Banks Pimping The U.S. Taxpayers.

Pimping is vogue today and it’s  traditional definition of a person who solicits others to engage in prostitution has changed. A television show  named ” Pimp my ride” is illustrative of the modern definition. In the show they select a clunker vehicle , recondition and renovate the car with every fancy accessory in the book. The best part is the clunker owner expends no capital to for the work, nor does he physically get his hands dirty However Banker’s  are acting like the latter definition and the  “ho’s” are the U.S. Taxpayers adding another meaning to the oldest profession and vice in society.

Now some facts last week a prospective  client came to me and wanted to purchase a two family home in one of New York City’s Boroughs. The sales price was $3335,000.00. They  stated they could only afford a down payment of 3.5%.  I advised them that in the current mortgage market  this would be difficult.

He than presented me a pre-approval letter from a major bank.  He further presented a pre-approved for an additional $35,0000.00 I was shocked and alarmed could a major bank be reverting back to practices that caused our economic tsunami?

I sincerely yet erroneously assumed the banks were back to the negligent/reckless lending practices and they are but with a new twist it’s the U.S. Tax Payer playing the “HO”, the banks are just pimping Uncle Sam a/k/a the FHA Federal Housing Authority.

A recent study by Grant Thornton LLP, Banking Executives stated the current mortgage  crisis was caused by ” lax  underwriting standards, political emphasis on increasing home ownership and lack of oversight of the mortgage industry“.  See http://www.allbusiness.com/banking-finance/banking-finance-overview/11742540-1.html for the full report in pdf, See http://www.nubank.com/stories/200905_GrantThorton/GrantThorton16.pdf

Traditional professional lending standards required a would be  home buyer intending to purchase a home to ; place 20% down, have a good credit score; a satisfactory appraisal and verify employment.

A pimp is defined as a man who solicits customers for a prostitute. See http://dictionary.reference.com/browse/pimp A prostitute is defined as to devote to corrupt or unworthy practices.

The FHA is encouraging bad lending practices touting ” its easier to qualify ” , specifically  borrowers to place as little as 3.0 down on the purchase of a home and they don’t even have to prove they saved the money the down payment may be gift from a friend, relative or charity.   They go further  you can have a ” less than perfect credit score”, See http://www.hud.gov/fha/choosefha.cfm

And placing a cherry on top of their theory you can have your cake and eat it to  FHA will give you another whopping $35,000.00 to “renovate” the premises under their 203K program.  Several banker’s pimping this to the max are advertising this program ” love the location hate the house  203 K is the answer.

I was wrong the banks have become mere conduits for the Federal Government’s FHA.  In the example above the borrower could place down a mere $12,500.00 and purchase a home. Additionally the FHA would give them monies above the homes appraisal value to finance so called “renovations” under their 203 K  rehabilitation loan program. See http://www.hud.gov/offices/hsg/sfh/203k/203kslrp.cfm

A primary reason for our current recession and anemic economic situation was the banking industries lending unprofessional lending practices. This included  breaking with the past lending practices which required a borrower to place 20% down on a home.  They took it further allowing borrowers to place little or no down payment, no verification of income, false appraisals and simultaneously issuing a 2nd mortgage frequently a home equity loan and all with adjustable loan rates.

Here a realtor/banker brags about the program http://activerain.com/blogsview/958614/fha-renovation-loan-203-k-you-love-the-location-but-hate-the-house

For a full non biases footnoted review of our current subprime mortgage causes and solutions  New York Law School did a detailed study the federal government should read it. See  http://www.nyls.edu/user_files/1/3/4/30/59/65/68/Capstone070802Complete.pdf

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