New Business Idea: Underwriting for Borrower Loans

So since the requirements of the Federal and State lending laws are not being enforced even in court, it seems to me that the thousands of financial advisers and planners who ply their trade should expand into a new niche — underwriting loans before borrowers accept them. Their client should be the prospective or existing homeowner.

Using the disclosure requirements of the Federal Truth in Lending Act as a base, such advisers could provide the only reliable basis to assess whether a particular loan product is actually good for the borrower or bad.

It’s not difficult and it used to be the way that lenders performed loan underwriting — when they had any risk and when their own skins depended upon how well their loan portfolio performed.

What I propose is that those with sufficient knowledge and training — i.e. real credentials — perform their own underwriting review which would include such things as

  • obtaining independent appraisal tested against relevant median income
  • testing expectations against projected changes in demographics
  • testing actual household income against carrying cost of the loan
  • testing whether the lender has actually been identified
  • determine whether undisclosed revenue and compensation is part of the offering of the loan package
  • suggesting negotiation for incentives to pick one loan package over another
  • examining the title insurance policy for exemptions that affect financial viability

These are all things that are supposedly unnecessary under existing laws, rules and regulations. But they are nonetheless essential if homeowners want to avoid the catastrophe that hit homeowners who bought loans products in the period of mid 1990’s-present.

And this crisis presents an opportunity to those people who entered the financial services industry providing personal advice, suggestions and planning. Just offering this underwriting service would cross sell their other services and would pay for itself with a reasonable fee attached.

And one last thing: the practice of NOT hiring a lawyer to review contracts and closing documents before they are executed needs to end. It’s the biggest investment of your life. You should be willing to tack on a couple of thousand dollars for independent, objective review, analysis and advice from licensed professionals who have no dog in the race except yours.

Blind faith in the banks and believing any of their admonitions about not getting  a lawyer or believing their appraisal of the value of the home, or their statement of viability of the loan is just plain stupid. They don’t care about you or your loan except to make a profit by generating sales of unregulated securities.

That is the inevitable result of decentralized banking. With no commitment to you or your neighborhood they will do things that benefit only themselves. If you want to change that, close your account with the megabank and join a credit union or open accounts with a community bank. You will be glad you did it.

2 Responses

  1. Anon. We had attorney. Family attorney. Smart. But Believe me. It did not and would NOT have helped any.

  2. Biggest mistake to not have hired an attorney. I did not. I should have known better, and have family attorneys who would have done for free. But we trusted. We were very wrong. However, not sure attorneys would have picked up the fraud back then. Today is different. This should apply to loan mods too.

Leave a Reply

%d bloggers like this: