How To: Weave Your Way Through Sub-Prime Trouble

by Alex Stenback on October 25, 2007

One of our very favorite blogs on the planet is David Smith’s over at the Affordable Housing Institute, who unpacks some of the more complicated topics in real estate and housing finance with a unique and entertaining elegance. 

Case in point, his recent writings on subprime.  The whole series is worth a read (and linked below,) but we’d like to highlight one particular point addressesing what to say when the delinquent payments mount, the phone rings, and it’s your servicer/lender wondering "what went wrong." 

The first answer that occurs to many is "it was the [lender/broker/originators] fault," and whether true or not, this may be a big mistake for troubled borrowers.

Now, the media, politicians, and social justice orgs absolutely love the "duped borrower" story – they are in fact the central plotline to most of the current and proposed predatory lending legislation at the State and Federal level – and because these stories make for compelling drama, headlines, and congessional testimony (the stock and trade of the aforementioned) they are almost universally believed.   

The problem is, the servicer – the only party that has the power to provide relief – cares little about that particular brand of drama.  Mr. Smith explains:

“I was duped.”  “They never showed me that schedule.”  “They told me not to worry about it.”  “They said I could refinance.”  All these defenses are offered up. 

The thing is, they’re so easy to claim and so hard to prove that they usually fall on ears made deaf by overuse.  The loan originator who’s accused of deceiving you is conveniently gone, and there’s no way to verify your story.  Professionals learn to doubt melodrama: they presume you’re not the martyred saint you’re portraying.

Stories that sound too good and can’t be disproved are suspect.  Worse, 99 times out of 100, the written documentation is against you: “Isn’t that your signature?”

Use this argument only if you can prove it.  Otherwise you’re risking your personal credibility on a story that the lender will already have heard dozens if not hundreds of times.

In other words, any reasonable workout plan with a servicer absolutely, positively, depends on their belief that you want to and will make good if given the chance.  So don’t flush your credibility by telling them a un-provable story – even if it is true, they will assume the worst of you unless you can back-up the claim.   

Again, the whole series is a must read for anyone wanting to understand the issues, challenges and potential solutions to the gathering storm of delinquencies and foreclosures the real estate industry (and our economy) faces.
AHI on Subprime/Lending:
How a Lender Thinks [AHI]
What’s a Delinquent Borrower to Do? [AHI]
Subprime: Why Are You in Trouble? [AHI]
Subprime: What’s the Best Way Forward? [AHI]

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