Realty Check

White House Has It all WRONG On Subprime


I'm incensed. There's no other way to describe it. I called the White House, because after listening to the President's speech and reading the corresponding press release from the White House, I was confused, because of this:

"The "FHA-Secure" program will help people who have good credit but who have not made all of their payments on time because of rising mortgage payments."

Ok, well that's not subprimers, because subprimers by definition have poor credit or no credit at all. I asked the White House to clarify, and got the following email response.

"No -that's not how a subprime is defined. Subprime defined by the product not the borrower. A lot of people took subprime loans because they liked the low teaser rates and wanted to flip their properties after 2 years. Some liked the free plasma TV they got and figured that their home values would rise and they could sell. Some people made dumb decisions thinking that property values can only rise and bought more home than they could afford."

WRONG. I don't know any other more respectful way of saying it. WRONG WRONG WRONG. Anyone, subprime, prime or other could have gone after these low teaser loans. Many did!! I thought I was losing my mind, so I called John Mechem at the Mortgage Bankers Association: "We define subprime loans by borrower characteristics." Plain and simple. It has to do with how the loan is serviced, based on the credit of the borrower.

I read him the email, and he said the same thing. WRONG. So just to make sure I wasn't totally losing my mind (I mean how could the WHITE HOUSE be wrong????) I called Guy Cecala over at Inside Mortgage Finance. Same deal. He went on to say that FHA underwriting standards even if loosened somewhat, would still present a problem due to the credit of the subprime borrower. FHA deals with only the very top tier of subprime borrowers.

I realize the ins and outs of mortgages are really truly complicated, but I would also think that with all those economists over at the White House, a Soviet Studies major like me shouldn't have to explain to THEM what constitutes a subprime loan!

In all fairness, after I emailed the White House source the quotes from my sources, there was about a half hour of radio silence. He then emailed me back and admitted he was 100% wrong.

Questions?  Comments?