Mortgage Rate News

One of the reasons that we have such a severe mortgage market crisis is the high incidence of mortgage fraud. While it is true that some homeowners made very poor decisions (and should have known better), there are also plenty of other homeowners who were hoodwinked and swindled and didn’t have access to reliable and accurate information. It is time for financial literacy to become an important part of education in this country. Too many citizens are overwhelmed by slick presentations and monetary calculations and decisions. Too many people are left at the mercy of those who know how to game the system.

CNN Money reports on some of disturbing mortgage fraud schemes seen over the past few years:

Mortgage schemes come in many flavors, but the most common by far are conducted by industry insiders. Some 80% of all fraud losses involve collaboration or collusion by professionals, which is known as “fraud for profit,” according to the FBI.

Often the schemes involve inflated appraisals, falsified documents and fake buyers. The crooks take as much equity as they can out of a house before they stop making mortgage payments, usually leaving the lender stuck with the property.

In order to bring the perpetrators to justice — and to send warnings to those considering such a path in the future — the FBI’s Mortgage Task Force is working hard on the local, state and federal level to find those who are responsible for defrauding their fellow citizens.

This is encouraging right now, but what happens when things calm down a bit? Will the FBI remain vigilant? Also, are there better regulations in place to prevent such things from happening again? Some of the laws, rules and regulations passed in recent requiring stricter lending standards and greater accountability. The mortgage industry has proved that it can’t police itself; it obviously needs someone else to do the policing.

Tags: mortgage fraud, FBI mortgage fraud, home mortgage loan, mortgage loan blog,
financial literacy, mortgage market crisis

Yesterday, President Bush signed the nearly 700 page housing relief bill into the law. The bill is aimed at slowing the economic crisis and helping to end the housing market crisis. Part of the plan is to increase the ability of Fannie Mae and Freddie Mac, along with the Federal Housing Administration, to take on larger (and riskier loans). vmvz.com reports on the measure to increase the loans the government is responsible for:

The plan also is designed to relieve a broader credit crunch that has taken hold because of rising defaults and falling home values. To free up safer and more affordable mortgage credit, the bill permanently would increase to $625,000 the size of home loans that Fannie Mae and Freddie Mac can buy and the FHA can insure. They also could buy and back mortgages 15 percent higher than the median home price in certain areas.

This seems a little fool-hardy, since such a measure puts taxpayers on the hook for these larger mortgages. Not only is the potential $300 billion for the FHA government guaranteed, but the bailout measures aimed at Fannie Mae and Freddie Mac ensure that the implicit government backing that the companies have enjoyed is now explicit.

What happens when the government has to borrow more money in order to cover these loans?

Happily, the housing relief bill also provides a new, higher cap to the allowable amount of national debt. And there is also a revenue-boosting measure: requiring payment processors to report transactions. Neither of these additions to the bill received much debate. Other provisions of the housing relief bill include:

• Stronger regulation for Fannie and Freddie. (The mortgage industry as a whole could use more regulation.)
• Grants to help state and city governments buy foreclosed homes.
• Money reserved for counseling for struggling homeowners.
• Tax benefits for homeowners.

Tags: housing relief bill, President Bush, home mortgage loan, mortgage loan blog,
FHA, Fannie Mae, Freddie Mac

Over the weekend, in a rare show of industry, the Senate passed a housing relief bill. This bill has been in Congress for weeks, with President Bush regularly threatening a veto. However, Bush has changed his tune, and lately encouraged Congress to pass the housing relief bill. Bush is expected to sign the bill into law fairly soon — possibly even this week.

The change of heart was enacted with the help of adding relief for Fannie Mae and Freddie Mac to the bill. The bill now allows the government to bail out the two mortgage lenders if the need should arise. With everyone acknowledging that the two government sponsored enterprises (GSEs) couldn’t be allowed to fail, adding provisions to the housing relief bill made it a slam dunk.

What else is included in the housing relief bill

There are other items included in the housing relief bill. Some of the highlights include the following:

1. Creation of a regulator for the GSEs. This is a big step, since Fannie and Freddie have been enjoying the fruits of private enterprise, without true government regulation, while enjoying the implicit government guarantee.
2. New tax breaks for homeowners.
3. Loose standards for refinancing mortgages in trouble.
4. Partial profit recovery by FHA from homes it refinances.

Some of these make sense (actually regulating GSEs, for example). However, loosening requirements for mortgage borrowers in trouble may not be the best policy. It merely delays the inevitable and puts taxpayers on the hook to boot.

Additional provisions in the housing relief bill

In addition to items directly related to the mortgage market, the housing relief bill offers two additional provisions that are quite troubling:

1. The national debt ceiling has been raised to $10.6 trillion. This represents an authorization for the government to borrow an additional $800 billion. The whole idea of a ceiling is a farce, since it clearly does nothing to stem the irresponsible borrowing practices of the government.
2. Electronic payment processors and credit card processors are now being required to report transactions to the IRS. This adds another layer of work to any number of enterprises, and can be hard on small businesses and banks alike. Not to mention the new privacy concerns that come with this provision.

What do you think of the housing relief bill?

Tags: housing relief bill, mortgage lenders, home mortgage loan, mortgage loan blog,
housing bill Congress, Fannie Mae, Freddie Mac