Mortgages & Lending Reform

by Peter G. Miller
November 1st, 2007

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Prof. Samuel D. Bornstein has again been kind enough to post on our site, and says in part that “I fully agree with your argument that certain lenders have taken undue advantage of trusting unsuspecting borrowers.”

Actually, that is not my view at all. Either I have been unclear or my point has been missed.

I do not believe “that certain lenders have taken undue advantage of trusting unsuspecting borrowers.” I believe something vastly different. Rather than blame “certain lenders” — no doubt evil beings who shame the entire lender community — the problem is systemic, one that infects virtually every aspect of the loan process.

It’s easy to say that “certain lenders” have done terrible things — but if that’s the case, where are the indictments? Where are the rebates to consumers? Where are the fines? They don’t exist because overcharging borrowers is not a crime, providing the wrong loan is not a crime, adding garbage fees is not a crime, having an employed borrower use a stated-income loan application that produces an additional fee is not a crime, etc.

As to the matter of more financial literacy, yes, that’s wonderful. But beefed up financial literacy is not the solution to industry reform because borrowers will never be equals with lenders in the marketplace. In the worse case, arguing for more financial literacy may seem to suggest that borrowers in general are to blame for the current mortgage crisis, as if lenders did not create toxic loan products or profit from their sale.

Only when lenders have an obligation to get the best possible loans for borrowers will it be possible for borrowers to get a good deal in the marketplace.

In addition to more financial literacy — no doubt a good thing — how is it, Prof. Bornstein, that the system should be changed to assure that borrowers are not screwed? Or do you believe lenders have no systemic responsibility for the current mortgage meltdown and no change is necessary?

For example, do you think raising FHA ARM loan caps from 1/5 to 2/6 as a result of lender pressure has contributed in any way to FHA foreclosure rates? Yes or no. If yes, do you agree that the caps should be returned to prior levels? Yes or no.

Check out these FHA resources for more information

This entry was posted on Thursday, November 1st, 2007 at 1:51 pm and is filed under , . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “Mortgages & Lending Reform”

Prof. Samuel D. Bornstein Says:
November 1st, 2007 at 8:04 pm
It is my hope that any new mortgage legislation will prevent the abuses that occurred in the past. I would immagine that with appropriate penalties in place, the abuses will cease. However, as I stated in previous posts, it is time to offer not only subprime borrowers..but all borrowers, guidance in monitoring their financial health. The tragedies of this crisis may have been lessened if the borrower were made aware of what it took to be able to make the mortgage payments. Everyone will admit, we live in a complex financial environment, surely one cannot argue that we all need to gain an understanding of our spending and credit decisions and how they impact our lives. I must emphasis that if the borrower’s Housing Expense Ratio had been taken, he/she would have realized that the monthly payments(including taxes, insurance, utilities,etc. were higher than the recognized safe range, this boorower would not have taken on the mortgage. It is this knowledge that is critical to avoid failure. I have proposed this idea to the Federal Reserve Board in their request for comments at their HOEPA hearing in June,2007. It may be worthwhile to consider this as a solution to this crisis, especially at this time when millions are at risk.
Peter G. Miller Says:
November 2nd, 2007 at 4:37 am
Let’s try this again:

Do you think raising FHA ARM loan caps from 1/5 to 2/6 as a result of lender pressure has contributed in any way to FHA foreclosure rates? Yes or no. If yes, do you agree that the caps should be returned to prior levels? Yes or no.

Do you believe lenders have no systemic responsibility for the current mortgage meltdown and no change is necessary? Yes or no.