So how could the banks have not made sure of it?
Thatís what needs to be exposed.
It used to be a general standard of 20/20 for ďA PaperĒ loans. (20% down, 20% debt ratio, with great credit.) Conventional bank standards.
Finance companies are not the same as Banks and they have a great many titles/classifications, and they are not operated the same way. But they are ďusuallyĒ subsidiaries, sister companies, etc. etc. of/to holder Banks. Itís a great handshaking business plan. What the bank doesnít want to touch, they toss to their ďB Paper,Ē crunchers. (Very little to 0 down, 30% debt ratio, with little or less than perfect credit.)
I canít even imagine ďC PaperĒ but it is a subprime lending termÖfor something.
They all have money to sell and operate on projections (those magical bottom line numbers that convince stockholders to stay invested, which includes both profit and loss.) Stockholders/owners generally expect profits to soar 3% to 6%+ per year over and above last yearís actual bottom lines, and losses must be kept at a general 2-4% by law. Varying by state.
Now, when customers didnít pour in for loans, doable or otherwise, what to do what to do? Get creative! Hence the Bridge, Balloon, Variable rate, Non-conventional yada yadas that took an always existing risk and twisted it into a virtual pretzel of financial loopholes and nightmarish flexibility.
And they mostly had to tamper with every figure to make the borrower look good enough on paper for a loan. Not on every borrower, bien sur! But on enough borrowers to look good enough, themselves, on paper to the stockholders.
How did they do that? EASY!
When your credit is pulled and the numbers are crunched and your debt ratio proves to be 40 or 50%, letís jack the numbers down by excluding all notes that are close to being paid off, (even if you can renew those loans at any time which would put you to 60-70% debt ratio) Thatís not a current concern but donít do it until AFTER loan closing, Ok? And letís scratch those pesky hospital bills for now since everybody gets sick sometime and it doesnít matter that they can put a lien on your home AFTER we give them something to put a lien on. HAHA. As long as they are 2nd and not 1st, weíre happy!! And that back child support? Well, itís ethical to want a home like anyone else so weíll scratch it for now, because you havenít been sued, yet, but just be sure to get caught up on that because itís hard to pay your house payment from jail! And all those open department store credit accounts? Take the balance from your current Visa and pay those off, and againódonít charge anything on those until AFTER closing!! All this brings your debt ratio down to a grand total of 32%, but the closing isnít for 3 months, and by that time the payments you make on all your debts will reduce them to our magic 30%!!! Yeah! Welcome to the world of being a Home Owner!
Oh, and we need to count your overtime and your bonuses as income, even though you were laid off for 3 months, things have surely picked up!! Weíll prorate your yearly expected raise for fiscal accounting into your income, as well. Just bring me a copy of your check when you get that, Ok? And didnít you say your 16 year old son worked at McDonaldís?? Weíll count his income as RENT!!! Bring me a copy of his check, too.
On closing day? Iím sorry, we couldnít get you the fixed ?% rate, (which they never intended and knew they couldnít) But we did manage to get you a variable of 8.99% and we feel very confident that the rate will fall to an all time low by the end of the year! Ok? Great!
Sign Here ______________________________.
If yall think Iím joking? That crap is the very reason why I bailed.