Confessions of a sub-prime lender

Another book club entry ..

The economy sucks, prices are rising on everything I buy and the real estate market is incredibly terrible. With all that being said I wanted to continue my research and really try to dig into the facts behind sub-prime mortgage lending. That's when I stumbled upon this book. From cover to cover I finished it under a week reading when I had time and it's certainly an easy read.

Confessions of a sub-prime lender covers everything about sub-prime lending from what it's like running the business, how nearly 1 of 4 sub-prime lenders were processing fraudulent loans, how home appraisals played a role in the melt down, how truly unqualified applicants were approved, and recommended changes to work towards a resolution in this crisis.

My favorite part was actual case studies of loans funded. Looking at these samples it's amazing how money was moved around, documents faked, and how no proof of income was required. How the hell did anyone think giving a loan to someone that say "yea I make xxx per year" actually would be truthful?

The brokers that were pulling customers in for sub-prime loans were even more dishonest. A few hours of class and they could start getting paperwork moving for applicants to get a loan funded.

One really interesting point I enjoyed was the role the home appraisals had in this melt-down. Currently, you can get an appraisal you want on a home and if it's valued right your loan can qualify to refinance at that rate. Let's say you want a $500,000 loan. The house comes in at $450,000 on the appraisal. You won't qualify but these brokers have relationships with the appraisal. Some fancy playing of numbers gets the house up to $500,000. Now, you can do a refinance on $500,000 even though your house should be $50,000 less.

A few months later your neighbor wants $525,000 in equity. They look for comps and find your house, which was bumped $50,000 with some fancy number games. They are able to squeeze even more from his based on comps and using your numbers. As houses are appraised high they can act as comps for surrounding houses making those prices climb.

Next thing you know, everyone pulled fake equity out. The market starts to call, houses go down and now people have $50,000 NEGATIVE equity. See how easily it happens?

I couldn't agree with the author more about the need for APPROVED appraisals, not anyone the broker advises you on.

This was a great book .. maybe because of my interest in the economy and real estate had a role in that but I can assure you this is a read everyone should read with the current state of the economy.

I give this a 5 of 5 stars.

Pick it up today so you can understand this mortgage crisis even more.