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skyminor
94 Posts |
 Posted - 07/16/2008 : 1:00:34 PM
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What the Fed isn't fixing
States must plug the major loopholes of the Federal Reserve's new mortgage regulations.
By Ted W. Lieu
July 16, 2008
Two years after the mortgage meltdown started, the Federal Reserve finally released updates to its mortgage regulations on Monday, replacing rules that were so lax and ineffective that the Fed bears significant responsibility for the mortgage debacle and the larger financial fallout. Unfortunately, the Fed still hasn't gotten at many of the root causes of the problem. In the face of the collapse of IndyMac -- the second-largest thrift failure in U.S. history -- and the foundering of Fannie Mae and Freddie Mac, one expected more.
The new rules are heavy on regulating mortgage advertising and require income-verification for subprime borrowers. The rules also place some restrictions on when lenders can charge prepayment penalties and require escrow accounts for property taxes and homeowners insurance on some loans.
But the Fed failed to tackle one of the most important players in the subprime market: mortgage brokers.
The Fed's own report states that 60% of loans were originated through mortgage brokers in the last several years. The report candidly acknowledges that consumers "often are unaware, however, that a broker's interests may diverge from, and conflict with, their own interests." And yet the Fed left the brokers alone.
Particularly problematic has been the abuse of yield spread premiums, which gave brokers higher compensation for placing a consumer in a higher-interest, riskier loan. Instead of stamping out this perverse abuse, the Fed withdrew its proposal for even a modest rule requiring brokers to disclose whether they were getting a premium.
The regulations also fail to establish a fiduciary-duty standard for mortgage brokers, with common-sense requirements such as making reasonable efforts to secure a loan advantageous to the borrower considering all the circumstances; safeguarding and accounting for money handled by the borrower; acting with reasonable skill, care and diligence; and following all reasonable and lawful instructions from the borrower.
Study after study showed that from 55% to 61% of borrowers had a high enough credit score to qualify for traditional, fixed-rate home loans but were steered into riskier subprime loans. Why? In part because mortgage brokers were able to line their own pockets that way. Without adequate new regulations and broker duties, unscrupulous brokers will continue to get away with ripping off consumers.
Other predatory practices stayed out of the Fed's sights too. It didn't ban negative-amortization loans, which allow the consumer to pay back less than even the interest on the loan each month. The difference keeps being added to the principal, instead, leading toward a balloon payment that few homeowners can afford. The Fed also failed to regulate loan flipping, in which a lender or broker refinances a borrower into a new loan in a short period with little to no advantage to the borrower.
At the height of the mortgage frenzy, the Fed bought the mortgage industry's arguments that it should be left alone. Former Fed Chairman Alan Greenspan even argued in a now-infamous speech on Feb. 23, 2004, that nontraditional loans offer better value to the homeowner. The massive market failure of the last two years has revealed just how wrong Greenspan, the Fed and the home-loan industry were. But even now, as the Fed tries to make amends, it is falling far short of what is needed.
It's up to the states now to fill in the gap and close the loopholes. Legislatures in New York and North Carolina, for example, have gone far above and beyond the Fed's proposals to rein in out-of-control lending practices. California and other states should do the same.
Ted W. Lieu represents California's 53rd Assembly District and chairs the Assembly Rules Committee. He formerly was chair of the Assembly Banking and Finance Committee.
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steela
186 Posts |
Posted - 07/16/2008 : 1:03:26 PM
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| what an a s s clown |
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ritabradley01
2218 Posts |
Posted - 07/16/2008 : 1:11:00 PM
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| Interesting. I wish I had a crystal ball to see into the future for MBs. |
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mganovsky
1686 Posts |
Posted - 07/16/2008 : 1:35:10 PM
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Study after study showed that from 55% to 61% of borrowers had a high enough credit score to qualify for traditional, fixed-rate home loans but were steered into riskier subprime loans. Why? In part because mortgage brokers were able to line their own pockets that way. Without adequate new regulations and broker duties, unscrupulous brokers will continue to get away with ripping off consumers
This guy is a real moron, Fico score is only one of the many factors you use to determine whether or not you can go Fannie, Freddie, FHA or Sub-prime. If the DU findings say proof of past 12 months rental history is required and the client paid cash to a private landlord it does not matter if they have an 800 score. Fannie, Freddie or FHA will not do the loan. Unless of course you lie and say that they have lived with thier parents while saving money up for a house to buy. But wait a minute is not that Fraud!!!
I do not know of one LO or MB that would place a loan in the sub prime market that could have otherwize gone Prime. Now sub prime verses FHA is another matter but that was not the LO's fault if his Broker was not FHA approved.
Particularly problematic has been the abuse of yield spread premiums, which gave brokers higher compensation for placing a consumer in a higher-interest, riskier loan. Instead of stamping out this perverse abuse, the Fed withdrew its proposal for even a modest rule requiring brokers to disclose whether they were getting a premium.
I suppose he never heard of the Good Faith Estimate, there are States such as Florida that requires you to disclose the exact YSP to the consumer once it is known, and it must happen at least 3 days before closing.
I really am getting tired of the political grand standing.
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lemeuss
274 Posts |
Posted - 07/16/2008 : 2:46:40 PM
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quote:
Originally posted by mganovsky
Study after study showed that from 55% to 61% of borrowers had a high enough credit score to qualify for traditional, fixed-rate home loans but were steered into riskier subprime loans. Why? In part because mortgage brokers were able to line their own pockets that way. Without adequate new regulations and broker duties, unscrupulous brokers will continue to get away with ripping off consumers
This guy is a real moron, Fico score is only one of the many factors you use to determine whether or not you can go Fannie, Freddie, FHA or Sub-prime. If the DU findings say proof of past 12 months rental history is required and the client paid cash to a private landlord it does not matter if they have an 800 score. Fannie, Freddie or FHA will not do the loan. Unless of course you lie and say that they have lived with thier parents while saving money up for a house to buy. But wait a minute is not that Fraud!!!
I do not know of one LO or MB that would place a loan in the sub prime market that could have otherwize gone Prime. Now sub prime verses FHA is another matter but that was not the LO's fault if his Broker was not FHA approved.
Particularly problematic has been the abuse of yield spread premiums, which gave brokers higher compensation for placing a consumer in a higher-interest, riskier loan. Instead of stamping out this perverse abuse, the Fed withdrew its proposal for even a modest rule requiring brokers to disclose whether they were getting a premium.
I suppose he never heard of the Good Faith Estimate, there are States such as Florida that requires you to disclose the exact YSP to the consumer once it is known, and it must happen at least 3 days before closing.
I really am getting tired of the political grand standing.
Right on! I was thinking the same thing about going sub-prime instead of conventional....brokers typically could make a TON more going conventional on YSP w/the same rate a subprime co. could offer....also w/o prepay......**pause as I ponder the wonderful days before GSE risk-based FICO pricing**
All this grandstanding is what happens when people without a clue open their mouths. |
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scramsey
497 Posts |
Posted - 07/16/2008 : 3:04:43 PM
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| It's an article posted in the L.A. Times. What more would you expect from a paper known for uninformed and slanted "journalism"? |
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