In 2010, the Cashman Law Firm PLLC started representing Texas Foreclosure Defense Clients. Keep reading to learn why we did this.
NOTE: This page is not meant to be a page of its own, but rather, a link from the https://www.cashmanlawfirm.com/texas-foreclosure-defense-attorney/ page.
Why Practice Texas Foreclosure Defense Law?
Allow me to share with you my firsthand experiences with mortgage banks and mortgage lending institutions and their activities in general which led to the Texas foreclosure crisis you may be now experiencing in your own home.
My Pre-Attorney Experiences With Mortgage Banks as a Loan Officer
As a background, I worked as a loan officer (we used to refer to ourselves as “mortgage bankers”) for a mortgage bank that changed names shortly after I began working there. It should have been a red flag for me, but their reasons appeared to be genuine at the time.
Their new name, The Mortgage Bankers Corp., located in Garden City, New York, reflected exactly what they did — they lent money to home buyers, packaged the loans they gave out, and sold them off to government institutions such as Fannie Mae and Freddy Mac, or to other investors.
They did this over and over again, and as long as their loans conformed to the guidelines of their investors, they could do this forever.
My Role as a Mortgage Loan Officer
My role at the bank was to go around from real estate office to real estate office and to pound the pavement, so to speak, to find home buyers who did not have the FICO Credit Scores to be eligible to get a traditional mortgage from a traditional bank.
I developed relationships with the brokers, and often took them out to lunch to explain how I can help even their clients who were non-traditional in their business structures, debts, or credit histories.
Knowledge of Mortgage Lending Programs
I became proficient in the various mortgage lending programs, and I learned which bank was giving the best interest rates for the worst customers.
I memorized these mortgage programs inside out — they included programs where the home buyer would be free from the requirement of proving how much income they made, and thus the “no income” loans allowed them omit their income in the calculation as to whether they would be able to make payments on their mortgage if they were approved.
These loans and those like them obviously came with a catch — they would be forced to pay a higher interest rate on their mortgage, or to pay extra “points” on their mortgage (1 point = 1% of the mortgage) to lower their interest rate (which usually amounted to a quarter of a percent for each point).
“No Income,” “No Asset” Loans in my opinion caused the Texas Foreclosure Crisis
In addition to the “no income” loans, there were also “no asset” loans which allowed the home buyer to omit how much they had in their bank accounts.
This “no income” or “no asset” loan arrangement was beneficial for the non-traditional self-employed individuals who did not have a regular income, or who’s income to supply the down payment came from sources which could not be traced or verified, e.g., a cash deposit [presumably from their mattress or a cash business], or from family members, etc.
In short, the bank would not verify that the home buyer had the necessary cash for the down payment, for the taxes, for the mortgage insurance reserves, etc. It was all “wink-wink,” where the bank would believe the buyer on his word.
Similarly, there were “stated asset” loans which were similar to the “no asset” loans, except that the applicant home buyer would state how much he had in the bank, and the lending institutions would believe him.
Finally, as if this needs to be said, there were also “no income, no asset” loans which allowed the buyer to pay an even higher interest rate in return for the privilege of not disclosing how much he made in monthly income, and by not disclosing how many assets he had available in reserves.
Mortgage Banks were complicit in causing the Texas Foreclosure Crisis
In these programs, the banks would be complacent knowing that the lender had a certain credit score and a certain down payment, but back then, even someone with as low as a 5% down payment and mediocre credit could get one of these loans.
Explanation of an “80 LTV” 80 Loan-to-Value Mortgage
To contrast these programs from those being offered at traditional banks, traditional mortgage loan programs usually carried a loan-to-value (LTV) ratio of 80.
What this means is that out of 100% of the amount of the mortgage loan amount, 80% would be financed by the bank, and 20% would be paid by the home buyer as a down payment.
Explanation of an “90 LTV” 90 Loan-to-Value Mortgage
Similarly, a 90 LTV loan would be financed 90% by the bank, and 10% by the home buyer as a down payment.
