Confessions of a Subprime Mortgage Lender

Until the housing market collapsed, subprime was industry jargon. Now, it’s everywhere, and everyone’s been affected by it.

Richard Bitner, a former subprime lender, joined Carmen on Monday’s show to explain the ins and outs of the business, how these shady lenders took us all for a ride, what you need to know whether you’re buying, selling, or just watching it all play out, to make sure it never happens again.

The first thing to keep in mind is that a lot of mortgage brokers are simply dysfunctional, Bitner said. After a few years in the subprime business, Bitner realized the whole industry was in a “race to the bottom.” It started with the manipulation by brokers of the different kinds of loans out there. Stated-income loans, for instance, are known as “liar’s loans” by insiders. Brokers see customers who can’t support the payments but have the cash for a down payment and maybe even a decent credit score. Without a vested interest in the monetary outcome of the loan, the brokers give the go-ahead and take the payment, not caring that the homeowners won’t be on solid ground to make the monthly payments.

Fees are another flashpoint for misunderstandings in the broker-customer relationship. On a good faith estimate, the primary fee should only be a loan origination fee, Bitner said. Brokers are known to try and sneak in other fees, such as administration or “garbage” fees, but a wary customer should be able to cross these out. Additionally, discount fees – a charge from a broker directly to a lender for the purpose of reducing a rate – should only be applied to a mortgage that is truly below the market rate. If you see a discount fee on your paperwork, make sure you’re getting a true below market value and that the fee is being collected by the lender and no one else.

Remember that brokers make money in two ways: through loan origination fees and yield spread premiums, which are fees the broker earns from a lender for selling a product at an above market interest rate. They shouldn’t be collecting both, Bitner said. That’s known as double dipping, and it’s something he saw all too much in the subprime market.

For first-time homebuyers, Bitner strongly recommends a 30-year fixed rate over an adjustable-rate mortgage. ARMs should only be considered if you know, unequivocally, that you won’t be in the home for more than 3 to 5 years. Above all else, find a loan officer who will treat you right and keep your eyes and ears open, he said. By paying attention and being cautious, you won't have to fall victim to predatory lenders.

National Assistance Cooperation of America (NACA) is an organization I think could help alot of your viewers. Please review their website. Even if anything I think the counseling process would be helpful.Please consider giving them some coverage, maybe they can help someone. --Walter

Posted on: 12 Aug 2008 1:54 P.M.

Hi Carmen,
I happened to turned on the tube and their you were. This is my first time viewing and I felt compelled to email you and you staff to let you know that you are doing a grand service to all viewers.

Your are performing a public service by educating your views with real info that will help them if they just follow your direction.

Rock On! --Maira

Posted on: 12 Aug 2008 1:09 P.M.

Great job! I applaude you for helping/educating people with their finances, especially with their mortgages. Just one comment: I heard you tell your audience not to trust 'sub-prime mortgage brokers'. I agree but please do not leave out the lenders! I am a Housing Counselor for Hope Now and homeowners (mostly latinos) constantly tell me that they 'trusted' 'loan officers' from Countrywide, WAMU and World Savings when they went to them for financing. These people 'believed'these companies were legit; afterall they are 'big and are in Wall Steet'. Well they were lied, misled and cheated by these companies. They should be held accountable for the harm they have caused to millions of people! --Jorge, FL

Posted on: 12 Aug 2008 11:45 A.M.