I am amused by the “new” requirements by mortgage lenders to document income and verify assets. It’s hard to say…but maybe these “non-conforming”,” no-doc” “sub-prime” boys and girls shot themselves in the foot?
My friend Rick Klein, the top mortgage lender at Wells Fargo in Park City sent a note to me last Tuesday saying:
“Yesterday I was closing loans and taking applications. The markets are working; interest rates did not increase. “Savings,” “down payment” and “ability to re-pay” are not dirty words…”
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From today’s (July 21) Wall Street Journal; Mark Maremont writes:
Federal officials heap much of the blame for the subprime mortgage mess on lenders, claiming they recklessly made too many high-cost home loans to borrowers who couldn't afford them.
It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court.
The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender based in Hinsdale, Ill. Rather than immediately shuttering or selling Superior, as it normally does with failed banks, the Federal Deposit Insurance Corp. continued to run the bank's subprime-mortgage business for months as it looked for a buyer. With FDIC people supervising day-to-day operations, Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data.
The FDIC then sold a big chunk of the loans to another bank. That loan pool was afflicted by the same problems for which regulators have faulted the industry: lending to unqualified borrowers, inflated appraisals and poor verification of borrowers' incomes, according toa written report from a government-hired expert. The report said that many of the loans never should have been made in the first place.
From a week ago (July 15, 2008) Wall Street Journal’s Meena Thiruvengadam and Maya Jackson-Randall report:
The Federal Reserve Board unanimously approved a rule* aimed at better protecting consumers from deceptive mortgage-lending practices.
The rule is similar to a proposal issued in December but adds protections for people with higher-priced mortgages. Those loans include those in the subprime market but typically exclude prme loans…
The new measures require creditors to verify borrowers' income and assets and to establish escrow accounts for all first-lien mortgages. Lenders will be prohibited from relying solely on a home's value to assess a borrowers' ability to repay loans.
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* In my next blog…I’ll post the highlights of the Final Rule Amending Home Mortgage Provisions of Regulation Z, Board of Governors of the Federal Reserve System, July 14, 2008.
Good lending practices revisited? Mercy.
from The Porch...
Mike B.
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MIKE BALLIF
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