The OCC guidance is under review and open to comments until March 29, 2006. I wonder if the lenders have to follow that, since they are just recommendations, and no penalty is given if those are violated. As long as investors buy the loans, what can the Feds do to stop it?
The OCC document (12/19/05) is rather inert, and does not specify specific risk targets or specific penalties.
The day after the OCC guidance was issued, a mortgage loan officer (housingbubblecasualty.com) wrote on his blog that his company removed BK seasoning! That means that 1 day out of bankruptcy they will give you 100% financing. They didn’t sound too scared by the OCC.
Check out his website, where in January he writes that lenders’ standards keep getting lower (BK, no tradelines), but the investors are more carefully scrutinizing the stated income applications. They are not as easily believing the stated income of the borrowers, and along with the rising interest rates, fewer borrowers are qualifying. One account rep was reprimanded by his manager for not being aggressive enough in the grey areas.
So although I wish the Fed’s guidelines would cause lenders to tighten standards, the evidence for that has yet to come in.
If the Fed had any power at all, you’d think they would have reined in Fannie Mae. What company could admit they have an $11billion accounting problem, are violating GAAP, and not submit financial statements for 2 years?? Senator Rudman formed a Committee to investigate and found nothing further wrong. Although his report is less than a month old, today Fannie Mae admitted that they have many more problems.
Although Fannie Mae operates under a government charter, the Feds have been powerless to rein them in. How much power do they then have over other mortgage companies? Perhaps the power is there, but it boggles the mind that they are choosing to not use it.
By the way, today another person I know showed up on the foreclosure list I track. The fallout from this loose lending is going to happen. The standards, even if they are implemented, are 4 years too late. If the Feds had enforced these standards in 2001, this housing bubble would have been avoided, and we wouldn’t have to witness 10% of our friends going into foreclosure over the next 6 years.
