Monday, October 01, 2007

Subprime Mortgages and the Bankruptcy Protection Act

There was an interesting post at Utah Amicus. The title of the post, "Did Orrin Hatch cause the Sub prime Mortgage Meltdown,"made me wonder what kind of BS Steve Olsen was peddling. But the post brought up a solid point that the Bankruptcy Protection Act may have helped fuel the conditions that have caused the mortgage failures of the past year.

The only thing I would add is that mortgage brokers need to be brought under the auspices of Federal regulation. For example, securities dealers and brokers are heavily regulated they need to provide a thorough analysis of a customers financial situation to determine whether their situation is feasible for investing. Until a year or so there was absolutely no licensing requirement for mortgage originators, and despite the licensing requirement that was introduced I have seldom (to never) seen mortgage originators conduct any real solid analysis of a lendee's financial situation to determine how much loan a borrower could afford. Many times I was approached by loan originators to write "CPA letters" for some of my tax clients that were slightly outside the realm of honesty. That type of behavior in other financial services industries would lead to expulsion from practice, unfortunately during the housing boom (bubble) the loan peddlers operated unregulated and unfettered.

During the boom here in Southern Utah, middle class families were being put into 300k sub prime loans left and right with little or no explanation of what would happen in a few years if they didn't refinance the loan or sell the home out of the loan, and absolutely NO effort to determine whether the home buyer could afford a 300k+ home. There are many home buyers who will be left picking up the pieces. We lost one family to foreclosure from our neighborhood this week, and I'm sure many other families in this town and nationwide will suffer the same consequences.


Jeremy said...

I couldn't agree more. As long as these are federally related transactions and the loans are subject to bail out from the government if they go bad our government should do a better job regulating the mortgage industry.

Obviously in a perfect world lenders wouldn't have the luxury of a garanteed bail-out for their bad loans and we wouldn't need either strict regulation or generous bankruptcy protection.

Anonymous said...

That's just the thing... If congress passes a bailout, they're only helping the lenders, right?

I feel bad for the families that are facing foreclosures but in the end do we want to be sending our tax dollars to keep these lenders solvent?