I only know my own experiences and opinions. There are people occupying Wall Street and I don’t entirely understand why. Protesting Capitalism in the USA? Protesting the greed of Bankers, Congress and the whole financial system? Wall Street is greedy? Is this new news? What does that say about me? Where does my little Los Angeles family fit into the equation? We have a bit of debt, I won’t lie, and we aren’t homeowners. We live in a Townhouse that we rent. I am a painter and I work part time at an art gallery so our daughter doesn’t have to go to daycare. We have a baby on the way. My husband is self-employed and travels for work almost all of the time, but he makes a good living. We pay for private medical insurance but opted out of dental because it was too pricey. We have a wonderful life, I admit. I love it. That being said, I still want to be rich, sorry, but I do.
I want a house on the beach with whitewater views that has plenty of room for me, my husband, my kids, my pets, some guests, and ALL our hobbies and passions. I want a home in Utah to stay at when I go visit. I want to spend winters in Salt Lake City, every year. I want spring in St. George. I want the school year in LA. I want to travel the world and see new places and meet new people. I want to learn and learn and learn, just take classes all the time, but not for a degree and a career, just because I want the damn information. I want to play with my kids all the time in our yard. I want to paint all day, and be in theatre shows, and audition and take my kids to their classes and school functions and volunteer for the PTA. I want to write with my husband, all day sometimes, and have tons of great sex with him whenever I want. In order to obtain all of these things, I would have to be rich. Sigh. So, there is my confession. I want to be rich because the life I covet requires such. Yet I do not trust the system I have to rely upon in order to obtain wealth. I am taught that to covet material things is bad, it means you are a shallow person, it is wrong. Quite the conundrum.
Perhaps it is my ignorance, but I don’t know what it even means to BE the damn 99%. All I know is everyone took part in getting us to this point. Well, just about everyone. I don’t know that much about a lot of the facets of this situation, but I know that the people are angry, the people are fired up and the people are demanding change. I think THAT, in and of itself, is pretty cool. I love a good revolution, but I don’t know what to think about this one.
I worked in the Mortgage industry as first a Loan Processor, then a Loan Officer, then a self-employed Processor/Loan Officer for a total of 10 years. There wasn't a loan that I personally sold to a client that I don't stand behind. I explained everything to my clients, in layman’s terms, and they all asked about a million questions. They all signed several pages of loan documents and were given full copies to take home. They knew what they were getting into, and it wasn't that hard to understand. The caveat here is that I worked in La Canada and 90% of my clients were very wealthy. Not a true portrayal of average Americans. Most of these clients made over $250,000 a year and were refinancing their mortgages to take cash out to do things like remodel their homes, buy second homes, pay off other debts, etc…. This is not true for all people, however, and I know that there was a lot of shady business going on by a lot of shady Mortgage professionals.
Over the years I personally witnessed changes in the guidelines for what was needed to qualify for a home loan. It used to be that the borrowers had to prove their income by providing original copies of taxes, bank statements, paychecks, etc… then you had to add up all of the person’s debts (including their housing expenses), and divide them by the total gross income for the month. If more than 30% of their income was being used, they did NOT qualify for the loan. End of discussion. The amount of money in their checking and savings accounts was tallied and you had to have a certain amount of savings in “reserve” (this was a safety feature to make sure people could continue to pay their mortgage and bills, even if they lost their job). They had to be at their current job for a minimum two years, no exceptions. They had to have a good credit score. They had to put at least 20% down when they bought the home. All of these guidelines changed with the increasing usage of the internet. Suddenly you could collect personal data in a matter of minutes; you didn’t have to wait for hard copies from borrowers. Everything was available at your fingertips. The whole system started to rely on credit scores over actual money, thinking that if someone had a good credit score then it was just logical that they had enough money to pay their bills. You didn’t even have to send a hard file to the Bank anymore to get a loan approval, you simply had to enter the parameters of the loan into an automated, online system, that would run it through a program and tell you the statistical odds of this person defaulting on the loan – if they weren’t likely to default, then they had a loan. No questions asked. No real documentation had been validated by a human being at this point, and the banks were issuing APPROVALS!
Banks let self-employed people “state” their income – meaning they could SAY they made however much they wanted, and didn’t have to provide one shred of evidence to prove it. Then they started letting employed people on salary or hourly pay also “state” their income. Buuuuut, if you are on salary or hourly, you get a paycheck, and your pay is what it is. There is no need for you to have to “state” anything! Lenders and Banks just kept getting more lenient with the conditions required to get the loan closed. It just got easier and faster to close a loan. Everything was happening in days instead of weeks. So much money was being lent. I once closed a purchase transaction for an older couple who’s credit scores were so high (we’re talking 820+) that even though they hadn’t sold their current home (and both the payments on their old house that was for sale but not sold and the new home they were buying totaled up to almost double their monthly income) but the loan still approved on the system and they were able to close.
