Written By: Bonnie Wilt-Hild
I have had it, really. Yesterday I read the tweet from Chef Mario Batali regarding the banking industry which compared bankers to Hitler and Stalin. As one that would consider themselves a banker, credit officer and underwriter, I take extreme offense to the comment particularly when it comes from someone who during the normal course business, charges $300.00 for a truffle tasting menu at his own establishment Babbo. I think he said something along the lines of “bankers toppling the way money was distributed, taking most of it into their own hands”, this coming from someone who charges $300.00 for truffles, seriously I could feed an entire village in a third world country for that. Further, it is even more offensive that he would label an entire industry that way, grouping all of those individuals employed in that industry into what he perceives as a culture of criminal activity, when in truth you could most likely put what Mr. Batali knows about the mortgage banking industry on the head of a pin and still have room for the Gutenberg Bible!
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This perception of the mortgage industry has unfortunately become more the rule then exception where the citizens of this country are concerned and is only further ingrained with worsening economic conditions so I think it is time for someone to speak out about a few things that private citizens, the United States government and the Federal Housing Administration don’t want to say for fear of offending those individuals who now find themselves in precarious situations where their personal finances are concerned, including the looming threat of foreclosure, one of those things being personal responsibility. That’s right, the principal that we as individuals have a personal responsibility as mature adults to manage our financial houses. I know it would be far easier to simply move on the principal that if we screw up, spend too much money, max out our credit cards and buy way more house then we know we can afford and then refinance it over and over in order to access the equity like a child might the change in his piggy bank, we can just blame it on the housing industry or the government, but we can’t because the bottom line is, the federal government and the housing industry should not have to be responsible for poor decisions made by U.S. citizens.
To put this principal into a context that everyone, including Mr. Batali can understand, let’s talk history, by this I mean mortgage implosion in 2007, as well as lending principals and borrower behavior, all of which lead to the disintegration of the housing industry in 2007. First I want to say as a mortgage underwriter with 25 years of experience, I dealt first hand with the mess created during this time and was witness to the practices that influenced the outcome. I will say with all certainly a complete dependency on technology tools such as Automated Underwriting systems and credit scoring participated in diluting sound underwriting principals. I also want to reiterate as I have in the past that not all banks and mortgage lenders subscribed to this theory of assessing risk. The Federal Housing Administration for instances has always stressed due diligence in underwriting and even encouraged manual underwriting methods to adequately assess case file risk where borrowers are concerned. So that takes us to the GSE’s and yes I will agree, that the methods by which the deemed loans approvable became a little lax when Automated Underwriting methods became the rage. Simply put, it was never my belief that a single median credit score should be the only method by which an entire nation of lenders assess risk, but ok, the GSE’s learned this the hard way. Of course we also have to consider the bad apples, every bushel has them so I will agree that within the mortgage industry there is and always will be program abuse, it occurred before the invention of AUS and will continue, as it does in every industry, until the end of time. Now with that said, lets talk about the things that we never hear about when we talk about this mess and how the complete lack of responsibility will forever affect how we do business and who may or may not own homes in the future.
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25 years ago, when we underwrote a mortgage application we looked at the borrowers overall ability to afford the mortgage obligation they were applying for. This included the collection of a significant amount of personal data from a borrower including paystubs, bank statements, letters of explanation, the verification of rent as well as several other things such as credit checks and a review of collateral. There were no AUS modeling to indicate if risk was acceptable, it was left up to the underwriter to determine if the borrower would be able to perform under the Note they were executing. By 2005 federal law began impressing things like Fair Lending, regulations under HMDA, CRA for banks as well as trying to determine if banks and lenders where participating in things like disparate lending practices, which would of course get an institution referred to the Department of Justice. Borrower behavior also changed drastically, instead of working with borrowers who had an idea of what they could afford monthly payment wise, who had saved maybe a little money toward the purchase of their home and even maintained an acceptable credit reputation, lenders and banks now had an entirely different client base, many of which couldn’t afford the homes they wanted to purchase, had poor credit histories, no savings but still felt like “they deserved it”. Really, I always thought home ownership was something you worked towards, a goal of sorts. At any rate, this mentality gave birth to the subprime mortgage market as well as many of those hybrid mortgage products we have all come to hate.
I will tell you that many of those borrowers, who ultimately ended up with those subprime mortgages, were applicants that I myself turned down because they simply did not demonstrate the financial profile of individuals who were ready to embark on homeownership or perhaps because they simply couldn’t afford the property they wanted to purchase. Obviously they did not take heed of the warning but instead sought out subprime or limited documentation loans in order to purchase a property that someone had already told them they couldn’t afford, so if someone could please explain how that borrowers poor financial decisions are the fault of the housing industry, I would greatly appreciate it. Bottom line, there were thousands and thousands of borrowers who never considered if they could or could not afford the $500,000 homes they were purchasing and even went as far as committing fraud by overstating their monthly income to qualify for them. Yes, in a perfect world lender’s catch it but we don’t live in a perfect world. Very recently I found fraudulent tax returns submitted by a self employed CPA trying to qualify for an FHA loan, so not all borrowers are nice either. Take it a step further, the bank by which I am employed has had borrowers threaten to file suit against us if we didn’t approve loans that we determined they didn’t qualify for. In a couple of cases we made a business decision and approved the loan which of course promptly went into default. Those same borrowers then wanted to file suit because we approved the loan. I could go on forever but I won’t.
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In closing Mr. Batali, I would like to say that I agree that during the 10 years leading to the implosion of 2007, there was program abuse and yes, the mortgage banking industry, just like every other industry in America, seized the opportunity to turn a profit just like you do when charging $300.00 for truffles, It’s the capitalistic way. But now I will ask you this, if those same people decide to celebrate the purchase of their new home by coming to one of your establishments and eating your $300.00 truffles twice weekly using their Visa or Mastercard to purchase them and as a result gain 70 pounds which results in diabetes and heart disease, should you be held accountable for their heath issues and their subsequent bankruptcy filing because they can no longer make the payments on their credit cards or should they? I would think they should, because if those people as adults cannot manage any self control over their eating or spending habits, they shouldn’t be allowed the privilege to make those personal choices. If on the other hand, they are reasonably intelligent human beings then they need to accept personal responsibility for their mistakes, not blame their issues on the bank that gave them the mortgage and restaurateur that sold them the truffles. In closing I would like to say that I am grateful for the return of common sense underwriting practices. Granted people will now have to earn the privilege of homeownership, but I do believe that when you have to work for something you are far less likely to take it for granted. As always people, have a good week.
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.
