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\f0\fs24 \cf0 The Causes of Foreclosure in NC Script
\f1\fs20 \
\f0\fs18 For NC Now\ \
\fs24 Kelly Mc: What a difference five years makes when reviewing home sales in North Carolina.
The North Carolina Board of Realtors reports that, in 2005, over 27-BILLION dollars in
properties were sold. \ \
\fs22 Dr. William Hall/UNC-W Economics Professor - Convinced - We became convinced that real
estate prices, at worst, would slow their growth up. They would continue to climb. They
would not fall. \ \
Kelly Mc: In 2009, only sixteen billion dollars in property was sold. Between those years,
many mortgages were approved. Most were good loans but large numbers of properties would
be foreclosed. \ \
Dr. William Hall - Statewide - If you look statewide, the peak was again mid-2005, the
low point year-end - maybe mid-2008 - you got about a thirty percent reduction. So,
the housing sector has taken a big hit and the down trend began about five years ago.
Kelly Mc: Why so many loans went bad is debated. State regulators and consumer advocates suggest
\ \
mortgage companies, in many cases, misled some borrowers, especially those with bad
credit, about their loan terms. Riskier mortgages carried higher interest rates enjoyed by investors
who wanted to invest in the U-S real estate boom. Borrowers liked these unconventional
mortgages because they offered a chance at home ownership or easy financing for investment
properties.\ \
Subprime - Kelly Mc: What made them so popular both for mortgage brokers to write up for
people and for people who wanted to buy the house and they accepted it?\
\ Mark Pearce/NC Deputy Commissioner of Banks:
A lot of people have many different theories as to why sub-prime mortgages became so popular.
For me, I look at, structurally, in the financial markets and Wall Street, there was a great
appetite among foreign investors for mortgage loans made to U.S. homeowners and that machine
had big demand and that, then, trickled down through the mortgage lenders, mortgage brokers
and really led to them loosening up their requirements because they needed to make as
many of these mortgages as people in China and other investors wanted to buy. \
\ Kelly Mc: Traditional mortgage loans were
soon joined by numerous creative mortgages. It helped more people buy property and fed
investor appetite for investment products where the financial returns would be paid
as mortgage holders paid their monthly note. Mortgage brokers sold the mortgages like a
product is sold. Those backing or underwriting the mortgage would establish the qualifications
and brokers would follow their rules.\ \
Chris Kukla/Ctr. for Responsible Lending - Sale - Mortgage brokers sell that loan down
the line. They sell it off to investors. That loan is then packaged with other loans, sliced
and diced, and sold as securities. So, your home loan could be owned by investors across
the country and pension funds but also by investors in Dubai and China and all across
Kelly Mc: Some sub-prime mortgages offered \'93interest only\'94 payments or the option
to choose your monthly payment amount. Others offered an initial fixed interest rate that
became adjustable and would rise. Another mortgage allowed borrowers to qualify without
proving their credit. These were called \'93stated-income\'94 mortgages. Critics use another term.\
\ Mark Pearce - Loans - You could make a loan
to someone who didn\'92t tell you what their income was, they didn\'92t tell you if they
had a job, they didn\'92t tell you if they had any assets. In fact, they had a loan at
the time that was called a \'93Ninja loan.\'94 There were loans called \'93Liar loans.\'94
\ Chris Kukla - Alarm - And these were loans
that were clearly designed that there would be no ability to repay these loans and that
the only way you could deal with that is either to refinance, sell the house or go into foreclosure.
We knew that once the re-fi option and the sale option went away a lot of these folks
would go into foreclosure. That\'92s when we started raising alarms about the kinds
of practices going on in the market. \ \
Kelly Mc: Neill Fendly is a 25-year mortgage industry veteran. He owns \'93Mortgage Defense\'94
and is president of the North Carolina Association of Mortgage Professionals. He says this interview
reflects his professional opinion and not that of the association. Mr. Fendly challenges
the argument that unconventional, or sub-prime loans are universally bad products, though
in many cases, he says brokers and banks pushed the wrong loan to the wrong customer.\
\ Option - Kelly Mc: Was there an option out
there for most anybody who wanted to buy a house?\
\ Neill Fendly/Mortgage Defense, Inc: Pretty
much. Pretty much. If you were in the market for a house, I as have mentioned. Some were
inappropriate as were the borrowers. But there was an endless endless number. And it wasn\'92t
just the inappropriate loans. Your mainstream lenders were offering different products,
variations off of products that they created for their retail side. A lot of people don\'92t
realize - a lot of the big lenders, they did stated income loans. Stated-income loans,
back then, were appropriate for the right person, for the right reason. It just became
a bold-faced lie after a while and it was abused terribly. \
\ Compete - Kelly Mc: How many loans were only
deemed \'93inappropriate\'94 after we look back on it in time, but back then it was a
good idea or an appropriate product?\ \
Neill Fendly: When it comes to the sub-prime industry, almost all of them, quite frankly.
