Mortgage Lending and Greed… Just Follow The Money!

Part two -

So what to do from here? The blame can be spread among all the players. The consumer has some fault, but in my opinion, little. They can’t possibly understand all the details and the risks that lie inside the terms of many of these creative programs. It is the responsibility of the mortgage industry and regulators to educate the borrowers. PERIOD. They are to protect and advise the consumer as to what is best for them and with minimal risks based upon their specific needs and financial picture.

The FEDS are to blame for some of the sub-prime lending and the problems we face today in another way as well. The department of HUD and specifically FHA loan guarantee program, as it exists today, has pushed many consumers into the sub prime lending programs when in fact they should have been given an FHA loan backed by the federal government.

FHA guidelines were supposed to help those borrowers with little or no down payment and less-than-stellar credit to get into a home and build a financial foundation that starts with homeownership. The economy wins and the consumer wins. Isn’t that what the government is supposed to do?

Unfortunately, the high costs of audits, requirements and fees to get an FHA approval as a lender pushes nearly all smaller lenders and brokers away from seeking FHA as a program. They, then can’t offer it as a loan even if they knew it was a better alternative and thus they push the sub-prime loans as a product they can sell.

The FEDS should be looking hard at ways to give borrowers access to better FHA loans and ways to free up the process for mortgage brokers and lenders to offer it as an alternative instead of jumping on the political bandwagon of bashing the sub-prime lending that has gone sideways. Let’s offer solutions rather than focusing all our efforts on what has already gone wrong.

The credit bureaus and credit reporting industry is just as much to blame for all of this mess as well. It is almost a monopoly-like business in trying to force change and it is as inaccurate a system as there can possibly be. Reports are inaccurate. Changing them is nearly impossible. The credit scoring model itself is flawed. That scoring model has forced many deserving borrowers into sub-prime programs when they should have qualified for a conventional loan to begin with if all credit reporting had been accurate to start with. It has also created an entirely new industry with its share of crooks, that being the credit repair business.

Sub-prime lending can still work. It may need some restructuring and revised guidelines. Many consumers that got a sub-prime loan had to go that route and will continue to pay on their mortgage. Some should have never been allowed to get into a mortgage at all until they took the time and effort to clean up their credit history in the first place. Tightening of the qualifying will be good for the industry as a whole.

There must be a way created for the borrowers that have these mortgages to refinance into another program that allows them to remain a homeowner and rebuild their finances. FHA could be a way to do that if the FEDS and politicians stepped up in the way they should rather than simply screaming for the sake of being heard.

Did the industry have a few bad-guys. Obviously. Not unlike any industry. Are some of the no-income or no-doc loans bad loans, yes. But they should still exist for the borrowers that need them; just with guidelines that make sense and don’t put borrowers in financial risk that can’t afford to be there in the first place.

Finally, I think we all have to examine the motive behind some of these sub-prime, creative and exotic loan programs. Was it really to make homeownership available to more people… even those with poor credit or difficulty in qualifying by more conventional means?  Or was it the need to do more and more business, make more and more profits and do so by putting consumers at risk financially even when we knew deep down that those certain borrowers should never have been ‘sold’ that loan program in the fist place? Was it also an industry that knew that if they wrote enough of these loans that those same borrowers would have to come back and fix the mess and thus build into their loan portfolio, an entire new boom of refinance business? Hmmmm

Comments

[Ron]

Tell me more. I would like to help any of your readers. R