Will the Congress come to the rescue of consumers to initiate reform of home loan mortgage lenders? It may. The Democrat-led Congress may submit legislation to place stringent measures to curb abuses within the mortgage industry.
The mortgage industry includes not only mortgage lenders, mortgage brokers, but also home builders who own mortgage companies, Wall Street, and other mortgage security investors. If stringent measures are implemented by Congress, it will protect future consumers from being exploited. However, it may have an ancillary effect in that it may protect purchasers of mortgage backed securities. The recent past has seen unmitigated mayhem in the market. Countrywide Financial’s second quarter profits dropped, leading to a fall in share prices to a 52 week low on July 24, 2007. Its second-quarter net income dropped to $485.1 million from $722.2 million, a year ago with revenue falling 15% to $2.55 billion.
This week American Home Mortgage, a large national mortgage lender announced that it may not be able to fund current inventory of home loans in excess of $300 million dollars, sending its stock value plummeting by 90 %. But the subprime mortgage disaster is affecting even prime loan lenders and borrowers.
Wall Street is also reeling from the rise in foreclosures, oversupply of homes, subprime mortgages, defaults, and more. Nevertheless, Wall Street is complicit along with home builders and mortgage lenders in creating this problem.
Beazer Homes, one of the many homebuilders that started or increased their mortgage lending business to facilitate the buying of their homes. However, allegations are now surfacing from former homeowners who have defaulted on their mortgages that some builders inflated their income or altered some material facts on the mortgage applications in order to get them approved. In order to get homes sold many financially unqualified people were approved for mortgages and other home loans such as mortgage refinancing.
The housing market boom of the recent five years was due to many diverse factors. Banks, mortgage companies, and homebuilders relaxed their lending standards and flooded the market with mortgage loans, along with loans to people with questionable credit. Unlike before adjustable rate mortgages were doled to increase their bottom line. The folks on Wall Street stimulated this reckless mortgage lending behavior by continuing to buy huge quantities of home loans for repackaging as securities. Many of these mortgage backed securities contained risky subprime mortgages.
Now that the housing bubble has burst, rising foreclosure rates, oversupply of homes, increasing mortgage rates, less home buying demand, and the negative residual effects upon the economy is leading to closer examination by government into the role of mortgage lenders, home builders, and Wall Street.
The Congress wants to reign in the Wild West lending tactics by imposing strict lending guidelines. But that may not be required if the Federal Reserve recommends new consumer protection rules this year. So, the Congress may not have to act if the Fed constraints misleading loan practices among all lenders. Hopefully, national lending standards need to replace the various state rules because the mortgage investment market is a national one.