“With help from advocates for low-income areas, the couple (the Coronels, also see blog Statements #504 and #505) were able to qualify for a mortgage insured by the Federal Housing Administration based on their Social Security earnings, his payments from a pension plan and contributions from two other people living in the house.”, A. Scott Reckard, Los Angeles Times

“Seriously? There are still a few matters that I believe are important to discuss and understand related to the Coronels and their home and mortgage. As non-U.S. citizens, the Coronels were able on September 15, 1994, to buy a home in Azusa, California with the help of a $6,329 private 1st Trust deed mortgage from Transamerica Financial Services, Inc.. (I believe they are a non-prime home lender, not a provider of Fannie, Freddie, FHA home loans.) Because of the success of the U.S. and California economies (among other factors), the housing market in urban areas of California have, over time, appreciated significantly. The Coronels’ Azusa California home appreciated from I am guessing $10,000 or so (probably less than that given the size of their first mortgage and the likelihood that they did not have significant funds for a down payment) in 1994, to roughly $400,000 or so at its peak in 2006/2007 and about $280,000 today. So, if the Coronels had prudently paid down their first mortgage, they would own their home free and clear today and have a net worth of almost $300,000; well ahead of the median household net worth for all American families of $77,300 (based on the latest available Federal Reserve data from June 2012). Not bad considering the Coronels’ are first generation immigrants from Mexico, who I assume did not have the opportunity to attend or graduate from college (as many other Americans have), and who according to the L.A. Times article still need a translator to communicate and only became U.S. citizens 8 years ago!!! How about that for the American Dream? Instead though, the Coronels’ decided to tap their home equity via 11 different mortgage transactions and pulled over $350,000 in cash from their home and in 2010 lost their home to foreclosure by Bank of America/Fannie Mae. (It’s interesting to me that Fannie Mae was the last owner of their mortgage. A topic for an entire other discussion on how Fannie entered the subprime business with gusto, partly because they had low-income/minority housing mandates from the government, but also because they were greedy and controlling and didn’t want any material part of the mortgage market to operate outside of their sphere of influence and profitability.)

I hate to criticize (and my point is not about them personally), but how in the world are the Coronels deserving of Fannie Mae waiving its rule prohibiting a homebuyer from buying a home where they were previously the owner and had lost their home to Fannie Mae via foreclosure? And how in the world is FHA making a prudent loan here or the Coronels’ deserving of FHA making a risky loan, with U.S. taxpayers’ backing? The Coronels’ lost their home to foreclosure solely because of their own decisions, not their lenders’ or anyone else. How in the world is an FHA loan to the Coronels’ even close to prudent? They have a proven history of drawing all their home equity out to spend/live on. They are only making a 2% down payment (and these funds probably came from housing advocates or someone else)? With the foreclosure and the way they borrowed, you can only assume they have very poor credit that would disqualify them for a mortgage. And they are on a fixed income of social security and a labor union pension and that even is not enough to qualify them for the FHA mortgage they received. To qualify, they also needed to include “contributions from two other people living in the house”. (Which likely does not meet FHA/mortgage industry standards to be included in the Coronels’ income and qualification for a mortgage.) What’s going to happen if the Coronels have one bad luck circumstance….their car breaks down? the house needs a new roof? The “renters” can’t pay or move out? And what’s going to happen if the Coronels’ start borrowing once again on their home equity? Clearly, you can see from this example, that it is well-intended government housing and mortgage policies that eroded market-based, mortgage lending standards….not the other way around.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Posted on December 1, 2014, in Postings. Bookmark the permalink. Leave a comment.

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