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One of Bitner's last clients, which he says was turning point for him, was Johnny Cutter and his wife Patti, from South Carolina. The deal illustrated what had become the fundamental problem with subprime lending: Nobody was bothering to determine whether borrowers could actually afford to make their payments. And so the Cutters, like millions of others, became a foreclosure waiting to happen.
"What really got to me," said Bitner, "is that we [usually] put people in positions to not fail. This loan didn't fit that."
The Cutters wanted a loan to buy a newly built, 1,800 square-foot house, but had been turned down for a mortgage twice because of bad credit. After that, they scrimped for three years and saved enough for a 5% down payment.
But, they still had only $2,200 in combined net monthly income, poor credit and employment histories, almost zero savings and no history of even paying rent. Their mortgage payment, property taxes and insurance came to $1,500, leaving them just $700 a month for all other expenses.
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In another highly regrettable deal, Bitner's company was simply scammed.
A criminal crew found a house, bought it for $140,000, and then resold it to a straw buyer for way more than it was worth - $220,000. To get a mortgage, the buyer used an appraisal for an entirely different, and much more valuable, property.
"The broker, buyer, appraiser, and realtor all conspired to perpetrate this fraud," said Bitner. Indeed, just about all the documentation was falsified.
The group collected the $220,000, and, minus their $140,000 outlay, disappeared with $80,000.
Kellner Mortgage wasn't aware of any problem until the investor that bought the loan set about investigating when it went unpaid. The investor sent Kellner a letter detailing the ruse and demanding that Bitner's firm make good on the loan.
Emphasis added
