Foreclosures can be Contained in Future only by Proper Regulations
June 30th, 2009
If regulations are proper, over seeing the accountability of the lender and investor, future foreclosure crises can be contained. The lenders together with the investors must be held responsible for the loans they advance.
Some kind of accountability was seen in securitized lending by making it a condition to purchase back the loans that had been sold if these ran into default at an early stage. The accountability should be for securtizers and investors not just financial but legal also. This can be enforced on the practical field by ‘assignee liability’ provisions incorporated in the regulation. By it those purchasing or investing would be held responsible if any problems arose due to the origination of the loan. Assignee responsibility will bring clarity and transparency to the entire mortgage funding chain.
The goals or policy should concentrate on seeing that the loan can be sustained and that it is beneficial to all – the lender, borrower and the community. Basically sub-prime lending got political support because of the argument that any sort of house ownership is good ownership. Even before 2007 and 2008 there were high rate of defaults in the sub-prime category of loans. Thus the writing was already there on the wall giving out warning signals. Even without defaults, the high costs of sub-prime loans meant the current value of buying versus renting would be reduced. People would think renting to be a better option than owning. With income not increasing at the same pace as loan costs the negative returns from house ownership would be the obvious result.
If regulation is fragmented then lenders would look around for the friendliest regulator. This goes against the promotion of a sustainable mortgage market or a market that is fair. The present system allows for inner struggles for fiefdoms between regulators.
If federal rules appear too lax and indulgent there is a strong case for permitting state regulations to step in. There is less reason to allow lenders to choose from a menu form which they can select the rules and supervisors to their own convenient liking. All the lenders, irrespective of what type they belong to, should be subjected to uniform federal supervision and rules. Previously the lender who was the riskiest was subjected to the minimum scrutiny. The federal government should not interfere if the state wants to enact laws for the benefit of its residents and community.
- Fewer Foreclosures Among Low-cost Brooklyn Homes
- Bank of America is a Lagging Behind in Loan Modifications to Prevent Foreclosures
- The Aftermath of the Housing Boom is Followed by Foreclosure Doom in Homestead
- Lenders Being Legally Challenged for Activating Predatory Lending
- Foreclosures Have Made Life for CEO’s Expensive and Fraught With Fear
- With Foreclosures and Unemployment Continuing it is Doubtful if Recession is Over
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July 13th, 2009 at 6:00 pm
[...] Foreclosed loans are raising questions about morality. Generally people feel it is not right to escape from loans unless one is deep underwater. By underwater loans are meant those loans whose amounts are more than the worth of the properties mortgaged. If the house value has fallen to abysmal depths is it right for the borrower to just walk away from the house and the loan? Many think it is not moral to do so. But there are many others who will justify their stand considering the extraneous circumstances. For others it is not a matter of justification – they will walk away whether right or wrong. [...]