The buyer was required to prove to the bank that he was creditworthy, and [at the time] that he had a FICO credit score of at least 650 from two of the three credit reporting agencies.
Debt to Earnings Ratio Explained
Plus, his “debt-to-earnings” ratio (which was a measure of how much monthly debt he carried on his credit report compared to his monthly income, as proved by pay stubs from his employer) needed to be below a certain threshold; the general rule back then was that a home buyer should not need to pay more than 30% of his monthly salary to his mortgage, or else he might default.
[This is why people loved the no-income mortgage loan programs back then when they were being handed out like candy.]
There were two measurements — the 30% rule with regard to just the mortgage versus his income, and a measurement of all his monthly debt — his car loan payments, his monthly student loan payments, his monthly minimum credit card payments, etc. — compared to his income.
If these were below the threshold levels as per the bank guidelines, the home buyer’s home mortgage application was denied.
Where Things Went Wrong: Non-Traditional Mortgage Clients
My clients were the non-traditional clients, usually the ones who came to me after being denied from a number of banks.
I was certainly not the last resort — there were always what were referred to as “C Loan Lenders,” which in my opinion were no different from loan sharks because the rates and fees they charged were unreasonable, e.g., they were charging 13-15% as interest rates on their loan when I was able to get them 7-8% interest rates on the mortgage programs I was selling them [while the industry was offering interest rates averaging 6.5%.]
“No Money Down” Mortgages
They usually came in to my office after hearing one of the “no money down” speakers on television, and they wanted to know how I can get them in a home for no money down.
Clients who had “Cash Businesses”
In addition, my clients often had cash businesses, out-of-control debt including car loans, late payments, and high credit card debt, and they usually had one or more judgments recorded on their credit history. However, I was able to help them find a mortgage program that would suit their needs based on their particular circumstances.
My Favorite Program: The FHA Mortgage
My favorite program [at the time] was provided by the Federal Housing Authority, and was better known as the “FHA” mortgage.
FHA mortgage programs were generally 97 LTV programs which means that a home buyer only needed to come up with 3% of the cost of the home as a down payment.
On top of that, this program was forgiving to homeowners who were cash-poor and who had debt ratios (e.g., monthly debts) which would have earned them a “denied” stamp across a traditional bank’s mortgage loan application.
What I did not realize at the time was that if a client cannot afford more than a 3% down payment, they might get the FHA mortgage, but they probably will be unable to make their first mortgage payment.
“THE MACHINE” (the FHA Loan Eligibility BlackBox)
“THE MACHINE” was used to calculate eligibility for FHA Loans
Within the application process of getting a FHA loan, there was something secret about how they approved or denied loans — they called it “the machine.” This machine was used to approve or deny all FHA applications.
It had no official rules, but from processing an number of applications, we learned that a FHA loan can still be approved even when the buyers did not qualify based on the FHA’s loan guidelines.
We deduced that the machine had a balancing test which measured the income of the home buyer, debt, credit scores, down payment, and other factors.
If one of the requirements for eligibility were not there (for example, a home buyer had a low credit score, or a low income, or a high debt ratio, etc.) the machine would look for compensating factors which could give support for why the home buyer would pay his bills.
If a compensating factor were present, they would be approved.
How mortgage banks “tweaked” the FHA MACHINE Black Box.
What was funny was that the mortgage bank was able to input and tweak multiple scenarios of what the home buyer brought to the table, and they were able to do this over and over, and “the machine” would give an approval or denial based on the data inputted.
Thus, we learned that by having the home buyer increase the down payment, or by having the home buyer call his credit card company to lower his monthly payments, or by instructing the home buyer to pay down certain debts to improve his credit score, we were able to get the home buyers mortgages where the traditional banks could not.
Illegal relationships between mortgage banks and appraisers to fake house values.
It didn’t stop there. A home buyer who had a down payment could get all of his closing costs (generally 6% of the amount of the mortgage at the time) paid by the mortgage itself at closing.
