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Category – Mortgage Crisis

Administration Proposes Mortgage Rules Changes

March 13, 2008 – The administration today announced rules changes in the mortgage industry to prevent a recurrence of the current mortgage credit crisis.

Specific provisions that Treasury Secretary Henry Paulson proposed were to have stronger state and federal regulation over mortgage brokers and lenders. The proposal included a strong national licensing program for mortgage brokers. Many critics contend that borrowers were placed in mortgage rates and loans that they could not afford by mortgage brokers acting unethically or fraudulently which lead to the housing contraction.

Secretary Paulson also recommended that issuers of mortgage backed securities provide more clarity and disclosures on the loans that they package and resell. Because of the complexity of the structured products many bond investors did not fully appreciate the risk level of the assets.

Paulson indicated that he did not want to new measures to create a burden but instead act to prevent future credit disruptions.

The current credit crisis continued in full force as the latest February 2008 data indicated foreclosure filings increased 60% over a year ago. Over 220,000 homes across the nation received at least one foreclosure notice from lenders due to late mortgage payments compared to 139,000 a year ago. Nevada, California and Florida showed the highest foreclosure rates.

Other measures being proposed include one by Senator John Cornyn to help families facing foreclosure. The proposal includes $10 billion dollars to refinance distressed subprime mortgages, a $15,000 tax credit for the purchase of an unoccupied or foreclosed home, and $180 million in loan counseling to help families avoid foreclosure. The proposal also includes an update to the Truth in Lending Act concerning adjustable mortgages to ensures borrowers understand their loans.

Despite all the government measures the current crisis shows no signs of abating. Freddie Mac chief executive officer Richard Syron recently stated that “home price drops are only one third done” and that “the US is in the worst housing market in a century.”