Feds issue “proposed guidance” regarding the “innovative” 1% mortgages
UPDATE 3-U.S. warns about nontraditional mortgages
Tue Dec 20, 2005 05:40 PM ET
(Adds Gov. Bies comments)
By Mark Felsenthal and Kristin RobertsWASHINGTON, Dec 20 (Reuters) - U.S. bank regulators issued proposed guidance on Tuesday telling mortgage lenders they should take caution with innovative new mortgage products that may strain the finances of borrowers and banks as interest rates rise.
“While innovations in mortgage lending can benefit some consumers, the agencies are concerned that these practices can present unique risks that institutions must appropriately manage,” bank regulators said in a statement accompanying the proposal.
The guidance targets interest-only and payment option adjustable rate mortgages and the practice of pairing exotic loans with second mortgages and allowing reduced documentation for borrowing.
The proposal was issued by the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the National Credit Union Administration.
The proposed guidance follows a five-year rally in the U.S. housing market that has seen home construction and sales notch annual records and sent prices up more than 53 percent on average nationwide.
Price gains in some local markets have been even greater. In California, for example, prices have soared nearly 110 percent over five years, according to government data.
Regulators and some economists have started raising concerns about loose lending practices and the more aggressive use of what Federal Reserve Chairman Alan Greenspan called “exotic” mortgages that carry greater risks than traditional 30-year fixed-rate loans.
Those loans have helped sustain the housing rally by giving homebuyers the ability to afford ever-pricier houses, even though household income has not risen as quickly.
Some economists now worry that as interest rates rise, so will delinquency rates and borrowers may find themselves unable to make payments. Rising delinquency rates also may pressure banks that offered those mortgages and the investors who hold much of the risk due to their purchases of mortgage-backed securities.
“We want to make sure that, at this stage of the housing expansion, lenders are not taking on excessive risk in the housing market,” U.S. Federal Reserve Gov. Susan Bies told Reuters.
“Sometimes, lenders stretch to grow the volume of lending as the market shrinks. As they stretch to grow volume, they take on more risk. We want to make sure they manage the risk appropriately,” she said.
She also noted that a lot of the products regulators are concerned about are being offered by a small portion of banks.
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That is SO Much CRAP! Those are just about the ONLY products advertised. Susan Bies lives on Mars?
Back in August I posted at Housing sales slowing down - house-poor Californians - mortgage fraud rampant about my call to the Bridge Capital branch Mortgage Standard and how Mike Clark lied to me about the rate being 1% for 3 years. It’s really about 6% and is a negative amortization loan.
I’ve since received many new faxes from many other brokers and mortgage bankers, ALL advertising this program and none provided a truthful explanation on the phone. To date, they ALL refused to provide me with the written terms for this program.
THAT is the problem and as usually, the totally corrupt regulators entirely ignore it.
They’re sweating bullets, don’t want to tighten the money supply because they expect the real estate market to collapse. So they put out this “proposed guidance” in a lame attempt to cover their asses.
As usually, the regulators couldn’t care less how many people will lose their homes because they refinance their unsecured credit card debt into their homes with these awful loans, after being lied to about the terms by mortgage brokers and bankers. The regulators don’t mention the entirely illegal advertising of these loans through massive junk fax and SPAM campaigns.
Many home owners will end up in foreclosure a few years later when they owe MUCH more than they borrowed, the payments increase dramatically and they can’t refi again because they have NO equity.
Posted by Christine on 12/21/2005 at 01:35 PM
Credit - Collection - Economic News • Junk faxes and SPAM • (0) Comments • Permalink
