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Loans Too Easy, Insiders AgreeRick Ackerman
My recent feature on the steep decline in lending standards drew some illuminating responses. I will reprint several of them this week, starting with the following letter from a man who once worked for World Mortgage, the primary lending arm of Golden West Financial Corp.. Although Golden West still enjoys a stellar reputation, the source quoted in my commentary raised doubts about whether the firm has continued the sound lending practices established under Herb and Marion Sandler, Golden West's co-chairs. The writer has only praise for the Sandlers personally but says the realities of the marketplace may have dictated certain changes in the way the company they run does business: "I have enjoyed reading your articles on 321Gold.com, and your recent article "Lending Standards Plumb New Depths" caught my attention especially because I used to work for Golden West through their Savings and Loan Association, World Mortgage, in their Atlanta office. It was the best financial education that I ever had in my career. What they taught me opened my eyes to the foolishness of the reality lending market. "World Mortgage had to deal with competition like every other S&L, and even though the Sandlers kept a strict set of standards, there would always be the reality of the marketplace that we had to deal with. During that short time with the company, and in the industry, no-documentation loans were lighting rods for mortgage fraud. I had countless Realtors approach me with offers of shady deals, dual contracts, falsified loan applications, questionable incomes, and the like. The Sandlers gave total veto power to loan officers in the field. Herbert Sandler said that there is no shame in one of his loan officers saying 'no.' Golden West's Pride "But after reading your article, it seems that their lending guidelines have changed over the last 15 years. At the time that I worked for the Sandlers, they were portfolio lenders; they kept all their loans in their own vaults, serviced their own loans, and were self insured on the risk. If this has changed, it would surprise me, as that was one of the halmarks of the company. They prided themselves by not being burdened by compliance with GNMA/FNMA underwriting guidelines. "We also only used our own in-house appraisers. We would use five comps to judge the value of the property. The appraisals were conservative and fair. But if GDW has compromised its high standards, it's a sad commentary on the reality of the world we live in. It's hard to compete with a corrupt competitor, and even more difficult to compete in a corrupt industry. I can only blame it on GNMA/FNMA for providing the method of passing on bad loans and providing the unlimited credit to fuel the ever-growing vortex of uncontrolled housing prices. "I wish the best for the Sandlers, and I hope that they are not sticking their neck out too far. Even when the meltdown in the current real estate bubble starts, I suspect that they will be in a better position to weather the storm than most of their competitors. That happened in 1990 during the Great Real Estate Crash, and I suspect it will happen during the Greater Real Estate Crash in the later part of the 2000s." Greenspan's Intent And here's another letter from a subscriber who worked for a mortgage lender. Some of you may not share his apparent optimism that Alan Greenspan can trigger a more or less controlled deflation of the real estate bubble. "This was a very timely article. I used to work for Fleet Mortgage before they sold out to Washington Mutual. They were a very conservative outfit in regards to underwriting standards. I still have a number of friends that remained in the field. Recently, I was conversing with a former colleague about the craziness that's going on in the mortgage industry. Yet, she was hinging her career on the mortgage industry. I tried explaining to her that the future was in foreclosures, not the origination business. "It is in my opinion that Greenspan will not stop with the rates increases until the real estate market bubble is pricked. Recently, he made a comment that only the last people to buy would get hurt. Greenspan realizes that many of the loans being written now are adjustable-rate. He also realizes that his rate increases will invariably do the trick no matter what long-term rates do. A 'Monster' "Also, there was talk that Bush wants Greenspan to put off his retirement until there is a suitable replacement found. I surmise that what Bush meant was he needs to have Greenspan clean up this monster before he retires. Nobody will take the job until it is cleaned up. "Loan standards over the past few years have been nothing short of criminal in my book. When the buyers of the past couple of years get burned, there will undoubtably be a congressional investigation and a lot of finger pointing about how the bank regulators didn't do their job. What it really comes down to is that greed in its most pervasive forms has overtaken our country. That is yet another sign of our eventual downfall. Only the strong will survive." *** Taming the Mini-Futures Trading the S&P futures with a stop-loss of one point or less? Come visit our archives to see how it's done. You can get a free one-day pass to visit the site, or a two-week trial subscription with no risk, by clicking here. Rick Ackerman *** Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents ©2005, Rick Ackerman. All Rights Reserved. You can subscribe here. 321gold Inc |
