Posts tagged "mortgages"
California’s Next Mortgage Crisis
With California being particularly hard hit by falling home prices (a 26% drop in February compared to the previous year), Slate suggests the next wave will be prime borrowers simply walking away from mortgages that no longer make financial sense.
Lenders had no reservations about selling borrowers loans with rising payments that would be poisonous in a rising market. Now it seems borrowers have no reservations about leaving those lenders with the risks they begged to take.
You can read the full article here.
Fannie Mae, Freddie Mac: Appraisal Rules About to Get Stricter
Fannie Mae and Freddie Mac, the two largest buyers of mortgages on the secondary market, will be toughening up their home appraisal standards as of January 1, 2009.
What did appraisal standards have to do with the mortgage crisis? Up until now, the relationship between a loan officer or broker and a home appraiser has been pretty snug. In many cases, loan officers would pick individuals who would create inflated appraisal reports, making it easier for a consumer to qualify for a bigger loan.
Under the new rules, employees involved in issuing mortgage loans can no longer be involved in the appraisal process, and an independent organization will be set up to monitor appraisal practices.
New York Attorney General Andrew Cuomo, who had been investigating inflated mortgage appraisals, will now close the file.
The Bush Subprime Bailout: What about the Problems that Got Us into this Mess to Begin With?
The web is abuzz this week with reaction to President Bush’s plan to help homeowners with subprime mortgages who are at risk of foreclosure. Bush announced the plan yesterday, which is aimed at 1.2 million borrowers who are at risk of foreclosure when their “teaser” rate period ends and the rates are readjusted. These borrowers will be able to either refinance their mortgage, have it guaranteed by the Fair Housing Administration, or freeze their teaser rate for a five year period.
MoneyCrashers correctly pointed out that there is enough blame to go around:
My original position stays the same that I believe mortgage brokers, mortgage lenders, and consumers are equally responsible for the collapse in the subprime market. Consumers knew what they were getting into when they signed the dotted line. No one is stupid enough to think that they can buy a $400,000 house with little money down for such a low payment. They had to understand the risk of the rising interest rates in the future. Mortgage lenders knew exactly what they were doing, too. Their philosophy was: just grab all of the business we can during the housing boom and figure out what we did later. I don’t think they were forecasting the amount of foreclosures that we’re seeing and going to see in the future.
SmartHippo has issued a press release stating that while the bailout is good news for consumers who may otherwise lose their homes, the root causes remain unaddressed.
“Let’s face it. Some consumers took on loans they knew they couldn’t afford, but others lacked the knowledge or information to make wise decisions. This was exploited by certain lenders who put short-term financial gain ahead of their customers’ best interests,” said Favvas.
Favvas cited the example of mortgage brokers who steered consumers to subprime loans from lenders paying the brokers higher commissions, even when the consumers could have qualified for lower-interest prime loans.
“The subprime crisis has triggered the beginning of a fundamental transformation which will lead to a more consumer-centric approach to lending based on transparency and accountability,” Favvas said. “The lenders who understand and embrace this transformation are the ones who will succeed in the long run.”
You can read the full press release over at Yahoo! Finance.
Until we empower consumers with the tools to make better financial decisions, and create economic incentives for lenders, we’re just setting ourselves up for a repeat — whether it’s in three, five, seven, 10 or 15 years.
There’s an old adage that says that if you owe the bank $100 and you can’t pay, it’s your problem, but if you owe the bank $100 million and you can’t pay, it’s their problem. You can now add to that if 1.2 million people owe the banks $350 billion and can’t pay, well, then it becomes the government’s problem.
What do you think?