too closely resembled a now-illegal practice known as seller-funded down-payment assistance, which allowed a home's seller to "gift" the down payment to a specific buyer through a non-profit organization.
The loans also could have created income-tax issues, according to the IRS officials who shot down HUD's plan.

Well, well what a surprise! At least there are some sane decisions being made at FHA. So let's recap who wanted this..

Builders....check! Gotta get rid of that pesky inventory that is costing them interest payments every month
RE Agents..check! Gotta get after those first timers 'cause nobody else is even looking in some markets.
Lenders.. how about we change that to LOs looking to make a score. Some that still haven't figured out how to do a loan that isn't stated. Certainly not this one and many others that actually thought this through ( see my post from last week). I redacted part of the post that announced this. There is a quote from an LO that pointed out what I have, it was a bad idea, a very bad idea.

Bridge loan, too funny. First timers are the least educated group of buyers out there and most often need to be walked through the whole process. Not only does the whole process of buying a home look like smoke and mirrors, the lending side can put them down for the count if they don't have someone looking out for their interests.Throw something like this at them and we were headed for disaster.

The whole situation now kind of reminds me of a scene in the first Naked Gun movie. "Move along, there's nothing to see here people. "