Federal Reserve Hears About Predatory Mortgage Practices
(loantech better tell his friends to watch out! philster says there gonna be a lot of arrests at the end of this - I keep wondering who can afford the tax to house all the new prisoners?)
By Mark Golden
Of DOW JONES NEWSWIRES
SAN FRANCISCO (Dow Jones)--The booming popularity of non-traditional loans the past couple of years, especially to borrowers with low credit scores, is beginning to result in delinquencies and defaults, according to a Federal Reserve Board hearing Friday in San Francisco.
New homeowners, often those for whom English is a second language, frequently don't know the basics of what they are agreeing to on closing day, the California Reinvestment Coalition's Kevin Stein said at the hearing led by Federal Reserve Board Governor Mark Olson.
Borrowers' understanding of their interest rates, closing costs, and prepayment penalties differ from what they are getting, said Stein, adding that the misunderstanding is often rooted in what consumers are told by unscrupulous mortgage brokers.
"It can be as big an item as the borrowers thinking they're getting a fixed interest rate when they're getting an adjustable rate. They have no idea that their payments are going to balloon in a couple of years, and they won't be able to possibly afford them," he said.
Often, said Stein, Latino brokers are taking advantage of trust they receive in Latino neighborhoods. Also, lower-income consumers are being misled. (BWAHAHA - so much for LATIN UNITY - the bible did say the love of money is the ROOT of all evil - HAHA)
"We've known there are pockets of predatory lending in certain sub-prime markets, and that's beginning to be reflected now in delinquencies," said Olson.
"There are some bad actors out there. There's no question about that," the Fed governor added.
One broker in attendance estimated that in the Bay Area some 40%-50% of home mortgages currently are being filed with undocumented - or "stated" - incomes, which is usually inflated so that the borrowers qualify for the loan. In addition, he said, brokers and other loan originators will submit false information about assets to get the loan through, often with the encouragement of even large banks. The banks don't check out the undocumented information because they sell the mortgages quickly, he said.
Consumers are also sometimes put into products they shouldn't be, resulting in unnecessarily high costs and increasing risks of default, said Olson.
A strong appetite in the secondary market for nontraditional mortgage products may have led to a relaxation of underwriting standards.
The Fed Board is holding public hearings on lending under the provisions of the Home Ownership and Equity Protection Act of 1994. The last time the Fed Board held hearings on the matter was in 2000.
Friday's hearing was the third of four. The final hearing is scheduled for July 11 in Atlanta.
-By Mark Golden, Dow Jones Newswires; 415-765-6118; Mark.Golden@dowjones.com
(END) Dow Jones Newswires
June 16, 2006 16:23 ET (20:23 GMT) |
