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I'm Making a Buck, Forget the Rest of You
Instances of outright mortgage fraud are coming to light. Reports of suspected fraud from federally regulated institutions more than doubled between 2003 and 2006. Federal officials estimate mortgage fraud totaled from $1 billion to $6 billion in 2005 alone.
Experts say many recent borrowers were put into ARMs that are likely to cost far more over the life of the loan than if they'd chosen a fixed-rate option. Often, consumers could have locked in fixed-rate loans at low interest rates, but lenders downplayed the advantages of these loans.
Experts also cite numerous cases where borrowers say they didn't understand the loan structure — and the escalating payments; in many cases, they couldn't really afford them. Jennie Haliburton, a 77-year-old widow in Philadelphia, told NPR she refinanced into a subprime ARM that now costs her $300 more than the $800 she was originally told she'd pay. Her loan resets in May 2008. If the current interest rate holds, the monthly payments will grow to $1,218; depending on rates, they could eventually reach almost $1,700 — 95 percent of her Social Security income.
New loan products allowed more Americans to own their own homes than ever before. But regulators exercised little oversight over the booming mortgage market.
The Federal Reserve and four other federal regulators did not issue guidance for nontraditional mortgages until last year. They recommended that lending institutions consider the borrowers' ability to make payments over the life of the loan before underwriting, and that they improve disclosure to consumers.
Federal Reserve executive Roger T. Cole says it was too little, too late. "Given what we know now, yes, we could have done more, sooner," Cole told Congress in March.
But the loans are already out there; all that's left is to wait for the fallout. According to First American CoreLogic, this year and next, about $260 billion in prime ARMs and $376 billion in subprime ARMs will begin to reset. 7 comments from 4 users
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posted by
TSM
on Aug 17, 2007 at 07:44 AM
No worries, mate. The Federal Reserve will bail out all those evil companies. After spending the last two weeks injecting money into the stock market faster than they could print it, they lowered the discount rate this morning. The homeowners can go to hell, but we can't let the people who got us into this mess go down with the ship.
posted by
adampayne
on Aug 17, 2007 at 08:37 AM
This is why we reward the head of Ameriquest, one of the worst predatory lenders in this decade, with a government ambassador post to the Netherlands. Thank you, Roland Amall and George Bush, for your great service to this country by forging new a wave of homelessness on the country.
posted by
RoyTullis
on Aug 17, 2007 at 09:31 AM
Buyer Beware! People are looking for anything for free, no down payment and were buying houses they could not afford. If you are not savvy enough to understand the small print take someone with you who can. Stupid is as stupid does.
posted by
TSM
on Aug 17, 2007 at 09:45 AM
Apparently, Roy, some lenders were forging information and falsifying information after the buyer's had signed the documents. You can't protect the consumer from unscrupulous and predatory practices no matter how much you want to blame the victim.
posted by
RoyTullis
on Aug 17, 2007 at 09:50 AM
Those who were forging documents were very few. Most of the problems were from people buying houses they could not afford or not reading the contracts and making sure they understood them.
posted by
TSM
on Aug 17, 2007 at 11:24 AM
High pressure sales tactics work. They've worked from the snake oil salesmen of the wild west to the modern day real estate salesmen. But it's always easier to blame the victims.
posted by
randomfactor
on Aug 17, 2007 at 11:26 AM
Roy, I doubt that only a "very few" were forging documents. I think the demand for paper--any paper--was so great that many formerly "honest" houses were manufacturing shoddy product.
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