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Are Bad Mortgage Loan Lenders or are Bad Credit Consumers to Blame?
It's not the federal government's fault; according to CreditFederal.com, that caused all of the mortgage problems, nor is it entirely the fault of lenders. Consumers are also to blame for not fully reviewing mortgage loan terms and conditions, and/or for not accepting the responsibility of their actions.
It's the opinion of CreditFederal.com that the greatest contributors to the mortgage problems are consumers, not so-called predatory loan lenders.
"A key rule when starting a business, is to discover what consumers want and then offer it to them," stated Theresa Murphy of CreditFederal.com. "And to increase your demographics for greater success probability, make it easy for them to purchase your product or service because you can be sure your competitors will."
What does this mean? This means if you want to have a successful business, the best thing to sell is what people want. And if you want people to buy from you and not from another company, you need to mold your product/service to the individual and offer either more or charge less.
How does this equate to the mortgage problems? It's primarily because bad credit consumers so desperately wanted home loans but didn't qualify for traditional mortgages at favorable interest rates, and instead of first trying to improve credit scores they chose to pay through the nose for any mortgage package. Now come the lenders. Seeing a large, unserved demographic, they mold new mortgage loan programs to meet the demand, a demand set forth by consumers. If they didn't, they knew their competitor mortgage companies would. So the race was on. Mortgage lenders drew up new loans at increased interest rates in efforts to offset the high risks of lending to bad credit consumers. As fast as the packages were developed, bad credit people lined up to accept the high risk loans.
Unfortunately, many of those consumers couldn't continue their monthly mortgage loan payments, some even before their ARM interest rates increased. They lost their homes, while banks lost millions of dollars. And even those that could continue mortgage payments are stuck with homes that cost them much more than the home's value.
Now comes the federal government. And HUD wants mortgage costs to be crystal clear to consumers before they borrow. Mortgage lenders would be required to give better estimates of closing costs and improve disclosure of payments to mortgage brokers under rules proposed by the President Bush and the Department of Housing and Urban Development.
The new rules would require closing costs to be clearly laid out so consumers can shop for the best loan, and put limits on the changes allowed in that estimate. The better disclosures would help consumers save an average $670 in closing costs, according to Kurt Usowski, a head HUD economist.
Plus there are other federal government proposals aimed at turning mortgage problems around.
Treasury Secretary Henry Paulson unveiled the administration's broadest proposals to date for cleaning up mortgage and securities markets, including tough licensing of mortgage brokers.
On Capitol Hill, Democrats unveiled sweeping legislation to aid consumers in danger of losing their homes to foreclosure.
Speaking at the National Press Club, Paulson laid out proposals pulled together by a special presidential panel that was created after the 1987 stock market plunge.
The newly announced plan is designed to prevent a rerun of the current financial crisis, in which lax standards in mortgage lending have sparked widespread problems among borrowers, lenders and investors that dealt in mortgage-backed securities and an array of other complex investment products.
"The objective here is to get the balance right: Regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems," Paulson said.
The proposal calls for state regulators to set strong national standards for mortgage brokers, while federal and state officials work together to toughen oversight.
Mortgage brokers, who now are regulated by a combination of state and federal laws, are involved in a high proportion of real estate transactions.
Mortgage brokers draw on a variety of potential lending sources for home buyers, and some have drawn criticism for putting consumers into loans during the recent housing boom that had slim chances of timely repayment.
Paulson called for more stringent review by agencies that rate the soundness of bonds and other financial products. Credit-rating agencies have been criticized for understating the risks of mortgage-backed securities now going sour at an alarming rate.
Paulson also called for more intensive analysis by investment firms that issue mortgage-backed securities, and enhanced risk management by lenders.
On Capitol Hill, House Financial Services Committee Chairman Barney Frank, D-Mass., and Senate Banking Committee Chair Christopher Dodd, D-Conn., laid out proposals to allow the Federal Housing Administration to insure refinanced mortgages after the loans had been written down by mortgage holders and lenders. Frank said his plan, including $300 billion in loan guarantees, could reach 1 million to 2 million loans.
"No one knows where the bottom is" in this housing and credit crunch, Dodd said. "What we're trying to do here is create a floor."
The proposals come as RealtyTrac, an online market for foreclosure properties, said there were 223,651 foreclosure filings, auction sale notices and bank repossessions in the USA last month. That's down 4% from January, but up nearly 60% from February 2007.
"We have still not reached the peak of foreclosure activity in this cycle," said James Saccacio, RealtyTrac CEO.
Mortgage giant Freddie Mac said the average interest rate on a 30-year fixed-rate mortgage is 6.13% this week, up from 6.03% last week. The average 15-year mortgage is 5.6%, up from 5.47% last week.
Mortgage rates were below 6% earlier this year but have been rising due to bond market turmoil.
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