Fed mulling ban on some mortgage lending

[liver]

anyone think they will really do anything?

Fed mulling ban on some mortgage lending–Kroszner
Wednesday, June 13, 2007 7:21:27 AM (GMT-07:00)
Provided by: Reuters News

WASHINGTON, June 13 (Reuters) – The Federal Reserve Board is weighing whether it should ban some mortgage lending practices that fueled the recent housing market boom, Fed governor Randall Kroszner told a panel of lawmakers Wednesday.

“We will also seriously consider whether there are mortgage lending practices that should be prohibited,” Kroszner said in prepared remarks at a U.S. House of Representatives Financial Services Committee discussion on consumer protection.

Kroszner said the Fed was specifically eyeing ‘stated-income’ loan applications and prepayment penalties, as

well as considering whether lenders should require monthly payments of annual fees like taxes.

On Thursday, Kroszner himself will chair a Fed hearing on its enforcement of the Home Ownership and Equity Protection Act (HOEPA), which gives the central bank broad authority to prohibit unfair lending practices.

Christopher Dodd, the Democratic chairman of the Senate Banking Committee, has chastised the Fed for not doing more to control dangerous loans that were behind a multi-year run up in home prices.

The Fed, Kroszner said, will take care to not hamper safe lending as it crafts its response to failures among subprime loans, which are offered to borrowers with damaged credit.

“We must be careful, however, not to curtail responsible subprime lending or beneficial financing options for consumers,” Kroszner said.

He said the Fed will rely on extensive consumer testing as it considers new rules for mortgage and credit card lending.

[contraman]

Liver,

They will not do this as stated income loans along with increased DTI’s are and have been the holy grail for the run up (speculative) in housing prices over the past few years.

If you keep underwriting DTI ratio’s at 28% (what they used to be) and make people document their income to qualify for a home purchase, not to mention be required to make a down payment, you would see housing drop in SOCAL at least 75%and usher us into a major economic crisis.

Don’t worry this won’t happen as the big banks will be lobbying the hell out of the decision maker’s and padding their pockets to be sure of it….it’s all about the payoffs…

But in the meantime, it makes the FED look like they are doing their job. Always a day late and a dollar short….

Sincerely, Contraman

[contraman]

Liver,

They will not do this as stated income loans along with increased DTI’s are and have been the holy grail for the run up (speculative) in housing prices over the past few years.

If you keep underwriting DTI ratio’s at 28% (what they used to be) and make people document their income to qualify for a home purchase, not to mention be required to make a down payment, you would see housing drop in SOCAL at least 75%and usher us into a major economic crisis.

Don’t worry this won’t happen as the big banks will be lobbying the hell out of the decision maker’s and padding their pockets to be sure of it….it’s all about the payoffs…

But in the meantime, it makes the FED look like they are doing their job. Always a day late and a dollar short….

Sincerely, Contraman

[patientrenter]

I basically agree with contraman’s conclusions. Here are my reasons:

1. There are far more voters who own homes and want house prices to go up than there are voters who want prices to go down

2. There are more voters who want to buy a home but have too little savings and/or income than there are voters who don’t own a home but have the wherewithal to buy.

3. Most of the pain inflicted by losses on bad mortgages is filtered through intermediaries and loses its clear bite before it hits the ultimate investor. My 410k fixed account may return less in the 5 years because of mortgage losses incurred by whichever investment company provided the fixed account, but I won’t even see the cause.

Patient renter in OC

[patientrenter]

I basically agree with contraman’s conclusions. Here are my reasons:

1. There are far more voters who own homes and want house prices to go up than there are voters who want prices to go down

2. There are more voters who want to buy a home but have too little savings and/or income than there are voters who don’t own a home but have the wherewithal to buy.

3. Most of the pain inflicted by losses on bad mortgages is filtered through intermediaries and loses its clear bite before it hits the ultimate investor. My 410k fixed account may return less in the 5 years because of mortgage losses incurred by whichever investment company provided the fixed account, but I won’t even see the cause.

Patient renter in OC

[SD Realtor]

Couldn’t agree more with Contraman.

SD Realtor

[SD Realtor]

Couldn’t agree more with Contraman.

SD Realtor

[temeculaguy]

Contraman is right but they may do more than just talk, they may throw in a token regulation or two that will only affect a small fraction of the market but give the appearance that consumer protection and forclosure protective measures were enacted. Something that will appease certain interest groups like advocates for the poor. My guess is that they will limit prepayment penalties but put the limit at where 95% of subprime loans are already in compliance. Something where the media will be able to find at least one family to interview that would have been protected. Average joe can watch 60 minutes and see that regulations would have saved the smith family and they will give it a cute name like the “predatory lending act.”

In 1999 or 2000 congress passed a law about PMI protection, I was a victim of a PMI dispute at the time and followed the law while it made it’s was through the process. I had bought a house with 10% down and my lender agreed in writing that as soon as my equity exceeded 20% they would drop the PMI but there was a one year minimum of PMI, since I dropped a deposit and secured the price six months before closing and prices were going up rapidly the price had almost gone up 10% by the time I moved in. I paid an appraiser of their choice at my one year anniversary of the loan who determined I had more than 30% equity, but the lender said that they changed the rule to 2 years minimum regardless of equity (of course after I paid the appraiser). The PMI law was passed but it had a clause that only loans originated after the law was enacted were eligible for the new rule. They don’t pass laws that cost financial institutions money and will allow them to price in the new rules.

My guess is that whatever the market mostly eliminates on it’s own, they will conveniently decide that will be what they make a rule about.

[temeculaguy]

Contraman is right but they may do more than just talk, they may throw in a token regulation or two that will only affect a small fraction of the market but give the appearance that consumer protection and forclosure protective measures were enacted. Something that will appease certain interest groups like advocates for the poor. My guess is that they will limit prepayment penalties but put the limit at where 95% of subprime loans are already in compliance. Something where the media will be able to find at least one family to interview that would have been protected. Average joe can watch 60 minutes and see that regulations would have saved the smith family and they will give it a cute name like the “predatory lending act.”

In 1999 or 2000 congress passed a law about PMI protection, I was a victim of a PMI dispute at the time and followed the law while it made it’s was through the process. I had bought a house with 10% down and my lender agreed in writing that as soon as my equity exceeded 20% they would drop the PMI but there was a one year minimum of PMI, since I dropped a deposit and secured the price six months before closing and prices were going up rapidly the price had almost gone up 10% by the time I moved in. I paid an appraiser of their choice at my one year anniversary of the loan who determined I had more than 30% equity, but the lender said that they changed the rule to 2 years minimum regardless of equity (of course after I paid the appraiser). The PMI law was passed but it had a clause that only loans originated after the law was enacted were eligible for the new rule. They don’t pass laws that cost financial institutions money and will allow them to price in the new rules.

My guess is that whatever the market mostly eliminates on it’s own, they will conveniently decide that will be what they make a rule about.

[Author]

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