Mortgage Market in California Spun Out of Control in 2006 Ultimately Leading to Foreclosure Crisis
June 5th, 2009
The mortgage market in California spun out of control in 2006, ultimately leading to foreclosures crisis. Mortgage lenders acted in a careless manner. As a result, a major chunk of the loan given during the period was not honored.
In is report, MDA DataQuick pointed out that there should be greater regulation in the industry so that the sub-prime mortgage crisis is not repeated.
It’s worth remembering that the mortgage crisis started in California from August 2006. The lenders have filed above nine per cent default notices during the period. According to the real estate firm, the default rate of loans in 2005 was much lower at 4.9 per cent. In 2004, the figure was even lower at 1 per cent.
The MDA DataQuick surveyed that a major chunk of the loan given in that time ended in foreclosure. Master Financial (65 percent), ResMAE Mortgage (70 percent), and Ownit Mortgage Solutions (64 percent), were the three companies whose loans ended in default.
The loans that the small lenders took during the period of boom were sold to investors. When the borrowers defaulted, these lenders too could not pay. John Karevoll of Data Quick called 2006 a nasty period when the lending industry went haywire. During this time, lenders were handing out loans without verifying borrowers’ income. This resulted in too much money being handed over to people who could not afford to pay back these loans. It was a vicious cycle and the chain just broke down after a while. There was no good supervisor checking the system.
Since then, Master Financial, that had office in Orange and Ownit, which is based in another part called Agoura Hills, have folded up. The collapse of the economic system was caused by opportunistic buyers, say some. Ginna Green, a spokesperson for the Center for Responsible Lending, says that the borrower cannot be blamed squarely for this. This indicates a failure of the regulatory process.
In fact, the centre has asked for laws to be put in place that will impose licensing regulations on mortgage firms. Borrowers must also understand about the loan repayment system before taking them. The wrong that happened in the sub-prime market cannot be repeated.
Dustin Hobbs of the California Mortgage Bankers Association, said lenders alone should not be blamed. Even borrowers should have acted responsibly – they should not have taken loans that they could not afford.
Throughout the state, the default rose in the first half of 2009.
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June 19th, 2009 at 2:56 pm
[...] is bad but not worse than what had been anticipated. Wells Fargo even recorded a profit and mortgage rates have fallen to record low [...]
June 25th, 2009 at 9:49 am
[...] It was not just foreclosures that Abreus faced – it was a drastic drop in their earnings that mired things up. One of his clients was a doctor who had set up a new clinic. With a fall in his practice he stopped making his payments. Consequently Abreus could not come up with funds to continue with his mortgage. [...]