Watching the lenders continue to pimp each other would be pretty amusing if it weren’t the tax payers who end up footing the bill. So we are not amused by the banks endorsing dine and dash transactions like this one:
The owner bought House 1 for $339,000 in 8/2007. They kept their existing house as a rental, and unloaded it in 2009 for a minor gain. They put 20% down, and refinanced 9 months later to get a better rate – no equity pulled out. Both loans were with Wells Fargo.
On 7 December 2012, they closed on House 2 for $240,000 with 103% financing from Guild Mortgage. The house is a definite upgrade, having sold for $425,000 back near the peak. A month later, the owner listed House 1 as a short sale at $189,000.
Tag, you’re it WFB! Did Guild Mortgage lend to the owner on House 2 without understanding the under water value of their current residence, and the probable short sale that would result? Not very likely, but they just didn’t care. When underwriting standards seem to include your ability to unload your current debt as a short sale, something very sucky is going on.
Is this a common practice? It certainly is not rare from the properties I have searched. The lenders will still eat their young for a commission.