From the Wall Street Journal:
New Laws Needed to Curb Unscrupulous Brokers
August 9, 2007; Page A11
…
Charles E. Schumer
U.S. Senator (D., N.Y.)
Washington
As I have learned over the course of conducting several hearings on the subprime industry, the lack of any oversight or accountability for mortgage brokers has led to an unprecedented amount of fraud and unfair dealing. Unscrupulous brokers have inflated appraisals, misrepresented the cost of loans and induced borrowers to take out loans they cannot repay. And under the current regulatory system, these practices will not be stopped.
New laws, such as those that I am fighting for in the subprime lending industry, aren’t needed for the thousands of responsible, ethical lenders operating in the subprime industry today. Nor are they needed for the secondary markets, which will self-correct. New laws are needed for the irresponsible, unethical mortgage brokers who have taken advantage of lax oversight to rip off borrowers in such gigantic volumes that we are now staring down the barrel of the largest home foreclosure crisis in history.
And these borrowers are not the young men and women looking to buy their first home, as Mr. Lindsey portrays. Rather, they are often elderly and financially vulnerable existing homeowners who were convinced to refinance their mortgages with reckless adjustable rate loans. According to the Center for Responsible Lending, only 9% of subprime loans went to first-time buyers in the nine years through 2006.
Market liquidity is rapidly eroding because investor confidence in subprime products has hit rock bottom and the way to restore that confidence is to put tough measures in place to hinder fraud and enhance the integrity of subprime mortgage products. If mortgage brokers were held responsible for the consequences of their bad advice, we would not be facing the credit crunch Mr. Lindsey and I both bemoan today.
“If mortgage brokers were held responsible for the consequences of their bad advice, we would not be facing the credit crunch Mr. Lindsey and I both bemoan today…”
Oh, let’s pick one player and dump on them.
That’s like saying, “If no money had been found in a certain congressman’s freezer, Americans would still have high faith in the integrity of elected representatives.”
If you happen to see a mushroom cloud in Calabassas, CA tomorrow it may Countrywide Financial going up in a cloud of smoke
It should be noted that there is a differentiated value for subprime or stated income loans in the commercial lending market. This loan type is not entirely bad despite the abuse of some in the residential lending arena. Oftentimes, individuals that want to start or acquire a small business, purchase a gas station, acquire a motel, open an auto repair shop or any of a myriad of sole proprietor establishements, and do not have the portfolio that would make them attractive to the big box leaders. Lending companies like Ocean Capital in Rhode Island offer subprime and stated income loans by using up close and personal evaluations of the borrower and the opportunity. We need companies like this to support new business opportunities.