Mortgage Fallout and Fraud

Credit Guru Joe Stallard offers a Guest Column on “Mortgage Fallout & Fraud”

Joe appeared on Rights Radio on July 16, 2008. STARR Publications was pleased to publish his ebook: How to Repair Your Credit Report

Mortgage Fallout & Fraud: Predatory lending, greed & panic in the financial markets

by Joe Stallard, FreshStartIndy.net

Unless you’ve been living in a cave, you’re probably vaguely aware of the current meltdown that’s recently hit the financial world.

The effects of the mortgage industry debacle have been far-reaching and not always welcome.

As lenders rushed to build their portfolios based on bad business models, greed and predatory practices, the final outcome was pretty much inevitable. Their house of cards has collapsed.

As a result, we’re in the midst of watching as the market starts to shake out the bad players (which was long overdue, anyway) and get back on a solid footing.

Along the way, there have been a lot of ripples that have affected not just the mortgage market, but have extended into other areas.

A couple of these ripples are:

- Fallout from the mortgage mess and its effect on related industries, and
- Fraud – the current mess has given rise to a whole new genre of criminals

We’re going to look at one industry that has been particularly hard hit by the fallout – the Auto Finance industry.

One characteristic shared by the auto finance and mortgage industries is the constant need for new capital. Or, to put it another way – investors. Through both public and private sectors.

Fallout from the Mortgage Mess

As the investors in the mortgage sector entered into their state of panic, it wasn’t long before this fear crept into the auto finance industry. The result has been a lack of confidence on the part of investors to pony up the money needed for continued growth.

The result of this panic has been a significant shake-up in the auto finance industry. Strangled by a lack of new capital, we have seen some pretty dramatic changes occurring.

A significant number of lenders have just closed their doors. Gone. Out of business. Still others have stopped accepting new customers – now focusing on collecting and servicing their business that’s already on the books.

A number of others are still in business but with new, more stringent guidelines that seem to change with the wind.

Just like the mortgage industry, this shake-up is not all bad. The weakest of the lenders have fallen by the wayside. And a number of the really bad players have disappeared from the scene.

Firms that are well-capitalized with realistic approaches to lending are surviving.

Since the auto finance sector lags well behind the mortgage sector, we are now seeing a substantial upheaval in the market today. The same upheaval that the mortgage industry has already been through – and survived.

For the time being, though, the reality is that financing a car loan is a tough proposition for anyone with previous credit issues. More extensive documentation and bigger down payments are the keywords for now.

Will it turn around? Well, if history is any indicator, the answer is yes. The difficulty lies in trying to visualize just how the market will look once it does turn around.

Remember – the auto manufacturers are going through their own little nightmare while the financial market is trying to survive and recover.

Fraud in the Marketplace

Because of the seriousness of fraud in the mortgage industry, we feel compelled to offer some words of warning.

If you happen to be one of the unfortunate that is facing the possibility of foreclosure, take note.

The mortgage mess has spawned a new breed of criminal.

The ads are everywhere. On the side of the road. On the late-night infomercial (Get Rich Quick in Real Estate). On the internet. Maybe in your mailbox. This new criminal will offer you “great” news – how you can avoid foreclosure.

The rub is this – you’ll either pay them a fee, or you’ll make your payments to them instead of your mortgage lender. Either way, they will flat out steal your money. And do absolutely nothing to head off your impending foreclosure.

The bottom line – run like crazy from this new breed of scammers. If you’ve got a mortgage problem, go to the HUD website and find a HUD counselor in your area. It’s a free service.

And it works.