Tuesday, October 23, 2012

How can we educate our Realtors and loan officers to understand "off HUD" is a big deal and not an option?

There is a BIG disconnect in our business.  The disconnect is that folks just don't get that the INVESTORS in the mortgage backed securities market and the rating companies are depending on an agreed set of underwriting criteria for the underlying mortgage loans.

Anytime a Realtor or loan officer or any lending personnel decide to move "OFF HUD" to avoid the agreed set of underwriting criteria, they are committing MORTGAGE FRAUD.  Period. End of story.

UPDATE:  I was asked to elaborate on this.  I think we need a secondary market primer given to Realtors and loan officers so that they can understand how program guidelines play a part in the assessment of risk when pools of mortgages are priced for sale in the secondary market.

Say for instance that a program allows for a seller assist of 3%.  The risk analysis is based then upon the buyer/borrower having a minimum down payment plus cash reserve, and a portion of their closing costs.  They have something to lose and therefore are less likely to walk away if they fall on hard times.  If, unknown to the mortgage underwriter, the seller gives the buyer/borrower a sum of $3000 under the table presumably to cover repairs or what not, the buyer/borrower may net have NO investment in the transaction and the risk on this mortgage is then substantially higher.

Does that make sense?  Can you see now how moving items "OFF HUD" and outside of the program guidelines defrauds the mortgage lender who makes representations and warranties concerning the loans contained in a pool and how it ultimately defrauds the investor who buys the securities backed by such a pool of mortgages?

It was not the system of pooling mortgage and making securities that caused the Great Recession.  It was the failure to adhere to program guidelines that were in place to protect investors and keep the system honest.

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