Skip to main content

Sub-prime's next target--small business

National Mortgage Professional
Oct 19, 2007

An open letter from mortgage industry statistician Tom LaMalfa to Sen. Chuck SchumerTom LaMalfabrokers, inflated appraisals, mortgage market meltdown, Federal Reserve, Wall Street Dear Sen. Schumer: In a recent op-ed to the Wall Street Journal, you wrote, "Unscrupulous brokers inflated appraisals, misrepresented the cost of loans and induced borrowers to take out loans they cannot repay." How could you have concluded that Mortgage Brokers are the core of the mortgage market meltdown currently occurring? Fraud and unfair dealings are only a small part of the extant problem. What balderdash. Having observed and studied the mortgage brokerage business since the late 1980s, I can demonstrate that your aforementioned statement is erroneous and detrimental to any rational examination of the problem. For now, suffice it to say that Mortgage Brokers don't sign appraisals or ever authorize in any direct way approvals of credit or collateral. Brokers perform none of those three functions. Their indirect influence is also modest. If you seek culpability, look at the Federal Reserve first, Wall Street banks second and then lenders. This is where most of the blame lies. The Fed flooded the market with liquidity that Wall Street moved to lenders, and they to brokers, and they to borrowers. You delude yourself to think that millions (yes, it will ultimately involve millions) of "homeowners" were "induced" to become homeowners by some magic potion. Most borrowers were as greedy (on a much smaller scale, of course) as those rapacious investment bankers you shield. You ostensibly seek to divert attention from the true miscreants, the ones who funded this mess, for they help fund your re-election campaigns. You wrote, "New laws are needed for the irresponsible, unethical Mortgage Brokers who have taken advantage of lax oversight to rip off borrowers ..." Your "new laws" are too late and disingenuous. Where, oh, where have you been as this mess has been unfolding over the past three years? As long as home prices appreciated eight percent, 12 percent, even 20 percent per year, not a peep was heard from you, Congress, the White House or the regulators. It was all smiles as Congress promulgated a 70 percent homeownership rate and the Bush administration promoted its so-called "ownership society." I have been warning people about this woeful situation for years, including a letter to the U.S. Department of Housing and Urban Development Secretary in August 2005, suggesting the market had created a ticking time bomb. Fact: Prime and sub-prime borrowers wanted something (i.e., equity buildup) for nothing, and for years they got it, thanks to rising home prices. Homes became ATMs. Most borrowers were once prime borrowers who became sub-prime because of their own actions and credit decisions. Truth is, their middle-class lifestyle was being challenged--thanks in large part to Congress' indifference to the people. Fact: These Americans supplemented faltering income with credit that every financial intermediary promulgated 24 hours a day, seven days a week for decades. Talk about culpability. Think about this, senator: It's not difficult to "convince" people to borrow when Congress watches benignly as 3.5 million jobs leave the country and middle-class folks' income stagnates for decades. That Americans over-borrowed is evident in the consumer credit data and our nation's abysmal savings rate. Consumer debt, like federal debt and corporate debt, has never been higher than it is today. Almost everyone in America is in hock. You wrote of investors losing confidence in sub-prime products. That's only part of it. What investors have lost confidence in is Wall Street itself. Wall Street burned the investors--pension funds, mutual funds, insurance companies, endowments, hedge funds and bank trust departments--at home and globally. All were misled (lied to) about the performance of the collateral. They feel deceived, and probably were. It is these "brokers" you and your committee should be investigating, not the small mom-and-pop shops that, on average, produced $32.4 million of originations last year and made profits on average of $220,000. Your Wall Street titans earn that in a month. Finally, the "bad advice" you wrote about emanating from brokers came from the sum of: 1) the Fed, 2) the investment banks, 3) the White House, 4) Congress and 5) the lenders. Mortgage Brokers are salespeople, not accountants, financial planners or fiduciaries. Bring any of the latter three groups into the mortgage delivery system and watch origination costs spiral. It will usher in a cost structure like that of the 1980s and earlier, and 90 percent of the people will be worse off for 10 percent to be better off. Truth is, Congress holds a much larger share of the blame for the mortgage meltdown than Mortgage Brokers. This card-carrying Democrat knows this first-hand, so stop the finger pointing at small business--it's the Wall Street brokerages and the Fed you should be investigating. The big guys are to blame ... once again. Sincerely, Tom LaMalfa
UniteCT Emergency Rental Assistance Succeeds

Thanks to the successful launch of the UniteCT program, emergency rental assistance funds are helping Connecticut residents maintain housing.

Industry News
Jun 17, 2021
Angel Oak Mortgage Announces Initial Public Offering

Angel Oak Mortgage announced its initial public offering of 7,200,000 shares of its common stock at $19 per share.

Industry News
Jun 17, 2021
Mortgage Apps Rebound After Three Consecutive Weeks Of Declines

The Mortgage Bankers Association reported the first increase in mortgage applications after a three consecutive weeks on declines.

Industry News
Jun 17, 2021
CFPB New Rule Prevents Predatory Lending To Military Service Members

The CFPB stipulates its authority to examine supervised financial institutions for risk to active duty servicemembers and their dependents.

Industry News
Jun 16, 2021
Inventory Begins A Slow Recovery

Inventory grew 3.9% from April to May, according to Zillow's latest Market Report, after a year of steady decline.

Industry News
Jun 16, 2021
Mortgage Lenders Expect Profit Margins To Shrink

69% of lenders believe profit margins will decrease in the months ahead, while 19% believe profits will remain the same, and 11% believe profits will increase.

Industry News
Jun 14, 2021