Wednesday, December 20, 2006

an old mortgage underwriter talks about "new fangled" risk assessment

When I made the transition from loan originator to mortgage underwriter, I made some costly mistakes. They weren't costly to me personally - they were costly to my customers. You see, given the reins of the power to approve mortgages, I took risk. I approved some folks with higher ratios and with sad credit stories. These were the types of cases on whose behalf I had argued as a loan originator. Now I had the power to say yes and I did. Guess what? I saw a few of those families go into foreclosure the first year. I felt bad and I learned my lesson. A responsible mortgage underwriter has the responsibility to use prudent risk assessment and understand that giving people what they want may not be the best path. It was a lesson in professional tough love and I haven't forgotten it.

Nowadays when I observe mortgage lending from a small distance, as a title insurance agent, and I see lenders taking outrageous (to me) risks, I know the circle will turn and the losses will be costly. I don't say anything because it's not my place. It's up to today's underwriters to assess the level of risk, but consumers DO have a choice and so for the record.....please consider being just a bit more conservative. This article discussing sub-prime lending may help you to understand that foreclosure is real. When it happens, you lose everything you have put into the house and more. There is emotional trauma. Sometimes the difference between safe homeownership and foreclosure is just buying a more modest house.

There are many responsible mortgage lenders who consider the risk and don't push people into bad decisions. Unfortunately, there are also predators who churn refinances - especially with homeowners who have an addiction to credit cards. They churn and refinance and churn and refinance until there's no more gravy then they leave the homeowner in the lurch soon to face foreclosure.

So, keep your head. Deal with reputable mortgage lenders and be happy.

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