When you look at a loan that goes \'93south,\'94 or goes into foreclosure, the key to a broker/lender
is to look at that loan, maybe it was made three years ago. And you say to yourself,
given the information I had in the file at that time, would that loan be made again?
And, if you say, \'93yes,\'94 then, you know, circumstances happens. Divorces happen. People
lose jobs. Those situations you can\'92t plan for. But, some of the lenders will look back
- all of them - there\'92s plenty of guilt to go around and say, \'93I had no idea what
I was thinking about except I had to compete.\'94 And therein lies part of the problem. If they
\ Dr. William Hall - Paid - If you look at the
way mortgage bankers were compensated for making mortgages, a lot of them work primarily
for incentive - primarily for commission. The more mortgages you complete, the higher
the income you earn.\ \
Kelly Mc: If that\'92s your job, is that a bad thing to want to do that?\
\ Dr. William Hall: Ahhh, no it\'92s not but,
then again, you\'92ve got to look at the underwriting standards there, what we call the \'93qualification
standards.\'94 Often times, you only write more loans if you relax your standards for
qualification for credit. And so, I wouldn\'92t place the burden on the mortgage bankers.
\ \
Neill Fendly - Rests - I think a certain amount of the responsibility also rests with the
homebuyer - the borrower - too. They know when they go into something whether they can
afford it, for the most part. But, yeah, if there\'92s a product available - it\'92s the
same thing. If this particular lender doesn\'92t give the border that loan and they\'92ve got
the product, they\'92re going to go right down the street, a block down the street,
to the next lender and get the loan. That may not be a great reason for making loan,
but you\'92ve got to stay in business. You\'92ve got to compete. \
\ Mark Pearce - Hand - Many brokers say, \'93Hey,
I\'92m just the last guy on the chain. I\'92m the guy that - I\'92m just the guy making
the loans that the lender is offering and it\'92s not my job to make sure that they\'92re
able to be repaid.\'94 And so, you have two different views of the world, I think. \
\ Broker - Kelly Mc: What responsibility fell
on the mortgage broker or on the bank issuing a mortgage when it came to those questions,
\ Mark Pearce - There\'92s a great difference
of opinion on that issue as well. In North Carolina under the law, mortgage brokers have
the obligation to represent the borrower and to help the borrower get access to a loan
that is reasonably advantageous to that homeowner. Now, I think if you\'92re originating a loan
that\'92s going to go into foreclosure, that\'92s not really advantageous to the homeowner.
So, we think the broker does bear some responsibility. \
\ Specific - Kelly Mc: How much specific responsibility
fell on the borrower, the home buyer?\ \
Chris Kukla: I think that anyone who sat a closing, a real estate closing, knows that
stack of paper work is gigantic. Most people, even if they read all the documents, they\'92re
incredibly difficult to understand. Let alone, when there\'92s somebody sitting across the
table from you who\'92s telling you , \'93No, it looks like that but it\'92s not.\'94 or
trying to sell you on the fact that this is a good loan for you. Folks went into the system
trusting the system. It\'92s very complicated and I think even though we can sit and try
to blame the borrower, the fact is that the lenders knew that this was an inappropriate
loan and they really should have been the one to step in and say, \'93Wait a second.
This isn\'92t right. We need to stop doing this.\'94 \
\ Kelly Mc: Mortgage industry veteran, Neill
Fendly, say mortgage brokers cannot make judgement calls on which borrowers deserve which type
of loan.\ \
Neill Fendly: Well, you have to have a reason. You have to give them an adverse notice, what
is called an \'93Adverse Action.\'94 There has to be a specific reason. It can\'92t be
just \'93I don\'92t care for you\'94 or \'93I don\'92t care for the loan.\'94 There has
to be some situation - your income doesn\'92t qualify, your credit doesn\'92t qualify, you
haven\'92t shown enough stability. There are a whole bunch of different reasons. But, yes,
yes. And professionals all across the industry have done that many times.\
\ Kelly Mc: So, if you had a client come in
and sit down in front of you, even though you think personally that they didn\'92t deserve
a mortgage, if there was a product you offered that fit their needs and their profile, you\'92d
be obligated to help them achieve that if they wanted it?\
\ Neill Fendly: Pretty much. You had people
that did different kinds of business. For instance, I\'92ve never done a sub-prime loan
in my life, I did all, what they call, prime loans and FHA loans. But, people who were
in that industry, yeah, if there was a product, regardless of who it was, they were going
to put those people in the product. And just like any industry, there were bad actors that
did people a tremendous disservice. \ \
Kelly Mc: Many experts from different policy and professional perspectives, differ on the
exact causes of why so many North Carolina mortgages have failed. They all agree, in
this story at least, that no matter where proverbial fingers of blame are pointed, it\'92s
people who are affected and their homes that are lost.\
\fs24 \ \
\fs22 \ \
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