Okay, tell me if this sounds weird to you.

A Realtor complaining that lenders are being too generous with people and getting people into houses that they shouldn't. Does that make sense to you? Maybe it's just me, then. Because it wasn't too long ago when homes weren't flying off the shelves that I heard complaints that lenders were being too mean with people and keeping them out of homes that they should be in.

I recently read an article quoting a prominent real estate agent expressing his fears that foreclosures were on the rise and that lenders shouldn't be making loans to people who don't deserve them. Specifically, people were taking low down payment, interest only loans to get qualified instead of the more "hard knocks" variety of 20 percent down, 30 year fixed rate fare.

I'm no fan of interest only loans and especially it's first cousin, the Payment Option but the perception that lenders only care about making loans and they don't care if buyers make the payments or not is ludicrous. Lenders do care. Or else they won't be lenders very long.

Or perhaps the agent was speaking more about the loan officers who shove these loans down people's throats and it's not the lenders fault if the borrower selects one of these highly-leveraged loans. That also might make sense at first glance but a little homework shows that, too is nonsense.

Lenders make a loan not to get the goofy origination fee up front. They get the loan to make much more than that. A lot more whether they collect the monthly payments or flat out sell the note. A lender, not the loan officer, will determine whether or not a loan makes sense. It's an underwriter, not a builder's mortgage operation that can say "yes" or "are you kidding me?"

From an originator's standpoint, he or she really doesn't care which loan the borrower takes, the commission is typically the same regardless of the loan selected. A lender doesn't care either as long as the borrower is qualified for the loan. Any lender who takes undue risk just to get a single loan in their pipeline with no regard to the likelihood of foreclosure is an idiot. But there aren't many idiots out there.

Lenders spend a lot of time and money on managing risk. They're in the "risk" business, right? They take the risk and get paid for it each month in the form of mortgage interest. And if there's one thing lenders want to avoid at all costs is a foreclosure. Especially a highly-leveraged one.

When a lender begins the foreclosure process the loan is already more than three months behind. They've at least lost that much right out of the gate. Are there any past due property taxes? The lender has to pay those as well. Don't even mention the lawyers. They get their fair share, too. Nobody wins when this happens.

Let's look at this a bit more closely. On a $300,000 sale, 5 percent down and an interest only rate of 6.00 percent. With a note of $285,000 the monthly payment is $1,425. If a homeowner simply can't pay any longer the lender loses $1,425 each month. By the time the foreclosure process has completed and the lender takes back the house, the lender is already "upside down." Now the lender owns the house and finds a Realtor to sell it for them. Can you say 6 percent commission? If a lender has to foreclose on a highly leveraged home with little or nothing down, someone made a very, very big mistake.

Lenders don't like those kinds of mistakes. They avoid them like the plague. Because they in fact do care if they get paid back. It's their job.

Published: September 30, 2005

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, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.