One day in about 2005 we closed a new kind of loan, our first negatively amortizing loan on a person's home. When the parameters of the loan were explained to me, I said out loud “That seems like a really stupid idea!” The whole idea was to give someone a loan that started out on an ultra low interest rate, thus making the payment super low. At first. After a set period of time, usually five years, the loan’s interest rate would change, perhaps going up or maybe going down, depending on what the market had done in that five years. Then, one was to assume that the payment could potentially go up a bit. Then every year after that, the loan would adjust again, the payment going up or down again, and so on. I said to my boss “But what if the payment goes up to a figure that you can no longer afford?” He said to me “The idea behind this loan is that in 5 years, you will be making MORE money than you are right now, with raises and whatnot, so she should be fine. Plus, her home will appraise for more in five years.” This woman was a recently divorced teacher who was about 5 years from retirement. Yeah, I don’t think her salary ever went up. Anyways, if you made just the minimum payment, over the life of the loan, you would eventually owe MORE than you started out owing. You could avoid this by making principal reduction payments or refinancing into a different loan once the initial five years were up. All of these guidelines made many assumptions including that people’s jobs would be solid and the economy would continue to thrive, that the housing market would continue to go up and up and up with no end in sight and that people with good credit will always be able to pay their mortgages. All of these assumptions were wrong. By the time this was figured out, it was too late.
Loans were being funded left and right, banks, escrow companies, title companies, mortgage companies, appraisers, EVERYONE was making millions off of the closing fees and points. People were refinancing their mortgages and adding equity lines of credit to take cash-out more than ever before. Everyone had cash to remodel, start a business, buy a car, or upgrade to an even larger house. Homes in LA County that had been purchased for $195,000 three years ago were appraising at over $500,000 – with buyers lined up! People were selling their condos in Culver City and buying mansions in Colorado. It was so easy for anyone to get a loan; people went nuts with the refinances. I saw people do it three times in a year! Plus, rates were the lowest EVER, so that just fueled the fire. It was INSANE! Everyone was greedy, everyone, including the consumers. They knew, they KNEW what they were getting into, but that money was soooo easy to get and it was right there for the taking. Everyone is to blame for this part of the problem.
Of course there were the people that just wanted to buy their first home and got swindled by that greedy Mortgage Broker. Of course there are innocents. They are the minority, I believe. A lot of people got out of hand here, and now EVERYONE is paying for it.
I left the mortgage business years ago after my own personal business venture, a Contract Loan Processing business, failed. Once the market turned and people stopped paying their mortgages, the banks hitched their britches back up and started to revert to the old standards of qualification. Only by that time, everyone was already over extended. So now people were STUCK in their inflated mortgages on homes that were no longer worth what they thought a year ago – now people were underwater and the mortgage companies wouldn’t touch their loans with 10-foot poles. The same borrowers that got solicitation calls from 20 mortgage brokers the second their credit was pulled couldn’t refinance into a better interest rate to save themselves $200 a month on their payment. Loans started taking weeks, months even, to close. No one was making money anymore. Appraisers were out of business, Mortgage Brokers, Processors, Loan Reps, Loan Officers, Real Estate Agents, Underwriters, and Escrow Officers, the WHOLE lot, laid off, out of work, victims of the industry that had been a cornucopia of wealth only a few short years ago. I don’t miss it. Not one bit. I hated working in an office, dressed in business casual every day. I hated the stress and the whole system.
After all the loans I have closed and the transactions I have seen, the one loan that is the most important has somehow eluded me – my own. After all the paychecks and commissions and bonuses, I never bought a house. My husband and I are good at saving, but bad at spending. With no family member or friend that can gift us a down payment, our quest for home ownership in LA has continually eluded us. I had pre-approved us for a loan at the height of the market, but my husband had been cautious of the high monthly payment we would have been committing to, and thank God for that! Had we bought a home then, assuming I would always be making the good mortgage bucks, and signed on to that $3,000 per month payment, I do believe my life would be a whole lot different right now. It would have been killer to have a nice house of my own for those few years, though. Damn it.
So I guess my whole point is it’s not just the big guys that fucked us here. I think consumers are responsible, too, and the people that facilitated the process, like me. We all had our part to play. So then what? How do we fix this? How do we fix us?
MM
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