Thursday, May 31, 2007
Yara Zakharia, Esq.
Last week, leaders of trade groups representing mortgage brokers and bankers traded accusations over who is directly responsible for troubles in the housing market.
Chairman of the Mortgage Bankers Association John Robbins argued that brokers capitalized on the home loan euphoria without sufficiently screening out borrowers to assess their repayment abilities.
In light of an increasing number of revelations concerning the financial hardship facing homeowners with subprime credit histories, Robbins blasted the "few unethical actors" who have tarnished the mortgage banking industry's reputation. Asking the question "Who made this mess?” he asserted that, "The short-term folks. People who get a commission when the deal happens. For them, it's the number of loans that counts. Good loan? Bad loan? Who cares? For them it's all about their commission".
President of the National Association of Mortgage Brokers, Harry Dinham then fired off an email in which he stated, "It is truly unfortunate (Robbins) has attempted to shift blame away from Wall Street, federally chartered banks, state-chartered lenders and underwriters for the subprime situation we find ourselves in today." He claimed that, “according to congressional hearings, the majority of home mortgage loans are rapidly sold into the secondary market", adding that "in fact most lenders are really just brokering the transaction but afraid or ashamed to admit it".
Addressing the National Press Club, Robbins demanded that a national mortgage broker accreditation system be created, so as to ensure that "scam artists" are weeded out. He noted that the mortgage industry's turmoil is impacting only a small sector of the market. Approximately 5 percent of residential property owners hold subprime loans with adjustable mortgage rates and have low "teaser" rates which can later increase significantly. Robbins predicted that half of those mortgagors will be in a position to avoid foreclosure or default. This in turn would mean that foreclosures among subprime mortgagors will comprise 0.25% of homeowners in the U.S., explained Robbins. "No seismic financial occurrence is about to overwhelm the U.S. economy," he affirmed.
Earlier this month, a number of senators, including Senator Charles Schumer (D-N.Y.) introduced legislation that would require more stringent federal rules governing mortgage lenders. The bill is still under consideration by the Committee on Banking, Housing and Urban Affairs, and a hearing date has not yet been scheduled. House legislators are discussing the idea of presenting their own reform legislation this summer.
Robbins cautioned against excessive regulation that would create a financial climate in which only consumers with perfect credit could purchase a home. His speech came on the heels of an acceptance by five banking industry trade organizations, including the Mortgage Bankers Association, of mortgage reform guidelines. The trade groups jointly agreed that any new regulations or bill should mandate that creditors only be authorized to extend risky home loans if, at the time the loan is issued, they "reasonably believe" that the borrower is able to repay. Furthermore, they collectively stated that mortgage terms should be clearly spelled-out for the consumer, and that lenders should provide a clearer estimate of monthly payments expected to rapidly increase in the future. All in all, banks have made clear that efforts to reach out to borrowers facing foreclosure or default are already being stepped-up and loan standards tightened.
