October 30, 2007
Avoiding Another Mortgage Meltdown
Avoiding Another Mortgage Meltdown
It's easy for Democrats to portray America's subprime loan crisis as a massive failure by a Republican led government and now 2 million American families could be about to lose their homes.
Perhaps democrats have a point. Many borrowers were confused and deceived by the tactics used to sell subprime loans. Largely unregulated mortgage brokers falsified borrowers' incomes, reaped steep commissions for steering them into unnecessarily costly loans, and misled them about the true cost of borrowing. Homeowners ignored the risks they were taking; government neglected its duty to warn them. There was a failure of individual responsibility but, much more than that, a failure of minimalist regulation.
Congressman Barney Frank, Democratic chairman of the powerful House financial services committee, recently introduced a bill that could help prevent a repeat performance.
The bill would eliminate some of the perverse incentives that warped the market for such loans. Mortgage originators would have a "duty of care" to make only those loans a borrower has a "reasonable ability" to repay. The bill would ban the bonus fees paid to brokers for putting borrowers in overly expensive loans.
Homeowners would be able to sue over improper loans, but investors who buy securitised mortgages would not be liable. The bill bars costly class actions and excessive damages, and offers a safe harbour from liability for loans that meet certain criteria.
This is a good first step towards responsible regulation. Pretending government has no role in the crisis is simply irresponsible.
What role do you think government should take in preventing another mortgage meltdown and foreclosure crisis in the future? We'd love to hear your opinion. Use the comment link below to tell us what you think. Your email address, although needed to send us your comment, will NOT be posted with your comment. We respect your privacy and do not publish anyone's email address here. We look forward to hearing your comments.
Filed under Mortgage Info, Most Recent Post by Earth Available Realty
Comments on Avoiding Another Mortgage Meltdown »
Tammie @ 3:36 am
No, the government shouldn't do a bail-out. Everytime the government gets involved in peoples personal lives we lose freedom, end up paying more in taxes, and get a worse situation than we had in the beginning. People losing their homes or have lost them cannot recover their credit rating for many years. The plans by the mortgage lenders and banks is NOT assisting many friends I know across the country; not only are they losing their homes, they can't afford to refinance as their credit tanked. The rule should always be to not get fooled or tricked by anyone by buying a larger, more beautiful home than you can afford to make payments, taxes, repairs, maintenance, utilities, homepwners association fees, or unforeseen expenses. It's like buying those toys for your kids for Christmas finding out that certain things were NOT included, needs assembly or someone you pay to assemble it, not all the parts are there, and end up having to pay more to make it work properly. Meantime, your child cannot enjoy it on Christmas Day. Only buy what you can afford AFTER sitting down to figure out ALL the costs. THEN go for THAT house and NOT what you cannot afford to enjoy and keep.
Heather @ 3:46 am
You need to mention us. We borrowed on our homes for small gas cars, vacation, money to pay energy costs, medical bills, job loss time off.They won't help us cause our credit went bad.The government led us into this mess.Keep them out!