How? The mortgage bank had handshake-agreements with home appraisers who, at the request of the mortgage bank, would appraise the property “for as much as it could be worth” (really meaning they added value to the appraisal where there was none).
The appraiser would raise the appraisal value, and the bank would correspondingly increase the amount of the mortgage so that the closing costs would get “wrapped into the mortgage.”
In turn for this favor, the bank would send more business to the appraiser, and the bank would offer to the home buyers that they could pay the closing costs for their home buyer at closing.
Illegal Kickbacks from Mortgage Banks to Real Estate Brokers
It gets worse. Banks were paying kickbacks to the real estate brokers (who were asking the loan officers to charge the client more money hidden under the guise of being “discount points” and pay them a certain percentage above-and-beyond their commission).
Kickbacks in the form of “Advertising Money” to the Real Estate Broker
If a bank was unwilling to pay the kickback, or if the real estate broker wanted to feign legality, they would instead request equivalent amounts of “advertising money” where the real estate broker would place their usual ad which was paid for by the mortgage bank; the mortgage bank would get a disproportionately small area of the ad space, but they would pay all of the costs for the ad.
Mortgage Banks would Increase the Interest Rate at Closing.
At the closings, mortgage banks would at the last minute purposefully not lock in interest rates, which would coincidentally increase significantly the day before the closing. On top of this, the banks would not lower the interest rates in return for the discount points paid, and thus the home buyer would pay for a product they did not receive.
In Sum, the Mortgage Industry was UNETHICAL.
Bottom line, the mortgage industry was getting more and more unethical, and people were getting cheated every day by these banks. After some time, these practices become commonplace and the industry as a whole became an unethical place to work.
It was my opinion that the mortgage loan officers, our banks, and the real estate brokers had fiduciary duties to their clients to inform them about the risks and rewards of each of their transactions, and it was for the breach of these duties that I left.
2022 UPDATE: HINDSIGHT
I originally wrote this article in 2010 when I first started the Cashman Law Firm, PLLC. I intended to “share my story” to explain why I had a personal interest in Texas Foreclosure Law, and why I believed I would be a good attorney to assist disenchanted homeowners who were facing a Texas Foreclosure.
My experiences as a mortgage loan officer took place between 1999-2001. I was a kid back then, and I was working for a “mortgage bank” as a loan officer.
My job was to “pound the pavement” and help real estate brokers convert their potential clients into homeowners. My skills in mortgage loan programs, and understanding credit histories helped me show a home buyer in a difficult situation how to get approved for a mortgage.
When real estate brokers started asking me to break the law and run credit histories for their homebuyers (without their permission), I refused. Other mortgage loan officers happily did it.
When the real estate brokers started asking for kickbacks, I refused. Other mortgage loan officers happily did it.
In the end, I confronted the owner of our mortgage bank (who I believe is now in prison) over the unethical practices.
- They urged me to go along with the illegal activities, and I wouldn’t.
- They suggested that I surreptitiously increase the “points” that the customer would pay, and then I could pay that to the real estate brokers. That was still a kickback, and again, I refused.
I didn’t see myself as a law abiding citizen, per se, nor did I see myself as a “goody two shoes,” but there was right and wrong. What was happening was not only wrong, it was unethical, and it defrauded everyone involved in the transaction, especially the home buyer.
I was jaded and upset by the mortgage business itself, and so I quit.
I used to say that I went to law school to understand what went wrong when I was a mortgage loan officer. When I graduated law school in 2006 and started my law practice, I started practicing Texas Foreclosure Law.
While Texas Foreclosure Law was different from the mortgage loan industry, I felt that both those who fell victim to the mortgage loan industry scams were likely the same homeowners who later fell victim to unethical bank foreclosure practices, so I felt a kinship with those who suffered twice — first by the mortgage banks and brokers, then by the mortgage banks themselves.
Now you understand why I practiced in this area of law.